first majestic silver

Pen vs. Sword

July 28, 1998

I suppose that the person who coined the aphorism "The pen is mightier than the sword" did so from behind the safety of a desk. The men in the front lines of battle would prefer machine-guns to ball-points.

Time changes all things, however, and the truth of the old saw is becoming more apparent daily. The next war will be fought--probably IS being fought, without bombs or bullets, but with bucks.

The Russian army was embarrassed recently by a report in the business daily Kommersant which revealed that some Russian soldiers are being fed canned dog food in lieu of their regular rations. Furthermore, the army has been purchasing perishable foods which are past their expiration date.

The Cosmonauts aboard Mir are getting testy. Their replacements are going to be delayed, and the supply ship which regularly re-provisions the spacemen is going to be late. Rather nasty, when your very existence depends on that ship's arrival. The whole Mir craft is going to be de-orbited, or abandoned, in about a year.

What's going on in Russia? Not enough money! Do you believe that?

I assume that Russians are happy to work for the chits printed up by the Russian government, or an organization authorized by it. Why, then, must at least some Russian soldiers eat dog food? Why must Russian astronauts linger precariously in space because the State cannot afford to replace them on schedule? There can be only two reasons: either foreign goods must be purchased, and the foreign sellers don't want the Russian scrip; or Russian sources are able and willing to spurn the stuff, at least in the quantities offered, without fear of reprisal.

In the latter situation, the solution is reasonably obvious: simply print more of the scrip until the purveyors of food, for example, are satisfied. This is "inflationary," of course, and the Russians seem unskilled at managing fiat in a quasi "free" market. Our own economic experts went to Russia some years ago to advise on the subject, and gave ludicrous advice: tie the ruble to gold. Russia has lots of gold, after all, and the ruble would gain strength if linked to the precious metal. The Russians rejected this advice, quite understandably. If foreigners could claim gold for rubles, the vaunted Russian gold reserves would disappear tomorrow. Not a good deal. An alternative is to collect more taxes, and Mr. Yeltsin recently appointed his former finance minister to the post of tax collector--a logical segue. It hasn't helped much.

Foreigners don't want to sell much needed materials to Russia for rubles. What can you get for rubles? If the Russians produced a great deal of desirable goods, they wouldn't be begging for financial assistance, and the ruble would be strong and in demand. To bring Russia into the 20th century (as it wanes) requires Western technology which isn't for sale for rubles. This is where the warfare comes in; and the printing press proves stronger than the A-bomb.

Once the Russians have borrowed "dollars," they are, in a real sense, beaten. Borrowed dollars, (and they all are) cannot be repaid, because the principal is borrowed; principal plus interest must be repaid. Russians can no more produce dollars than Americans; they can only borrow them, and thereby incur a debt greater than the amount of existing dollars can repay. The country whose currency is most in demand wins! The ruble isn't even in the running.

Naturally, the Russians could repay dollar debts by selling goods in this country for dollars. They'd need our government's permission to do so; they would also be liable for various licenses, taxes, etc. Moreover, the goods would need to be cheap enough to compete in our markets, and the quality would need to be high. To achieve this, and maintain it, would probably require ongoing American expertise, in design, manufacturing, and marketing---all at a cost---in dollars. The Russkies can't win.

For years, the strong yen made Japan the foremost financial power in Asia; now the yen is tumbling. China is an enormous market, just awakening. Will foreigners want yuan? The British have a strong presence in Hong Kong--every other corner seems to boast a Barclay's Bank. Perhaps the English pound will be the international currency in Asia--borrowed, of course, from English banks. The President of the Philippines, Joseph Estrada, recently suggested a single currency for East Asia. Its issuer will be the conqueror of the East.

In Europe, the presence of the Euro may be resented, and this country or that may resist, but sooner or later, national sovereignty will disappear under the aegis of this common currency. Its issuers will have conquered Europe without losing a man, or shedding a drop of blood, and with Europe's assets intact. No messy bombing, or tedious rebuilding.

Modern money is like Social Security, a Ponzi scheme given "legitimacy" by the State. The users of fiat are irrevocably indebted to its issuers, who use the interest paid on the debt, or "money supply," to obtain, at no ultimate cost to themselves, the goods and services of the conquered people. The only flaw in the ointment, assuming that runaway inflation can be avoided--and our bankers have shown extraordinary skill at avoiding it--is that the borrowers may eventually stop borrowing. Sooner or later, the accumulated debt will require--or already does--so much productivity merely to pay interest, that further expansion is pointless. Additional borrowers must be sought, and the war in which we are presently engaged is to determine whose script will be borrowed. It looks like the Fed is among the winners.

In contrast, warfare, whether with clubs or cheques, is unlikely with gold. In recent history, no warring nation has failed to resort to the printing press to "pay" for the cost of the conflict. The ultimate winners of wars are the bankers who finance it. Even economic warfare could hardly be sustained if gold was money. With its plentiful supplies of gold, Russia would not be a beggar nation if gold were traded for goods and services. Sure, it could sell its gold for dollars today, but is it likely that the gold would remain in circulation as an international medium of exchange? Could Russians exchange newly-acquired dollars to re-buy the gold, later? If not, they would merely have delayed the inevitable.

Freedom and fiat are incompatible;
slavery and scrip are bedfellows.

24 karat gold is pure elemental gold.
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