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The Emperor's New Money

September 12, 1998

Monetary Realists--both of us--are like the little boy in the story of the Emperor's new clothes. Untrained in economics, we do not know what we are supposed to see; and we have escaped the indoctrination, a.k.a. education, which instructs us to see what isn't there, and assert what we do not know as true.

An example: responding to the depression of the '30s, President Roosevelt "revalued gold from $20.67 to $35 per ounce." The quote is from the estimable and learned vronsky, from his article at this site, "A Possible 1999 Scenario." The quote is buttressed by another quote from "contemporary experts: "In an effort to rise out of the economic depression, and generate more employment, FDR on January 31, 1923, devalued the dollar by raising the price paid for gold by the U.S. Treasury." And indeed, there is virtually unanimous agreement among the cognoscenti that Roosevelt did, indeed, "raise the price of gold" by his action of 1931. May a small timid voice ask, "Did he?"

What ever happened to the meaning of words? Let us look at Roosevelt's actions through the eyes of the little boy at the Emperor's parade.

"--raising the price of gold." How does one pay a price? In money. What, specifically, was American money in 1934? Well, for foreigners, it was gold, although American citizens had had their money stolen by FDR in 1933. So our government, specifically the Treasury, was going to pay more money for gold subsequent to Roosevelt's ukase. But gold WAS money; money WAS gold! To pay more money for gold meant paying more gold for less. The dollar was .0483 ounce of gold, when the dollar was standardized at $20.67/oz. With the dollar at $35.00/oz, it was .0286 ounce. So the government announced, in what is generally regarded as a stroke of economic savvy and sophistication, that it would pay gold for gold, and that to buy .0483 of an ounce, it would pay .0286 ounces! Moreover, it announced that this was an "increase" in the price of gold! And people believed it, and still do!

But it probably never happened that way. The idea, after all, was to cheapen the paper currency. You can't cheapen gold! So Mr. Roosevelt and his henchmen would offer foreigners 35 Federal Reserve "notes" for an ounce of gold which had previously been "worth" 20.67. Wow! What a deal. Apparently, many went for it. However, should those foreigners decide to take the $35.00 from the sale of an ounce of gold, and use it to buy gold, they would end up with what they sold in the first place: an ounce of gold. No profit whatsoever. If they used the "dollars" (of what?) to buy $100 worth of gold they would have ended up with $59 worth of gold of the previous value, which they had sold so "profitably." A loss! But if they used the paper currency, not to buy gold, but to buy American products, they could buy more of them, since their prices had not changed. The producers of those products, however, would have to accept "dollars" worth only 59 cents!

What a protection for the American worker! The extent to which he was being robbed, however, was not apparent to him, because the government had, the year before, stripped him of gold ownership, so that he could not take his "dollars" to the bank and test them. And with more Americans working (albeit at a 41% discount!) the appearance of prosperity was undeniable.

What a malign institution is government! Designed to protect the rights of the people, it robs them under the guise of protection! And it does this to solve problems of its own making. Robbing the people it was created to protect, it enriched foreigners at the expense of those very same people.

Interestingly, it found this job easier because a gullible people either did not demand, or did not understand, the meaning of words; especially that most important word "dollar." Today it is a legal fiction for which we are expected to give our lives, at least to the extent of 40 hours weekly. In 1934, it did have a meaning, but no one asked, or no one cared. Neither did anyone question why anyone would use gold (money) to buy gold, or give less gold for more. Indeed, it is rather obvious that the only thing which cannot have a price is money!

Perhaps, bad as it is, our government is what we deserve. Shame on us!

The periodic symbol for gold is AU which come from the Latin for gold aurum.
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