first majestic silver

King Midas

November 5, 2008

Of all the stories woven around the subject of gold, possibly the story of King Midas is the best known, whilst also being the least understood. Circa 700 BC, Midas was the King of Pessinus, the capital of Phrygia. Phrygia was a small but wealthy country within the eastern part of what is now known as Turkey.

The mythology starts with Silenus, the drunken satyr, falling asleep in the prized rose garden of King Midas. He was hauled before the court of Midas who, instead of punishing him, listened enthralled as Silenus regaled the court with amazing stories. As a half man/half goat drunkard, intent upon a life of pleasure seeking, he probably had some rather interesting tales to tell.

Silenus was the surrogate Father of Dionysus, god of the life force. When Dionysus found out what had transpired he was well pleased and offered to grant Midas one wish in return for his kindness. Midas asked that whatever he might touch would be turned to gold. Dionysus warned him of the dangers of such a wish, but Midas was blinded by his enthusiasm. Dionysus granted the wish.

From then on everything that Midas touched turned to gold including his beloved roses, and even the food and drink that he wished to consume. It was only when he inadvertently touched his daughter and killed her by turning her into gold that he finally repented his foolishness.

Full of remorse Midas approached Dionysus and asked that the wish be cancelled. Dionysus told him to bath in the water of the Pactolus River. This Midas did and the ‘gift’ was washed away. Incidental to this story is that the gold ‘from Midas’ was washed down-river to Lydia (in western Turkey), which around 660 BC was the site of the earliest gold coinage.

Modern renditions of the story of King Midas erroneously place all the story’s emphasis on the folly of man’s obsession with gold. That was most certainly not the intent of the fable. That sensible people valued gold highly was taken for granted. The intent of the fable was a theme common to Greek mythology… the inability of many people to think beyond the immediate and obvious.

The wonderful writer and economist Henry Hazlitt* follows the same theme when he points out that the problem with Keynesian economics is that it consistently fails to successfully predict, or even foresee, secondary consequences. Much like the child who insists upon eating large amounts of sugar lollies because they taste nice, and who fails to appreciate, until too late, that they have the secondary consequence of causing a very upset tummy.

Which point brings us up to the current economic situation. Our governing elites have utterly failed to manage the economy in a wise manner. The not only predictable, but blindingly obvious consequences of their own actions have left them open-mouthed and bewildered. It goes without saying that the moment that the economy is ‘managed’ then distortions and mal-investments will occur. But it is possible to manage an economy with a competence borne of an understanding of economics that at least minimises that damage. This has not been the case.

The economic mistakes that have destroyed America were borne of a pig-headed, Congressional arrogance that they, the wise and wonderful politicians, were right and that the classical economists and Founding Fathers were wrong. Gold and silver, the only real money, were replaced by pieces of printed paper backed by nothing other than the full faith and credit of politicians. How much more worthless can something get?

Once these pieces of paper were forced to be accepted in lieu of real money, then the process of inflating away the value of the new ‘money’ began. Three generations of Americans have had their wealth confiscated and reallocated to a governing elite via this process. These people worked their whole lives for a modern mythology known as the American Dream. What little they still have to show for a lifetime of toil is about to be lost. The ideas of Keynes are the anti-Midas in that whatever they touch turn to shit.

Differences of opinion are not unusual in this world, nor is that necessarily bad… sane people let results be the judge. For over 70 years the results of going off the gold standard, coupled with the fallacious doctrine of Keynesian economics, have caused massive destruction of capital and great hardships to the non-elites… not to mention the innumerable wars with hundreds of millions of deaths that blighted the 20th Century. Read Ferdinand Lips if that strains your credulity.

Keynesian economics was an unsophisticated dogma that failed to pay heed to the real world. It’s adherents were not interested in whether or not it worked over the long term, they were only interested in whether it suited their own perceived short term interests. Its only virtue was in the immediate, and that was always enough for Congress. As long as the immediate would take them through to the next election, then all was fine. As long as it felt good and sounded good then the flimflam of Keynesian populism would suffice; never mind that nonsense about responsible economic management and heeding a dusty old document called the Constitution.

Our modern satyrs, Bernanke and Paulson have defended their actions by regaling Americans with wild stories about how it was all the fault of the free market. Under the auspices of a compliant Congress they have rammed through the sort of giddy ‘solutions’ that one would expect from those whose genes are half goat. Alan Greenspan, whatever his motives, succeeded in destroying the Federal Reserve in its current form. As there could be no more destructive form the man deserves credit for that.

I came across a quote by Benjamin Franklin recently: "Only a virtuous people are capable of freedom. As nations become corrupt and vicious, they have more need of masters."

I would strongly suggest that, to the contrary, people are generally virtuous until governed by ignorant ‘masters’. Bad government will firstly degrade the currency and the laws and then (secondary consequences!), moral standards. It is not that people lack virtue and thus need masters, though it is convenient for the elite that people believe this to be so. It is masters who destroy virtue by idiotic edict that encourages and rewards criminal behaviour at all points of the legislative process. The morals of society succumb to rule by the idiocracy.

As our half men/half goat drunken elite perform their media rituals, the question needs to be asked whether “we the people” deserve any better. An observable rule is that in all aspects of their lives people do not get what they ‘deserve’, they get precisely what it is that they are prepared to put up with. That is a truth that applies down at the level of personal relationships right the way up to the type of government that we allow. Government is the problem, not the solution. Until we can see and understand that one simple truth, and make the decision that we will no longer put up with that situation, then humanity will continue to suffer the cyclical existence that ranges from impoverished serfdom to intermittent prosperity and back to poverty again.

The real theme of the old Greek fable about King Midas from 2700 years ago is still most applicable to not only our governing elite, but to the American people. Yes, the immediate bailout legislation, forced down the throat of Americans, will hopefully lead to a continuation of the current comfortable lives that we have become accustomed to for a few months longer, but what are the secondary effects? The answer to that is as obvious and as unattractive as a drunken half man/half goat sleeping in a crushed rose garden. Will anyone haul these modern satyrs before a court?

Are modern Americans so complacent, or so intimidated that, unlike their forebears, they are prepared to put up with this? If the anger reaches the level of the street, will the military and police choose to support a Congress and presidency corrupted beyond anything that Jefferson could have imagined in his worst nightmare, or will they choose to support the Constitution? Will Americans believe the desperate, verging on pathetic excuse that it was somehow the non-existent free market itself that was to blame… that the crime was committed by laissez-faire capitalism? How gullible are Americans?

The answer to those questions will determine whether America goes the way of Phrygia and Lydia, where writers of the future will have to explain where it used to be on the map.

“Serf City, here we come…” (apologies to Brian Wilson and Jan Berry)

Sam Mathid
6th November, 2008
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I look forward to seeing some of you in Canberra, Australia next week at Professor Antal Fekete’s fifth and last session of Gold Standard University Live.
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* Henry Hazlitt’s ‘Economics in One Lesson’ is a wonderful and easy to read primer for anyone wishing to understand why it is that government attempts to help the economy inevitably have such disastrous consequences.

78 percent of the yearly gold supply is made into jewelry.
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