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After the Welfare State, what?
Wednesday, 20 January 2010
Hugo Salinas Price

In the 40’s and 50’s of the last century, about 70% of reserves of central banks were in the form of gold at $35 US dollars an ounce.

At the present time, reserves of central banks, excluding gold, are about $8 Trillion dollars (not all of which, however, are dollars).

If these imaginary digital reserves (for such they are) were to once again amount to not more than 30% of total central bank reserves, the price of gold would have to increase substantially.

We can calculate the approximate price of gold that would be necessary in order to have the gold component of reserves resume the proportion it at one time took up of total central bank reserves, 70%.

$8 x 10 12 = .3 R, where R is the total of bank reserves including gold.

$8 x 10 12 = R  

$26.7 x 10 12 = R  

That is to say, the total of central bank reserves, including gold, would have to amount to $26.7 Trillion dollars.

Subtracting the present total of central bank reserves, excluding gold, will give us the total value of gold in central bank reserves which would equal 70% of the total, reinstating the situation which prevailed in the middle of the last century:

$18.7 x 10 12 = component of revalued gold reserves.

Assuming, for the sake of calculation, that central bank reserves amount to 30,000 tonnes of gold:

$18.7 x 10 12   = $623,333,300 value of one tonne of gold.

$623,333,300 = $ 19,479 value of one Troy ounce of gold.
      32, 151

Somewhere near $20 thousand dollars per ounce, therefore, would be the price of gold required to reestablish the proportion of gold in central bank reserves that prevailed in the middle of the last century.


Raising the price of gold in this manner might allow the adoption of other measures necessary to achieve the health of the world’s economy. However, there would be no point in raising the price of gold so high, if the following and other measures were not adopted simultaneously or shortly thereafter:

1. Adoption of gold as the world’s currency; all other currencies to be simply expressions of each currency’s gold content, in which each currency could be freely redeemed.

2. As a consequence of gold being instituted as the world’s currency, all international payments would have to be effected in gold. The bond component of world reserves, with bonds now having become payable in gold, would tend to vanish or fall substantially. Sovereign bonds have exploded in volume, swelling reserves to outlandish heights, because international payments have been made in irredeemable currencies since 1971. Those bonds which would not be payable in gold, because the issuing countries did not in fact have the necessary gold, even at $20,000 dollars an ounce, would have to be cancelled through default.

3. The Real Bills market would have to be reactivated around the world, to support world trade. (See Prof. Antal E. Fekete’s work at   

4. An end to credit expansion not based on real savings. Otherwise, the inflationary expansion of credit would require further increases in the price of gold. Or alternatively, it would require the devaluation (decrease in gold content) of currencies subject to such credit expansion. In either case this would amount to partial default. An end to the possibility of credit expansion not based on savings would imply an end to the world’s system of central banks, because central banks were invented to enable the inveterate lust of bankers to expand credit not based on real savings. If such expansion were outlawed, central banks would have no reason for existence.

Raising the price of gold to $20,000 dollars an ounce would imply a corresponding devaluation in the value of all paper money. An endless number of articles have been published by well-known analysts that call for an absolutely indispensable reduction in the debt load oppressing the world. By devaluing debt through an increase in the price of gold and cancelling non-payable debt, this objective would be attained.

Would the measure be inflationary? It seems to me that although a new world price level might be the consequence, inflation as a dynamic phenomenon might be precluded by outlawing credit expansion based on the new, increased price of gold.

The new, much higher price of gold would naturally benefit those countries holding larger reserves of gold, as well as private holders of gold. It would also affect gold producing countries, in the sense that instead of having to produce marketable goods for international trade, these countries would be able, to a certain extent, to import goods manufactured elsewhere in exchange for exported gold.

If all paper money became exchangeable for gold coin, then gold coin would once again be available to the public around the world. The public would once again regain control over government finances by refusing to purchase government bonds unless the interest rate were acceptable and the issuing governments were to demonstrate their credit-worthiness by limiting their expenditures and shunning fiscal deficits. Hoarded gold performs no beneficent social function; circulating gold is highly beneficial to society.

Consequently, the world’s economy would stabilize and enter a natural period of real and healthy economic growth with exports balanced against imports. The nightmare we are living, would be over.

One consequence of instituting gold as the world’s currency would be that the price of gold would disappear. Since there would be no other currency against which gold could be quoted, there would in fact be no price of gold. All prices would be gold prices, but gold itself would have no quotable price. Some people find it hard to visualize this situation, which would be quite normal.


The greatest problem facing a return to gold money is the widespread conviction held around the world today that governments have a central and obligatory mission to relieve poverty and produce prosperity. This is the religious belief in the viability of the Welfare State. It was this belief which underpinned the Soviet Union, while it lasted.

A return to gold as the world’s money means the Death of the Welfare State: let us be clear about this.

The Welfare State is predicated on a Ponzi Scheme of benefiting some people today, at the expense of others tomorrow. It is not viable. But people want to believe it is viable and demand it. Politicians love it and so do bankers; together they love to expand credit, run deficits and inflate currencies.

We can have the fraud of the Welfare State or the benefit of gold as money. We cannot have both.

In the absence of kings who rule not by popular consent, but by the will of God, what legitimation can be found for government that does not depend upon the Welfare State as its foundation? (It is pertinent to remark that although kings were consecrated as such by the Church, there was always an important element of popular consent to their elevation to kingship. The concept of “divine right” was a late development.)

The legitimacy of any government is today based on its ability to manage the Welfare State, which means it must actually relieve poverty and produce prosperity and “growth”. According to the opinion-makers of the world a government that cannot deliver the Welfare State should be replaced: that government has produced a “failed State”. Governments of “failed States” have failed in their prime function, the relief of poverty and creation of prosperity; therefore subjecting them to “Régime Change” is entirely justified, according to present political theory and popular opinion as molded by the opinion-makers.

The world today does not in fact have “popular government”. The world is ruled by international bankers, a class of men not qualified to rule. The present world catastrophe is a clear demonstration of the fact that they rule, and that they are incompetent to rule.

The political theory of “popular government” promoted by the French Revolution of 1789 led to the Welfare State and has produced the world’s bankruptcy. In point of fact, the world’s monarchs were replaced by international bankers.

What political theory is going to displace the Welfare State? According to a new political theory, yet to be formulated, who – to the exclusion of the international bankers – is going to be legitimately entitled to rule the world’s nations?

We must think about this while striving for a return to gold as the world’s money: after the Welfare State, what?

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