TAINTED RESEARCH
Lysenkoism - American Style
Antal E. Fekete
Professor Emeritus
Memorial University of Newfoundland
Religion, the drug of exploited masses?
All power-structures in human society face the problem of keeping
the majority of population both in relative poverty and in dutiful
submissiveness, so that the power-elite could enjoy relative affluence
undisturbed by popular unrest. Karl Marx suggested that capitalist
society has solved this problem by calling upon religion to promise
people rich rewards in the transcendental world as compensation for
deprivations in this valley of wailing, provided only that they are
borne with peaceful resignation. As there is no way to assess
scientifically the validity of its teachings, the claims of religion
can never be proved or disproved. Concerning the genuineness of its
promises, to the faithful no proof is necessary and, to the
non-believer, no proof is sufficient.
Be that as it may, Marxist anti-religious propaganda had one
undesirable side effect for the power-elite. From now on it has to
call upon science, rather than religion, to deliver the promise to
the masses that would keep them satisfied with their lot. Clearly,
in this case, there are scientific methods available to test the
validity of claims with which a restless population can be kept at
bay. While reward for meekness may not be postponed to the
after-life, it may still be removed sufficiently in time so that the
ultimate validity of the promise cannot be tested, at least not in
one’s lifetime.
The enfant terrible of Soviet
biology
An outstanding example of this was the demand of the Soviet
government under Stalin upon biology to disown classical genetics,
and to deliver pseudo-scientific principles to the effect that it is
possible to transmit acquired traits biologically, along with
inherited ones, perhaps not to the next, but certainly to some other
future generation. The Soviet regime needed to propagate this fable
in order to keep a nearly starving population in check with promises
of fabulous increases in agricultural productivity and abundance of
food production at some unspecified future date. Soviet
propagandists found a willing collaborator in the person of Trofim
Denisovich Lysenko (born in Karlovka, Ukraine, in 1898), the
enfant terrible of Soviet genetics. On the basis of a
borrowed discovery that the phases of plant growth can be
accelerated by small doses of low temperature, Lysenko built up a
quasi-scientific creed, combining Darwinism with the Michurinian
thesis that heredity can be changed by good husbandry. However, this
effort was more in line with Marxism than with genuine scientific
theorizing. Failing to obtain scientific recognition and
pre-eminence in the usual manner Lysenko, with the approval of the
Communist Party, declared that the accepted Mendelian theory of
genetics was in error. Outstanding Soviet scientists who resisted
Lysenko’s methods and theories were banished or, worse still, sent
to the Gulag never to be heard from again. In 1949 Lysenko was
awarded the Order of Lenin as well as the Stalin Prize for his book
Agrobiology published a year earlier. With the rise of
Khruschev and his agricultural policies Lysenko faded from the
limelight, but was reinstated in 1958. Finally he resigned from the
presidency of the Academy of Agricultural Sciences, of which he was
in charge between 1938 and 1956, then again between 1958 and 1962,
on grounds of ill health. In 1965, after Khrushchev’s downfall,
Lysenko was also relieved of his post as head of the Institute of
Genetics.
Our term "lysenkoism" will refer to the servile, not
to say obsequious attitude of scientists ready to cave in to the
demands of the powers-that-be, even at the price of betraying the
integrity of their own discipline. Under lysenkoism scientists are
intimidated and forced to profess and propagate tenets that they
would reject on purely scientific grounds. It is generally assumed
that lysenkoism is possible only under a regime of brutal
dictatorship. Scientists, at least when it comes to their
confirmed scientific beliefs, have the probity of obeying
incorruptible standards. They will not adopt a hidden agenda, nor
will they knowingly abet misinformation or expound false theories
in the hope of official approbation and personal glory. They are
supposed to abhor pusillanimous or sycophantic behavior.
"Why, that’s plain stealing, isn’t
it, Mr. President?"
It was thought that the freedom of expression for the individual
guaranteed by the American Constitution would prevent lysenkoism
from spreading to the United States. Sadly, this hasn’t been the
case. As the American government repudiated its domestic gold
obligations in 1933 and, again, its foreign gold obligations in
1971, new generations of economists were all too eager to comply
with the request to justify the breach of faith or, to put the
matter somewhat less charitably, to find excuses for the government
to have declared bankruptcy fraudulently. I use the adjective
"fraudulent" advisedly. In both 1933 and 1971 the
American government had ample gold resources to meet its
obligations, as later auctions of U.S. Treasury gold would
convincingly demonstrate. When asked by Franklin D. Roosevelt of
his opinion regarding the matter, the great blind senator from
Oklahoma, Thomas P. Gore, replied: "Why, that’s just plain
stealing, isn’t it, Mr. President?" (See: Economics and the
Public Welfare by Benjamin M. Anderson, second edition, 1979,
Indianapolis: Liberty Press, p 317.) Roosevelt, using the excuse of
the banking emergency, and appealing to the patriotic feelings of
the citizenry, recalled the gold coins in circulation against
payment in Federal Reserve notes. He stressed that the measure was
to be "temporary", and the gold should be returned to the
rightful owners once the emergency has passed. But after the
citizenry complied, Roosevelt cried down the value of Federal
Reserve notes (that is, he wrote up the value of gold in terms of
paper) and nothing further was ever said about returning the gold
to its rightful owners. This, and the later episode of dishonoring
gold obligations under President Nixon in 1971 (also described as
"temporary"), were instances of deliberate sabotage of
the gold standard with the aim of "making America safe for
socialism."
Turning stone into bread and water into
wine
The American government was in obvious need of economic and
social theories to justify the chicanery on grounds of
"higher moral imperative". It was necessary to show that
the gold standard was not sabotaged and then forcibly overthrown
but it had become obsolete and collapsed under the weight of its
own inner contradictions. Many economists were anxious to come to
the rescue of government in this face-saving exercise. They
concocted theories to the effect that the gold standard was
unworkable anyway. First and foremost among these apologists was
Lord Keynes of Britain. Later he was followed by Nobel Laureate
Milton Friedman of the United States, to name only the two most
prominent.
Keynes built his theory on the notion that the difference
between a liability and an asset becomes academic when related to
the balance sheet of the government. As a consequence, provided
that care is taken not to increase liabilities too greedily, items
can be shifted adroitly from the liability to the asset column,
while remaining confident that people won’t notice the
prestidigitation. Thus the debt of the government can in principle
be increased beyond any limit. Moreover, government debt is no
longer a curse. It is a benefit to society, the more the better,
as it is the very asset upon which purchasing media can be built.
Keynes was fond of bragging that his theories can make it possible
to turn stone into bread and water into wine, while the gold
standard only gives you bankruptcy, unemployment, and misery.
It is easy to see through this sophistry. In reality, government
debt is balanced by the power to tax. But as the birth of the
American republic so brilliantly demonstrates, the taxing power of
the government is far from being unlimited. At one point taxpayers
will rise and overthrow the government in protest against
unreasonable and unfair taxes. No less, a durable and stable
monetary and payments system cannot be based on irredeemable
currency. Such a currency depreciates year in and year out.
Government doublespeak calls this process "inflation"
suggesting inevitability as if it was caused by continental drift.
But after a time people will refuse to take the depreciating
currency in payment for real goods and services, causing paper
money to lose the remainder of its value abruptly.
The deliberate confusion between assets and liabilities was
followed by other serious obfuscation: the confusion between wealth
and debt, as well as capital and credit. This had a most profound
effect on speculation. The creation of assets, wealth, and capital
is subject to certain limitations by nature, whereas liabilities,
debt, and credit can be churned out at will. Thus the stage is set
to the grandiose act of "abolishing scarcity", and the
removal of the limits on speculation imposed by nature. Today
speculation is no longer under the control of the real economy.
Through trading derivatives and other make-believe assets bond
speculators are permitted to rake in gains many times greater than
those that the real economy is able to produce. Speculation
addressing risks created by man, as opposed to risks created by
nature, has the tendency to snowball: speculators pyramid (that is,
use their profits to increase their commitments on the same side of
the market). Thereby the economy is turned into a Ponzi-scheme that
is bound to topple. This is the weak point in the Keynesian edifice
causing all the cracks in its foundation.
The thief trying to get away by crying
"thief!"
Friedman argued that it is a fatal shortcoming of the gold
standard that it makes the currency out of an expensive commodity
that could be replaced by credits created virtually at no cost. No
sooner is the gold standard established than the movement to dilute
it with paper credits is afoot. To Friedman’s mind this is as
plausible as the human impulse to make labor-saving devices. When
this movement reaches maturity and the payments system becomes
saturated with credit substitutes, the gold standard must of
necessity collapse. Friedman’s sophistry is no less disingenuous
than that of Keynes. In reality, the creation of credit is subject
to real and strict limitations, in particular, redemption in specie
upon maturity which, in the case of sight liabilities, is redemption
on demand. But if the banks are allowed to obstruct the free flow of
gold, and if the government is protecting the banks with privileges
and exemptions from the effects of contract law, then trouble lies
ahead. If double standards in contract law whereby banks failing to
deliver on their promises to pay gold are routinely let off the hook
with impunity through "bank holidays", "standstill
agreements", and similar devices while all other firms stand to
be liquidated by their creditors when they fail to deliver on their
contractual obligations, then collapse of the gold standard in due
course is indeed to be expected. However, this is not a fault of the
gold standard, but that of the banks and the government. Here we have
the textbook example of the thief trying to get away by crying
"thief!"
Buying shares at infinite P/E ratio
Recently the phrase "tainted research" has gained
currency. It was introduced by journalists referring to the practice
of a bank falsifying the results of in-house research in order to
promote a stock which the bank is about to dump. The glowing reports
of analysts should help the bank get rid of assets turned sour
without losses. Another instance is related to IPO’s. Banks are
supposed to nurse along baby companies before their shares can be
traded publicly in the stock exchanges. This involves investing the
banks’ own funds in the shares (called underwriting) and then
offering them to the public (IPO = initial public offering). In a
bull market people expect IPO shares to increase greatly in price,
and they are eager to buy the banks’ offering. They would buy them
even if the company has never turned a profit and has zero earnings
(thus infinite P/E ratio), because people have confidence in the
integrity of the banks, in their in-house research and underwriting
experience. When the new dot-com shares were listed on the NASDAQ,
the banks made huge amounts of money, while investors ended up
holding the bag. Logically, they should have bought shares in the
expectation of increasing P/E ratio, but tainted research led them
to buy shares at infinite P/E ratio, only to see them to collapse
to zero.
Whoever pays the piper will call the
tunes
The phrase "tainted research" is new, but the practice
is as old as governments. We have seen that the United States used
tainted research to justify the overthrow the Constitutional
monetary order in 1933. Economic theories concocted by Keynes and
Friedman were promoted, and earlier theories of money and credit
were unceremoniously discarded. The Federal Reserve System has been
hiring economists not so much to gather and sort statistical data,
but to develop new economic theories justifying irredeemable
currency, synthetic credit, and central bank intervention in the
markets. All this research is tainted. The Constitution still
prohibits the use of irredeemable currency and synthetic credit.
Apparently, Federal Reserve officials are not too confident that
their theories could stand up in the light and heat of debate on
changing the Constitution in order to justify the monopoly and
unlimited power given to the banking cartel.
Equally tainted is research financed through government grants.
Here the adage applies that whoever pays the piper will call the
tunes. The tunes of the government are seductive, like the songs of
the sirens, promising eternal bliss in exchange for freedom. There
is a great conflict of interest here. The government is sponsoring
research in order to justify the removal of limitations restricting
its own power.
Prostitution of the universities
It is to the eternal shame of this age that our great
universities have prostituted themselves to the government and the
banks in pursuit of research funds. The universities gave up their
most precious asset, independence, in exchange for money. They will
probably never again be able to act as a free agent. Lysenko-types
have taken over at the helm. They decide priorities, hiring and
admission policy, set the agenda, to please the Leviathan. They
even politicize course offering, sanctioning the introduction of
gay and lesbian studies, for example. They are in favor of
unionizing faculty, thus reducing professors from the status of a
trustee to that of a hired hand. The larger issue motivating these
changes seems to be the desire to let the government and its
agencies wrest the direction of higher education away from the
community of scholars. The net result is a great deterioration of
standards. Students are kept in ignorance as the study of the
classical languages and literature, undiluted mathematics, true
economics, and un-doctored history is moved to the back burner.
The separation of the government and academia is scarcely less
important than that of the state and church. They both act to
prevent the concentration and abuse of power.
Propping up wealth-destroying schemes
The most pernicious instance of tainted research is that
offered in support of the preposterous thesis, by now firmly
planted at the foundation of monetary policy, that deliberate
currency debasement can make the export industry prosper and the
trade deficit shrink. If this theory were true, then countries
should reduce the value of their currencies to zero and give away
their products to foreigners free of charge. But let us dig a
little deeper and expose the sophistry involved. Suppose that the
country is on the gold standard and has tried everything to
improve its export business, but the best it could manage to
bring in is $9 in revenue for every $10 in expenditure. In other
words, the export industry is not a business but a
wealth-destroying scheme. It needs to be dismantled, and its
capital ought to be deployed elsewhere. But wait, Keynesian
sophists come to the rescue. Scrap the gold standard, and debase
the currency sufficiently to make the export industry profitable.
As you are now paying labor in debased dollars, your expenditures
will go down and, lo and behold, the money-losing export industry
is turned into profitable business.
As can be seen, this is just a trick based on the manipulation
of the accounting unit. Nothing in the real economy has been
changed to make the enterprise profitable. Incidentally, this also
reveals why gold must go. As an accounting unit, gold is
incorruptible, the only one as such. Gold tells as it is. Honest
book-keeping standards and gold are inseparable. The trouble is
that politicians of the new deal, and of the new world order,
could not live with an incorruptible book-keeping standard.
In the wake of the recent accounting scandals the search is on
to find the small-time crooks in the accounting departments
responsible for the embezzlements. The search is in vain. When the
accounting unit is open to manipulation at the highest level, then
a breeding ground for crooks at the lowest is most prolific, and
balance sheets are hardly worth the paper on which they are
printed.
"Yes, we at the FED can, strangely
enough, create deflation, even with fiat currencies"
Mr. Alan Greenspan understands gold. (Neither Keynes, nor
Friedman really understood it.) Many decades ago he wrote papers
describing how the gold standard had been sabotaged and then
discarded because it was an obstacle in the way of
disenfranchising the saving and producing public. Recently he
confirmed that he stood by every word he has ever written on the
conflict between gold and fiat money. On May 21, 2003, Mr.
Greenspan in a testimony before the banking committee of the U.S.
House of Representatives had this to say in answering the question
of Rep. Paul Ryan on deflation:
"With the elimination of the gold standard in the 1930's
and the development essentially of world-wide fiat currencies,
almost no economist believed that you could create deflation with
fiat currencies because the supply of those currencies, by
definition, comes from government fiat. We went through most of
the post World War II period with the expectation that fiat
currencies were essentially inflation-ridden and that the major
focus of central banks was to suppress inflation. The notion that
deflation could emerge just never entered our minds until the
Japanese demonstrated to us otherwise."
"As a consequence of that, not having had any experience
in the modern world with dealing with deflation under fiat
currencies, our knowledge-base was virtually non-existent, in the
sense that we know how to deal with inflation."
"Inflation, obviously, is something that for half a
century we have been struggling with. We know how to suppress it.
We know the consequences of suppressing it. We know the impact of
various monetary policy decisions on the levels of output growth
and of unemployment. So we are familiar with the mechanism. It’s
not that we can very easily and automatically just suppress
inflation; it has been a struggle of very great dimensions for
most central banks in the world. What’s happened now is that
since I guess the middle of the 1990's we’re beginning to see that
it is possible for deflation to coexist with a fiat currency and,
in a way, it is, I suspect, credit to central banks, which
essentially have restrained the expansion of credit enough that
many aspects of the gold standard, which induced deflationary
patterns in past periods, had been replicated in our monetary
system and that, frankly, is quite good. We at the Federal Reserve
recognize that deflation is a possibility. Indeed, we now have
been putting very significant resources in trying to understand,
without actually seeing it happen, what this phenomenon is all
about. We cannot say that in the market place there is a severe
increasing concern of deflation. Indeed, the various expectations
of price by both business and consumers has been relatively flat
for recent years... so this is not something which the markets are
beginning to sense that it is about to erupt and something which
we must address."
"Nonetheless, even though we perceive the risks as minor,
the potential consequences are very substantial and could be quite
negative. So we have created fairly significant resources to try
to address this problem, increasing our knowledge of what actually
happens, what’s the process and what tools are necessary to fend
it off. I think we have made very substantial progress in that
intellectual endeavor. We do, obviously, have the problem that we
never dealt with it before. We know as a consequence that when we
don’t deal with something, we have a large element of uncertainty
which strangely we do not have with the implementation of policies
against inflation because we’ve dealt with it over so many decades.
We believe that because in the current environment the cost of
taking out insurance against deflation is so low that we can
aggressively attack some of the underlying forces, which are
essentially weak demand. And, indeed, we’ve done that since we
started a very aggressive easing in monetary policy in early 2001...
So long as the costs of engaging disinflation are so low, we have
moved fairly considerably, and... we recognized this not as an
imminent, dangerous threat to the United States but a threat that,
even though minor, is sufficiently large that it does require very
close scrutiny and maybe, maybe, action on the part of the central
bank."
Traitor to science
In spite of Mr. Greenspan patting himself on the back for his
success in replicating many aspects of the gold standard, the
record of the fiat money experiment in the United States could
hardly be more miserable, and it threatens to become abysmal.
Rather than admitting that research at the FED has been tainted,
Mr. Greenspan is promising more of the same. He would not delegate
the research on deflation to independent scholars. He would
reserve the right to himself to act as the defense attorney, the
prosecutor, and the trial judge, all in one person, at the court
case where charges against the FED are heard. The charge is that
the FED is directly responsible for the chill-fever economy and
the inflation-deflation cycle caused by the mishandling of the
issuance of money.
Mr. Greenspan stoops so low as to repeat the claims of Keynes
that the gold standard is "deflation-prone" and
"contractionist". He would not recommend that the U.S.
House of Representatives, in whose sole competence the matter
falls, return the country to a Constitutional metallic monetary
standard in view of the fact that it was scrapped as a result of
a terrible mistake.
Mr. Greenspan could have been the savior of the nation from the
slavery of fiat money. Instead, he leads the world up the garden
path into economic disaster. Now he wants to go on wielding
unlimited power, to print unlimited amounts of money and to spring
it on the economy, allegedly to protect us against deflation which
his own policies have brought about.
Mr. Greenspan richly deserves the third place in the Hall of
Fame of Lysenkoism, right after Keynes and Friedman. In the
fullness of time the three of them will go down in ignominy, as
has Lysenko before them for being one of the most contemptible
figures of the twentieth century: traitor to science.
May 31, 2003.
Note. I would like to call the reader’s attention to
my earlier writings in which I warn that it is not the gold
standard but, rather, the sabotaging of it, that is responsible
for the inflation-deflation cycle by inducing huge oscillating
money-flows back and forth between the commodity and the bond
markets. The result is deflation or inflation according as these
flows, amplified by speculation, spill over in the bond market or
in the commodity market. Central bank intervention is
counter-productive and makes matters worse. In particular, in a
deflation, as new money is being injected into the system to
bolster "weak demand", it will refuse to flow uphill to
the commodity market as intended. Instead, it will flow downhill
to the bond market where the fun is as bond speculators run riot.
The central bank can create as much fiat money as it wants, but
will have no control over it once it has entered circulation. It
is up to the speculators. Misguided Keynesian monetary policy
could land the country in a depression by providing funds for bond
speculators who will then use them to drive interest rates down to
zero; alternatively, it could trigger runaway inflation by
frightening speculators out of their long positions in bonds. It
is not possible to predict scientifically which way the cat will
jump. The most amazing thing about tainted research is that it
dare not touch the subject of bond speculation upon which our
economic destiny turns. The archive of my earlier writings can be
found on the website: www.goldisfreedom.com. In particular, see:
The Economic Consequences of Mr. Greenspan (July 19, 2001)
Japan’s Finest Hour (January 16, 2002)
Revisionist View of the Great Depression, Part I-II (March, 2002)
The
Wrecker’s Ball of Swinging Interest Rates (August 26, 2002)
The Central Banker as the Quartermaster-General of Deflation (January
1, 2003)
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