Yesterday we talked about the weekend’s big news – the BRICS bloc may establish a gold-backed currency.

Remember, BRICS refers to the economic alliance between Brazil, Russia, India, China, South Africa, and other nations outside of the West’s power structure. Their hope is that a gold-backed currency would instill trust in the new trade network they are building. 

A major development like this is inevitable. To understand why, we must understand monetary history. 

You see, money is not the static functionary that it’s presented to us as. Instead, money is constantly in flux. In fact, we’ve used four different international monetary systems just since 1900.

So to see where we’re likely going next, we have to know where we’ve been. 

And with that introduction, I’m going to turn it over to my AI assistant to walk us through a brief monetary history. 

Here’s Sir Arthur (just click to play):

And remember, for more on how to build gold into a customized investment portfolio, just go here: Finance for Freedom

-Joe Withrow

For making the new currency as good as gold, a truly sound currency, it must be convertible into gold on demand. Using gold as money, the unit of account would be a true game changer, no doubt about it… Against this gold stock, the new bank could, say, grant financing loans to exporters, and issue the “new currency”. Or BRICS exports will be sold against the “new currency” and/or gold.

That commentary comes from an interview with Thorsten Polleit over the weekend.

Polleit is the chief economist at Degussa Goldhandel. It’s a precious metals trading company based in Germany. Polleit was commenting on big news that broke over the weekend.

Word leaked that the BRICS bloc – Brazil, Russia, India, China, and South Africa – plan to introduce a new currency backed by gold. In light of this, 41 countries have applied for BRICS membership.

Now, nothing is official yet. Sources expect the official announcement to come during the BRICS summit in August. The event will take place in South Africa.

That being the case, we shouldn’t give this news too much credibility yet. Any time there’s a leak like this, we have to wonder – who wants people to believe this and why?

So there’s a chance this is just a bluff on the world’s geopolitical chess board. After all, who will put up the gold necessary to back such a currency?

To make it work, countries like China and Russia would likely have to contribute significantly more gold than the others. That’s because they have far more gold in their possession.

Would they be willing to pledge their own gold hoard for the good of the project?

Maybe. Both China and Russia are among the world’s leading export countries. That means they stand to accumulate the gold-backed currency if the BRICS bloc were to establish such a system.

Still, there are plenty of questions unanswered here. So I’ll reserve judgment.

That said, this could be the start of gold re-monetization around the world. We talked about this possibility a few weeks ago.

For the BRICS bloc, this is all about creating a credible alternative to the US dollar-based international settlement system. They are seeking to build a trade network that’s not under the thumb of the powers that be in the US and Europe.

A gold-backed currency would generate instant trust in their new system. And they need trust if they want other countries to migrate to their trade network. That’s why a move to gold makes sense.

And if the BRICS re-monetize gold, the US may have to follow suit.

One of the major benefits to having the US dollar serve as the world’s reserve currency is that it creates a constant demand for Treasury bonds. Foreign actors who receive US dollars in exchange for international trade can recycle those dollars back into Treasury bonds to earn a yield.

This is what’s allowed the US to run massive budget deficits year after year. The Treasury finances that budget deficit through new Treasury bond sales… which means it needs willing investors.

But if a chunk of world trade moves to a gold-backed settlement system, international demand for dollars will plummet. Then demand for Treasuries will fall accordingly. That will make it much harder for the US to run $1 trillion+ deficits going forward.

For the Treasury, the answer may be to partially re-monetize gold itself.

Suppose the US government agrees to settle a specific portion of Treasury bonds in gold. That could lend itself to a tiered system of sorts. The Treasury could sell bonds with various degrees of gold backing at corresponding rates.

For example, 10% gold-backed Treasury bonds would carry a lower interest rate than 5% gold-backed bonds. And both would carry a lower rate than Treasuries with no gold backing.

This could help the US Treasury maintain international demand for its bonds. In turn, that would help the US government manage its debt service costs even as rates rise.

Of course, there are tons of wild cards and unknowns in here. We can’t be sure exactly how it would all play out.

But if we do see gold re-monetized, we can be sure that the price of gold is going to explode higher…

-Joe Withrow

P.S. If you’re interested in building gold into your personal investments, our flagship Finance for Freedom program will show you how. More information right here: Finance for Freedom

There! His Majesty can now read my name without glasses. And he can double the reward on my head!

According to colonial records, this is what John Hancock said as he signed his name to America’s Declaration of Independence in 1776.

Hancock is still famous today for his big, elegant signature. We still use his name and “signature” interchangeably.

But there’s a great deal about Hancock that modern history books gloss over. Since we’re talking all things American Independence this week, let’s go over Hancock’s story today. Consider it a smuggler’s guide to the American Revolution.

In colonial New England, Hancock was well-known as a cost-competitive wholesaler. He would source hard-to-find products and offer them for sale in Boston at a reasonable price.

One of Hancock’s most popular products was tea. That made him a direct competitor to the British East India Company. And the Company did not at all like competition.

Continue reading “A Smuggler’s Guide to the American Revolution”

So you see, while you are contributing to relieve one, you are drawing it from thousands who are even worse off than he… The fact is, it wasn’t yours to give.

We talked about the Idea of America in honor of Independence Day yesterday. The idea is simple. You can be whoever you want to be in America. It’s the land of opportunity.

That opportunity only persists if individual liberty is respected, however. And as I alluded to yesterday, a century of public education has diminished our understanding of liberty in this country. The story of Colonel David Crockett’s time as Tennessee’s representative in Congress shines light on that fact…

Col. Crockett is better known as Davy Crockett, King of the Wild Frontier in modern books and movies. But Crockett isn’t just a fictional character. He was a real person.

Crockett lived from 1786 to 1836. He was a colonel in the Tennessee militia. And he was elected to the U.S. House of Representatives in 1827. There, Crockett learned an important lesson on the nature of liberty and the role of government. That lesson comes to us from an account compiled by 19^th-century author Edward Ellis.

The account starts when members of the House were debating a newly presented bill. It proposed to appropriate money from taxpayers for the benefit of a distinguished naval officer’s widow.

Several Congressmen had given passionate speeches in support of the bill. It seems even back then Congress fancied the idea that it could be all things to all people. The Speaker was just about to put the bill to a vote when Crockett stood up.

Mr. Speaker – I have as much respect for the memory of the deceased, and as much sympathy for the sufferings of the living, if suffering there be, as any man in this House, but we must not permit our respect for the dead or our sympathy for a part of the living to lead us into an act of injustice to the balance of the living. I will not go into an argument to prove that Congress has no power to appropriate this money as an act of charity. Every member upon this floor knows it. We have the right, as individuals, to give away as much of our own money as we please in charity; but as members of Congress we have no right so to appropriate a dollar of the public money.

We have not the semblance of authority to appropriate it as a charity. Mr. Speaker, I have said we have the right to give as much money of our own as we please. I am the poorest man on this floor. I cannot vote for this bill, but I will give one week’s pay to the object, and if every member of Congress will do the same, it will amount to more than the bill asks.

Crickets. Not a single Congressman responded to Crockett’s call for independent charity. But most of them did vote against the bill. That almost certainly wouldn’t have happened if it weren’t for Crockett’s speech.

Later, a friend approached Davy and asked him why he opposed such a well-intentioned bill. Crockett responded by recounting a bill he had voted for several years earlier. It appropriated $20,000 in taxpayer money to provide relief to people impacted by a fire in Georgetown.

Crockett thought highly of the bill at the time. He figured it was the humane thing to do.

That is, until he went out campaigning for re-election in his district that next summer. As he was making his rounds, Crockett saw a man plowing his field one sunny afternoon. He timed his walk to meet the man as he neared his fence. Crockett began to introduce himself, but the man cut him off.

Yes, I know you; you are Colonel Crockett, I have seen you once before, and voted for you the last time you were elected. I suppose you are out electioneering now, but you had better not waste your time or mine. I shall not vote for you again.

Naturally, Davy asked the man why. What changed? How did he lose the man’s confidence?

Well, Colonel, it is hardly worth-while to waste time or words upon it. I do not see how it can be mended, but you gave a vote last winter which shows that either you have not capacity to understand the Constitution, or that you are wanting in the honesty and firmness to be guided by it. In either case you are not the man to represent me.

Though I live here in the backwoods and seldom go from home, I take the papers from Washington and read very carefully all the proceedings of Congress. My papers say that last winter you voted for a bill to appropriate $20,000 to some sufferers by a fire in Georgetown. Is that true?

Crockett responded that it was. And he suggested that nobody should object to spending a small amount of money to support victims of a fire. The man responded:

It is not the amount, Colonel, that I complain of. It is the principle… The power of collecting and disbursing money at pleasure is the most dangerous power that can be entrusted to man.

What is worse, it presses upon him without his knowledge where the weight centers, for there is not a man in the United States who can ever guess how much he pays to the government. So you see, while you are contributing to relieve one, you are drawing it from thousands who are even worse off than he.

If you had the right to give anything, the amount was simply a matter of discretion with you, and you had as much right to give $20,000,000 as $20,000. If you have the right to give to one, you have the right to give to all. You will very easily perceive what a wide door this would open for fraud and corruption and favoritism, on the one hand, and for robbing the people on the other.

So, Colonel, Congress has no right to give charity. Individual members may give as much of their own money as they please, but they have no right to touch a dollar of the public money for that purpose.

So you see, Colonel, you have violated the Constitution in what I consider a vital point. It is a precedent fraught with danger to the country, for when Congress once begins to stretch its power beyond the limits of the Constitution, there is no limit to it, and no security for the people.

I have no doubt you acted honestly, but that does not make it any better. The fact is, it wasn’t yours to give.

Food for thought as we honor America this week.

-Joe Withrow

P.S. For those who find little-known historical events like this one interesting, I would highly recommend Tom Woods’ Liberty Classroom. Real history is so much more insightful than what we learned in our school textbooks.

If you would like to review Liberty Classroom’s course listings, just go right here: Tom Woods Liberty Classroom Course Listing

“In the beginning, all the world was America.” -John Locke

This is an interesting quote. And it speaks to a very important fact: America is not a nation. Not in the traditional sense of the word, anyway.

Instead, America is an idea. 

John Locke was a 17th-century English philosopher. He’s considered one of the most influential of Europe’s Enlightenment thinkers. 

Locke’s Two Treatises of Government were foundational to the early American political philosophy. The ideas Locke presented directly influenced the American founders. Thomas Jefferson, James Madison, John Adams, and Alexander Hamilton each said that Locke had an outsized impact on their thinking. 

And that’s key. America was conceived from thought. From an idea. That makes it fundamentally different. 

Throughout history, nations typically consisted of singular groups of people. They were people who shared similar genetics, a common culture, and of course a common language. There are some exceptions to this. But generally nations boasted a common heritage. 

America is a land of immigrants. The earliest immigrants came from western Europe. But by the 20th century, immigrants from all over the world flocked to America’s shores. 

As such, Americans do not share similar genetics or even a common culture with one another. Bill Bonner eloquently pointed this out in his book The Idea of America. Bonner noted that there are few similarities between the mossbacked Episcopalians of the Virginia Tidewater, the holy rollers of east Texas, and the Muslims of east Harlem. 

Thus, Americans were never united by blood, culture, or religion. Instead, the only thing Americans shared was an idea. 

That idea is this: you can be whatever you want to be in America. Here you have the opportunity to write your own story – regardless of where you come from.

Every year at this time I’m reminded of the story of the Aide family. They were a Lebanese family who moved to America early in the 20th century. They came here with nothing but a few dollars and the will to create a better life for their descendants. 

The family immigrated through Ellis Island in the New York Harbor. Then they made their way down the east coast. They eventually settled in the mountains of eastern West Virginia. 

There, they opened discount stores in several of the neighboring towns. These discount stores were small Walmart’s decades before any Walmart locations opened in the region. 

It was brilliant. This family figured out how to stock hard-to-find goods cheaply. Then they offered those goods at low prices to the locals.

 Mr. Aide also had the foresight to install arcades and movie rental operations in each store. That attracted the kids… which made the parents something of a captive audience. They brought the kids to the arcade often. And then the parents had nothing to do except shop while their kids played for an hour or so.

 What’s more, the Aides leveraged the success of their discount stores perfectly. They used their revenue to buy and develop the commercial real estate around their stores. That allowed them to bring in anchor tenants – often grocery stores and drug stores.  

This drove even greater traffic to their own discount stores. And it created another revenue stream as well. The Aides family generated strong rental income from their anchor tenants. 

Naturally, the family educated their children on the workings of their family business. One of the sons went off to college and then business school with the intention of taking over upon his father’s retirement. 

When that son came back from business school, he spent some time shadowing his dad in the business. He noticed that everything was low-tech. This included how his dad manually handled the accounting.

This prompted the highly-educated son to speak up. “Dad, how do you expect the business to run like this? You have to get more sophisticated if you want to maximize your profits.” 

The father looked up from his desk and thought for just a moment.

 Son, when your mother and I came to this country we had nothing but two dollars and the shirts on our backs. This business enabled us to carve out a comfortable life for ourselves and for you kids. In fact, it put you kids through college and set you up for a lifetime of opportunity. For us, your mom drives a Cadillac every day and I take off early every Friday to go play golf.

 The way I see it, we take all these blessings and we subtract from them the two dollars and the shirts we came here with… that’s how I calculate our profit.

I love it. And I should point out that this is a true story.

 The Aide family business still runs today. Their Aide’s Discount Stores all closed down a couple decades ago. They couldn’t compete when Walmart decided to enter the region. But the Aides family still owns and manages the commercial real estate developments where their stores once stood.

That’s the idea of America. It’s all about opportunity. About making something from nothing. 

And that opportunity is only possible in a land that respects individual liberty. That’s what the American experiment was about.  

The best of the American founders understood this well. They were adamant that the sole purpose of government is to protect the life, liberty, and property of individuals. That’s it and nothing more. If we read Jefferson’s Declaration of Independence, it spells this out in no uncertain terms.

Of course, those ideals are no longer held sacred today.

A century of public education has convinced many Americans that government should be all things to all people. But it can’t. Tomorrow we’ll look to Colonel David Crockett, of frontier fame, for why that is.

-Joe Withrow

P.S. For those who find little-known historical events and figures interesting, I would highly recommend Tom Woods’ Liberty Classroom. 

Tom’s program provides a world-class education on both subjects. And it does so in a compelling and entertaining way. No kidding – I’ve learned far more from Liberty Classroom than I ever did in seventeen years of public education. 

If you would like to review Liberty Classroom’s course listings, just go right here: Tom Woods Liberty Classroom Course Listing

Good morning. My name is Colonel Fenton. I have been called on by Governor Gage…

The year was 1774. It was a beautiful summer day in New England. And like the weather, tensions between the British army and the Massachusetts colonists were running hot.

General Thomas Gage had just replaced Thomas Hutchinson as Governor of Massachusetts. His first order of business was to get Samuel Adams and his troublesome group known as the Sons of Liberty under control.

To do so, Gage dispatched Col. Fenton to deliver a personal message to Adams. That brings us back to the conversation held on Adams’ doorstep.

Col. Fenton:I have been called on by Governor Gage to assure you, Mr. Adams, that the governor has been empowered to confer upon you such benefits as would be satisfactory, upon the condition that you engage to cease in your opposition to the measures of the government. It is the Governor’s advice to you, Sir, not to incur the further displeasure of his majesty. Your conduct has been such as makes you liable to penalties of an Act of Henry VIII, by which persons can be sent to England for trial for treason, or misprison of treason, at the discretion of a governor of a province. But, BY CHANGING YOUR POLITICAL COURSE, you will not only receive great personal advantages but you will make your peace with the King.

It was a classic bribe wrapped in a threat.

Governor Gage gave Sam Adams a choice to make. He could stop opposing the British government and receive personal bribes in return. Or he could continue knowing that he may be arrested and tried for treason. The penalty for which was death by hanging.

Adams did not hesitate for a second. And he insisted that Col. Fenton deliver his response to General Gage word for word.

Sam Adams: Then you may tell Governor Gage that I trust I have long since made my peace with the King of Kings. No personal consideration shall induce me to abandon the righteous cause of my Country. And TELL GOVERNOR GAGE THAT IT IS THE ADVICE OF SAMUEL ADAMS TO HIM, no longer to insult the feelings of an exasperated people.

There it is. That single decision made the American Revolution inevitable in New England.

When Fenton delivered Adams’ reply to the Governor, Gage flew into a rage and issued this proclamation:

 I do, hereby, in his majesty’s name, offer and promise his most gracious pardon to all persons who shall forthwith lay down their arms, and return to the duties of peaceable subjects, excepting only from the benefit of such pardon, Samuel Adams and John Hancock, whose offenses are too flagitious in nature to admit of any other consideration but that of condign punishment.

Adams and Hancock were now wanted men in Massachusetts. And Gage hoped his offer for pardon would entice some colonists to turn them in.

In response, Adams called a secret meeting for the Sons of Liberty and their supporters. In it, Adams insisted that they needed to form a Congress with representatives from the other colonies of British America.

Adams realized that they needed an organized entity that could negotiate with British government on behalf of the colonies. And he knew forming such a Congress would unite the colonists under a common cause – opposition to British rule.

Meanwhile, in Virginia, a gentleman by the name of Thomas Jefferson was at work publishing his Summary View of the Rights of British America. That document clearly outlined the grievances the American colonies had against the British Crown.

When the British government in Virginia learned of this document, it notified Jefferson that he was subject to prosecution for high treason. According to the archives of colonial Virginia, this prompted firebrand Patrick Henry to tell Jefferson: If this be treason, then make the most of it.

Under those circumstances the Virginia colonists were more than happy to establish a Congress per Adams’ suggestion. Thus, the First Continental Congress formed. Its first meeting took place in Philadelphia on September 5, 1774. And the Congress continued to meet in intervals for two years… until history was forever changed.

On June 7, 1776, a Virginian by the name of Richard Henry Lee stood and addressed the Congress:

Gentlemen, I make the motion that these united colonies are, and of right ought to be free and independent states, that they be absolved from all allegiance to the British Crown, and that all political connection between them and the State of Great Britain is, and ought to be, totally dissolved.

There it was. Secession – full independence – was on the table. And everybody in the room knew exactly what that meant. Nobody thought for a second that the most powerful army in the history of the world would give up its prized colonies so easily.

The Congress debated the idea of secession for several days. Losing patience, this prompted Lee to take the podium once again:

Mr. President, we have discussed this issue for days. It is the only course for us to follow. Why then, Sir, do we longer delay? Why still deliberate? Let this happy day give birth to an American Republic. Let her arise, not to devastate and to conquer, but to reestablish the reign of peace and of law. The eyes of Europe are fixed upon us. She demands of us a living example of freedom that may exhibit a contrast, in the felicity of the citizen, to the ever-increasing tyranny.

This brought the motion to a vote… and it passed.

Thomas Jefferson was tasked with writing America’s official Declaration of Independence from Great Britain. That was the legal document that officially severed the political connection between the American colonies and the British Crown.

Jefferson read the first draft of his Declaration in front of the Congress on June 28, 1776. It was discussed for several days and several changes were made.

On July 4, 1776, Jefferson stood up again and fearlessly read the final Declaration. Then it was put up for a vote. Those in favor were asked to sign their names to the revolutionary document.

We should stop and think about this for a second…

These were real people with real lives. They had families, businesses, and farms back home. Yet here they were being asked to sign a document that would make them all a target of the greatest army that had ever been assembled in history. Each delegate present knew full-well that, if they signed, they would be hung for treason should they be captured by the British.

Still, 56 delegates signed their name to America’s Declaration of Independence. That was the vast majority. Only a few refused to sign.

This single act altered the course of human history forever. And it paved the way for the great American experiment. More on that tomorrow…

-Joe Withrow

P.S. This account comes from Napoleon Hill’s Think and Grow Rich. It’s one of the most formative books I’ve ever read.

And for those who enjoy this kind of actionable study of history, I can’t recommend Tom Woods’ Liberty Classroom enough. I’ve learned far more from Liberty Classroom courses than I did in school.

What’s more, these courses prompt us to truly consider the meaning behind certain historical acts. It’s not just about names and dates… which convey no true purpose. It’s about understanding the ideas driving historical figures and key events. Ideas run the world.

If you would like to review Liberty Classroom’s course listings, just go right here: Tom Woods Liberty Classroom Course Listing

The Austrian School of Economics is not based on a fictitious homo economicus, but on people as they really are and as they behave. It adequately takes into account the economically relevant aspects of the real world and is consistent with the nature and psychology of human action. In this way, it also corresponds to man’s common sense. 

This is how the Austrian Institute in Vienna describes the Austrian School of Economics. It cuts right to the heart of the matter – economics is simply the study of human action. The scientific term for this is praxeology.

That said, Austrian Economics is not contained within Austria. Its origins span the globe… as does its impact today. In fact, the Austrian school is far more prevalent in America than anywhere else on the planet right now.

Yesterday we talked about Frédéric Bastiat. He was a 19th century French economist of the classical school.

Bastiat is credited as the first to illustrate the economic concept of opportunity cost. He also intelligently dismantled the premises underlying protectionist policies and government wealth redistribution.

But Bastiat did not operate in a vacuum. His work built upon that of earlier classical economists. Among them were Richard Cantillon, Anne Robert Jacques Turgot, Adam Smith, and Jean-Baptiste Say.

Each of these gentlemen advocated for individual liberty and free-market capitalism. True capitalism. Not the corporatism we have today. And they did so by demonstrating how these conditions enable a rising standard of living for the greatest number of people possible. They rejected the notion that we should favor certain groups over others.

If we look at it this way, Bastiat continued the work of those who came before him. He was a direct link to the past.

And in just the same way, he was a bridge to the future. The modern school of Austrian Economics advances the principles of Bastiat and the other classical economists today.

An Austrian-born economist by the name of Carl Menger effectively founded the Austrian school when he published his Principles of Economics in 1871. Menger’s work built upon that of the earlier classical economists. And it sparked what’s called the “marginalist revolution”.

Menger’s key contribution was that economic value is subjective. Consumers assign value to economic goods based on their marginal benefits. Producers do the same.

That is to say, the price one is willing to pay for a particular good is not related to how much time or money goes into producing that good. Instead, it’s a function of how much one thinks that good will benefit them.

This may sound like a simple thing, but the earlier economists struggled with the concept of value. They were generally fixated on value being tied to production costs. But that completely ignores individual preference and supply/demand dynamics.

Menger’s marginal theory is what connected it all. This is easy to understand. The more there is of a particular good, the less each individual unit of that good will benefit people. Thus, that good’s value will be lower.

Let’s use consumer electronics to illustrate this concept…

Suppose we just bought our first home and it has nothing in it. The first television or computer we buy will have high marginal utility for us… because we didn’t have one before.

But we won’t value televisions and computers as much afterwards. They won’t be as big of a priority because we already have one of each. Maybe we’ll buy a second TV for another room… and maybe a third for a different room. But each new TV brings less benefit to us. Thus we value them less.

That’s the concept of diminishing marginal utility. It ties in directly with supply and demand dynamics. And it explains how goods are priced in the marketplace.

This was a huge breakthrough. And it officially marked the origin of the Austrian School of Economics.

Another Austrian named Eugen Böhm-Bawerk took Menger’s framework and built upon it. Böhm-Bawerk was especially good at illustrating how individual time preferences impact market-based interest rates.

From there, Austrian-born Ludwig von Mises picked up the torch. And he was an absolute force.

Mises was the first to succinctly present the Austrian theory of the business cycle. And he spent most of his life combatting the rise of socialism in Europe.

In fact, Mises had to flee Austria in the 1930s to escape the German national socialists (Nazis). They were not at all pleased with his work. Mises fled first to Geneva and then to New York to escape.

Around that same time Friedrich Hayek began building upon the Austrian school’s tradition in his own way. Hayek also had to flee Europe in the 1930s to escape the socialists. And he eventually won the Nobel Prize in 1974. The more popular economist Milton Friedman was a big fan of Hayek’s.

From there, both Henry Hazlitt and Murray Rothbard picked up the torch – each in their own way. And both gentlemen helped found the Mises Institute in 1982. Housed in Auburn, Alabama, the Mises Institute is the global center of the Austrian School of Economics today.

Though it gets no coverage in the mainstream press or in academia, the Mises Institute has had an impact on millions of people worldwide. That’s in no small part thanks to the presidential campaigns of Dr. Ron Paul in 1988, 2008, and 2012.

Dr. Paul credits what he learned studying Austrian Economics as one his primary motivations for running for president. And he tirelessly promoted the core tenants of Austrian Economics out on the campaign trail.

I know this kind of exposé isn’t for everyone… but I find this kind of study fascinating.

If we look at it this way, we can clearly see an unbroken chain of people, ideas, and events going back 250 years. It’s all connected. And this shows how the work of our ancestors helped build the world we live in today. That’s amazing to think about.

So I guess all this is to say – dead economists matter. Let’s honor them accordingly.

-Joe Withrow

P.S. For those who find this stuff fascinating like I do, I would highly recommend Tom Woods’ Liberty Classroom. Tom’s program provides a world-class education on both history and economics. And it does so in a compelling and entertaining way. If you would like to review Liberty Classroom’s course listings, just go right here: Tom Woods Liberty Classroom Course Listing

I’ve got just one question for you I can’t figure out – who is Frédéric Bastiat?

This is the question my local computer whiz posed to me over the weekend. My laptop crashed on me last week… and I asked this gentleman to take a look and let me know if it was salvageable.

As he was doing his analytics, he noticed that the name of the computer owner was Frédéric Bastiat. That’s what sparked the question. Since we’re talking economics this week, a discussion on Bastiat seems appropriate.

Frédéric Bastiat was a 19th century French economist. He lived from 1801 to 1850.

Bastiat was very much of the classical school. His work built upon that of Adam Smith – famed author of The Wealth of Nations in 1776.

And Bastiat may have been the first economist to illustrate the concept of opportunity cost. He did so in an essay titled Parable of the Broken Window.

In the essay, Bastiat demonstrated that money spent on repairs is money that cannot be used to expand production or buy new goods. As such, the economic activity that occurs when a window is broken and repaired does not grow the economy.

It’s a simple thing. But that’s the principle of opportunity cost. When we spend money on one thing, that act reduces the amount of money available to us for other uses.

Bastiat also demonstrated the folly of protectionist policies in his essay The Candlemakers’ Petition.

Protectionist policies are laws and regulations designed to favor the incumbents in a given industry. This is typically done by making it hard for competitors to challenge them…. even when the competitors can do it cheaper, faster, and/or better.

Bastiat demonstrated this concept through satire in his essay. In it, the candlemakers’ guild petitioned the government to pass laws requiring citizens to keep their curtains closed. They suggested this was necessary because sunlight represented unfair competition to them. In fact, it could put them out of business.

The point here is that laws favoring specific industries are likely to be bad for society as a whole. That’s why protectionist policies are folly.

And the most famous of Bastiat’s work is a great pamphlet titled The Law. It was published the year of his death in 1850.

The Law points out that there is no such thing as group rights. There are only individual rights. And the purpose of government and law is to protect the equal rights of each individual.

But when people use the law to favor specific groups, the government must extract money from everybody else in society to do so. Bastiat called this act “legal plunder”. And he suggested that the moment you go down that path, you create a dynamic where society becomes a “war of all against all”.

We can look around today and see that Bastiat was way ahead of the curve on this one.

And get this – Bastiat may have coined the terms “left” and “right” to describe political beliefs.

Bastiat was elected to the French National Assembly in 1848. At the time Napoleon III was President of France. And he was quite a polarizing figure. Napoleon III had both strong support and strong opposition within France.

Supporters appreciated that he was the nephew of Napoleon Bonaparte and he favored a strong French government. But the opposition were wary of his autocratic tendencies. And they were critical of his policies that curtailed civil liberties.

It’s reported that when Bastiat walked into the French National Assembly for the first time, he noticed that all Napoleon III’s supporters sat on the right side of the room. All those who opposed him sat on the left.

Thus, “right” became synonymous with conservative. It referred to those who wanted to conserve the existing order.

“Left” became synonymous with liberal. It referred to those who believed in individual liberty and free market capitalism. The liberals wanted a government focused on protecting individual rights. They opposed lofty political ambitions.

I find this fascinating. Mind you, that’s coming from someone who absolutely disdains partisan politics. I find it to be barbaric.

Still, it’s interesting that the terms “left” and “right”/“liberal” and “conservative” no longer mean what they used to. And if we look at the history of the late 19th and the 20th century, we can clearly see the evolution of these terms. But that’s a story for another day.

More importantly, Bastiat advanced the field economics a great deal in his short life. Far more so than he’s given credit for… though that’s a low bar.

Our Universities today reject many of the economic tenants that Bastiat demonstrated. So do our top political institutions. This is why very few people have ever heard of Frédéric Bastiat. The institutions swept him and quite a few other prominent historical economists under the rug.

That’s because the classical economists simply observed what was happening in the economy. Then they formulated theories to explain it all.

The classical view was that the economy is simply an aggregation of individual acts and decisions. All made by people – each with their own thoughts, goals, motivations, and preferences.

Meanwhile, the form of economics favored by our institutions today focuses on action… not observation. It seeks to influence all those countless decisions taking place in the economy.

It’s not content with observation and explanation. Modern economics wants to affect desired political outcomes. And it does so by intervening in the economy in various ways.

This approach has been quite popular over the last one hundred years. But it’s now coming to the end of the road.

Tomorrow we’ll talk about Bastiat’s legacy today.

-Joe Withrow

P.S. For those who find little-known historical figures like Frédéric Bastiat interesting, I would highly recommend Tom Woods’ Liberty Classroom.

Tom’s program provides a world-class education on both subjects. And it does so in a compelling and entertaining way. No kidding – I’ve learned far more from Liberty Classroom than I ever did in seventeen years of public education.

If you would like to review Liberty Classroom’s course listings, just go right here: Tom Woods Liberty Classroom Course Listing

I, Franklin D. Roosevelt, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section do hereby prohibit the hoarding gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations…

All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve Bank or a branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion, and gold certificates now owned by them or coming into their ownership on or before April 28, 1933.

This declaration was made in Executive Order 6102 on April 5, 1933.

In it, president Franklin D. Roosevelt (FDR) made private gold ownership illegal in the United States. And he required all Americans to turn in their gold in exchange for $20.67 per ounce.

Private gold ownership remained illegal in the U.S. until 1975. Since then Americans have been free to buy and sell gold coins and bars at will.

But the U.S. government has held onto all the gold it collected from Americans back in 1933. As it stands, the United States’ total gold reserve is officially 8,133.5 metric tons. That’s worth $506.3 billion at today’s gold price.

According to official central bank records, this is the largest stockpile of gold in the world. And that raises a question – why does the U.S. still hold all this gold?

After all, gold hasn’t played any role in the global financial system since 1971. That’s the year President Nixon closed the international gold window. Doing so cut the dollar’s last link to gold.

What’s more, prominent financial officials have downplayed the purpose of gold ever since then. When asked, former Fed Chair Ben Bernanke said that gold was nothing more than tradition.

Okay… so why hold it? And why do all major central banks in the world hold gold? Many central banks have been adding to their stockpiles in recent years.

I think the answer is because they know that one day they’ll need it. They will have to reintroduce gold into the system in some capacity.

Yesterday we examined a curious interaction from the Federal Reserve’s (the Fed’s) June press conference. Fed Chair Jerome Powell decided to keep rates steady in June… but he suggested two more rate hikes are likely coming.

This prompted a financial reporter to ask a good question…

The reporter pointed out that the U.S. government was on track to run annual deficits of nearly $3 trillion in the next ten years. And if that trajectory continues, federal debt will surpass $52 trillion by 2033.

He then asked Powell directly – will the Fed lower interest rates to help the U.S. Treasury finance this debt? The implication here is that lower rates would reduce the annual interest payments the Treasury must make on the national debt.

Powell’s response was direct. No. Under no circumstances.

This should force us to stop and think.

If Congress is dead-set on blowing out the budget like this… and if the Fed isn’t willing to cut rates to help keep debt service costs manageable… well, something is going to break in a big way.

That is, unless there’s a wild card. And if we think about it – gold re-monetization could be that wild card. I’ll explain…

When interest rates were effectively at zero, the U.S. government’s debt load was manageable. That is to say, the Treasury could afford to make interest payments on the debt without blowing up the budget.

But most of the national debt will need to be rolled over in the coming years. That means the current Treasury bonds are maturing, and the Treasury will need to issue new bonds to pay off the old ones. These new bonds must be issued at today’s higher interest rates.

So the problem is – how do you service the gargantuan debt as rates rise?

Gold re-monetization is a potential solution. To understand why, we have to understand how Treasuries work.

When an entity buys a Treasury bond, they are loaning money to the U.S. government. The government pays a rate of return on the bond for its duration, then it repays the entire principal balance at maturity.

As good investors, we understand the Time Value of Money principle. A dollar today is worth more than a dollar tomorrow. Specifically because the government creates new dollars from nothing every year.

So, those entities investing in Treasuries need a strong rate of return to make it worth their while. Because they know that when they get paid back at maturity, those dollars will buy less than they would have originally.

But suppose the U.S. government agrees to settle a specific portion of Treasuries in gold. That’s gold re-monetization. When investors get paid at maturity, part of that payment comes in the form of gold.

This could lend itself to a tiered system of sorts. The Treasury could sell bonds with various degrees of gold backing at corresponding rates.

For example, a 5% gold-backed bond would carry a higher rate than a 10% gold-backed bond. But both would pay lower rates than a standard U.S. Treasury bond with no gold backing.

See how this works?

Gold re-monetization would allow the Treasury to sell bonds at a lower rate than they otherwise could. In turn, this could allow the government to manage debt service costs even as rates rise.

This would also serve to attract foreign countries and central banks to Treasury investments… which is what the Treasury needs in order to sell all the bonds it needs to sell if the Fed is no longer the buyer of last resort.

Obviously this isn’t something that would make the U.S. government’s fiscal path sustainable long-term. There’s only so much gold to go around.

That said, something like this could serve as a band-aid. It could buy the U.S. Treasury some extra time.

Of course, there are tons of wild cards and unknowns in here. We can’t be sure exactly how it would all play out.

But what we can know is this: if gold re-monetization happens, the price of gold is going much higher. Now’s probably a good time to add to our stack.

-Joe Withrow

P.S. If you’re interested in building a gold into your personal investments, our flagship Finance for Freedom program will show you how. More information right here: Finance for Freedom

Looking ahead, nearly all Committee participants view it as likely that some further rate increases will be appropriate this year…

That’s Federal Reserve (Fed) Chairman Jerome Powell speaking to the financial media earlier this month.

The Fed’s Federal Open Market Committee (FOMC) decided to keep its target interest rate steady in their June meeting. But Powell didn’t want the market to get the wrong idea. The Fed won’t be cutting interest rates again any time soon.

In fact, Powell said that if the Fed does cut interest rates again in the future, those cuts will only be in proportion to a falling Consumer Price Inflation (CPI) print.

Powell explained that his Fed will keep the “real” interest rate steady. By this, Powell means that he intends to keep the Fed’s target rate a certain percentage above the rate of consumer price inflation.

This speaks to an important concept. Within a fiat monetary system – a system where governments and central banks can create money from nothing – nominal numbers don’t tell the real story. This is true when it comes to annual incomes, investment returns, and interest rates.

Continue reading “End of the Road”