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07/November/2013

The Siren-song of Welfare State

Hugo Salinas Price

Our world is run – and has been run for some time now – by a relatively very small group of individuals who have it in their power to manage, as they think, the economies of nations. Managing the affairs of a nation implies making people behave in ways in which they would not otherwise behave. National management of an economy thus means making millions of individuals do what they wouldn’t do if left to themselves.

There is not one single national economy in the world today whose people are free to do as they wish; it is not so much that people are forbidden to do what they think best, as that their choices are being narrowed, day by day, to being able to do only what is allowed.

One of the very first choices which free individuals made thousands of years ago was the choice of the money they would use in their exchanges of goods and services; after using other substances such as salt, or copper, or sea-shells, they finally chose gold and silver for use as money, because all humanity valued these metals above all other substances, and consequently gold and silver were the most convenient substances to use as money.

The fact that today we are deprived of the possibility of using these metals as money indicates that we are worse off than our ancestors who lived several thousand years ago. We are forced to use fictitious money provided by our managers and masters. One important consequence of using fiat money is that it inevitably leads to making bad investment decisions.

It is clear that if we are not allowed to do what we think best, anything else we do must be second, or third, or fourth best for our interest, and anyone who takes second best for what is in his interest, is incurring a loss. Our economic world has been so weakened and distorted by accumulated losses and false investments that it is now beyond repair.

More than 7.3 billion human beings live in today’s world, and except for those living in the jungles or the deserts, not one of us can act freely to further his interest. We are all of us incurring losses, whether we are conscious of this fact or not.

Add up all these losses and mistaken investments and you have the present world, avoiding bankruptcy and total collapse by skating over thin ice.

The idea that national economies can and should be managed prevails throughout the world. Thus, the world is being “managed” into instability; at some point an accident will happen, and we shall fall through the thin ice into the deathly cold water.

We are witnessing the failure of efforts to restore “growth” to the economies of the West; China’s economy appears to be headed for serious trouble in the near future; the Japanese leadership is resorting to desperate measures to revive the economy of Japan. The US is in the grip of an outlandish policy to monetize $85 billion dollars a month out of nothing, and it is likely that the monetization will soon increase in volume.

In 1956 the Soviet premier Nikita Khrushchev uttered his famous prophecy, “We will bury you!” at a reunion with Western diplomats.

His prophecy is coming true, for there is precious little difference between a world of managed economies, and a Socialist world. All Socialist economies are managed economies, and all managed economies are on the way to becoming full-fledged Socialist economies. The difference is that a “managed economy” sounds acceptable, or even quite normal, to a large number of people, whereas the word “Socialism” is repellent to many people. The words have changed, but not the substance.

In the 1920’s, Antonio Gramsci, an Italian intellectual, wrote about how political institutions are supported by a hegemony made up of people who hold the same views and values. Since “the managed economy” enjoys the support of a hegemony throughout the world today, we must understand that Socialism is not some threat that vanished with the fall of the USSR; we are living in a world that is in the process of becoming Socialist. Khrushchev was right!

Gramsci was a dwarfish hunchback and in my opinion, he attempted to compensate for his deformity by taking up Communism and applying his intellect to destroying the world which regarded him as defective. He spent most of his last days in a jail to which Mussolini consigned him and died an early death in 1937.

Gramsci’s method for introducing Socialism was not by means of violent revolution, but by creating the hegemony which would support Socialism. The hegemony would be created by using the right words to gather popular support for Socialism. This is what we are seeing today: people are satisfied with the concept of “the managed economy” when what it really leads to is Socialism. Thus, the hegemony for Socialism is in fact installed in the whole world.

We know what happened to the Soviet Union: it collapsed in bankruptcy. The USSR, which deluded intellectuals hailed as “the moral light of the world” while they turned blind eyes to its mass starvations, its Gulags and the terror of its secret services, turned out to be unsustainable. The difference between the Soviet Union and the world today is only one of degree, not of essence. Our world awaits the same collapse which overtook the Soviet Union.

It seems likely to me that a new international monetary order will be implemented, either before or after the final inevitable collapse of the present monetary system. It seems probable, as of now, that any new monetary order will have to include gold in some way. Gold will re-acquire importance, which will be reflected in a much higher price for gold, incorporated into a new international monetary system. The extraordinary accumulation of gold by China indicates that it is preparing for this change, and this cannot be taking place without the consent of those who dominate the West: the low price of gold is deliberately facilitating the process of preparation for the coming change.

However, a return to an unadulterated Gold Standard in conjunction with the re-introduction of the system of Real Bills, as advocated by Antal E. Fekete, seems highly unlikely to me. Such a change seems impossible, given that there is no hegemony, to use Gramsci’s term, to support such a political move: it would be politically impossible to institute such a system, because it would require discarding, at enormous human cost, all the uneconomic structures which have been imposed upon the world, as well as the elimination of the powerful group that now governs the world through those structures. Those who rule the world are certainly not going to reform themselves out of power; it would be a mistake to think otherwise.

The official Chinese news agency, Xinhua, has called for the “de-americanization” of the world. What that implies is clear: the Chinese intend to have a say in how the world is ruled.

As I interpret reports, it seems to me that those who run China are quite unaware of the problem of misallocation of resources which arises from three causes: a) a fractional-reserve system of banking which expands fiat money credit beyond real savings; b) a fiat-issuing central bank which “fixes” interest rates and c) banking which indulges in mismatching maturities, by granting long-term credits matched against supposedly sight liabilities to depositors. China applies these conventional modern banking practices on a massive scale, proportionate to the enormous population of China.

If China manages its economy according to the same fallacious principles that prevail in the rest of the world, what different, healthy measures could we expect from China, as a leading power addressing the profound damage suffered by the world’s economic structure during the past century?

The inclusion of gold into a new international monetary order can only mean a re-distribution of the power enjoyed by those who rule. This implies that gold will not return as money used by individuals. The world will be told that the new monetary system is “backed” by gold; individuals may buy and sell gold, but they will not have gold in their hands as money. We shall have a new monetary system which will instill renewed confidence, but which will remain fundamentally flawed.

The use of gold in the new international monetary system will be reflected in increased power over the management of individual national economies.

The long-term outcome – World Socialism - will remain the same, as long as the hegemony responds favorably to the familiar strains of the siren-song: “Do not worry, do not strive; do not think for yourself; do not attempt to provide for yourself and your dear ones; do as you are told and we – the State – will take care of you.”

It may be some time before humanity ceases to listen to that song.

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Hugo Salinas Price, World Riba Conference, Kuala Lumpur, Malaysia, Nov. 26, 2012.
Hugo Salinas Price, World Riba Conference, Kuala Lumpur, Malaysia, Nov. 26, 2012.
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