Politicians are ill equipped for a monetary crisis

Inevitably, the corruption emanating from the issuance at will of costless fiat currency leads to a deteriorating political morality. By debasing the currency, you can rob people of their wealth and earnings without their knowledge or approval. Get away with that, and the political class is on the highway to the ultimate in corruption.

In modern democracies, this is why the source of political power increasingly lies in the deception of the public, and why both control and debasement of a currency is its ultimate expression. The true purpose of the debasement of the currency is very rarely understood by a trusting public. The existence of a state-issued currency is blandly accepted as proof of its value, and no further questions are asked. The long-term decline in its value is given credibility by being declared to be official monetary policy, so everyone thinks it is a good thing. But the public are wholly unaware of the transfer of wealth from them to the state and its cronies, which is the inevitable consequence of monetary debasement.

It is anti-capitalistic in its destruction of both capital and values. The political class has been progressively leeching off the productive side of the economy to pay for its socialising schemes and for the sheer enjoyment of power. If the rate of currency debasement is slow and even, it can continue for a long time. As a destructive process, it is ultimately finite. But the pace has quickened. The Lehman crisis led to a rapid acceleration of the rate of currency debasement, which never really ceased. Debasement is about to accelerate yet again. Not only will the issuance of central bank money substantially increase to compensate for a slowing down in the rate of bank credit expansion, it is also becoming essential to finance government spending.

The likely scale of a renewed debasement of the currency threatens to alert the public to the instability of the situation, undermining confidence in unbacked currencies. Despite the stated intentions of monetary policy, its true purpose will become increasingly obvious when government revenue collapses and welfare costs rise. How convenient it will be for scaled-up quantitative easing, the printing of money to pay for government debt, to be slavishly supported by all advisors and commentators pretending to be economists. Wiser counsel, if it is listened to, will caution against the trap of relying on the destruction of currency values as the bedrock for future government finances.

What then for our politicians, who have come to rely on monetary debasement to finance their ambitions? Will they wake up to the predicament they have put us all in, and suddenly realise they must humbly genuflect at the altar of contrition, of sound money, and confess to their sins and submit themselves to public opprobrium?

Dream on, folks! They will struggle to extricate themselves with the only means at their disposal. More money. More socialism. More raping the productive economy by accelerating wealth transfer through monetary debasement. They know nothing else. They have not only deceived their voting public, but they have deceived themselves. If the world moves only half-way to a 1930s depression, the rate of monetary expansion to bridge the widening chasm between tax receipts and welfare obligations will be so great, it will likely lead to the end of the dollar, the end of the euro and the other currencies which copy them. Even the hitherto Teflon yen will be threatened with immolation.

The wise heads in China foresaw this in the last century, which is why they appointed the Peoples Bank to handle the state’s gold and silver purchases under government instruction. It is why they set up the Shanghai Gold Exchange in 2002 to allow and encourage the population to accumulate physical gold. They knew that one day, gold and silver would become the backbone of currencies again and they have ensured it is widely distributed. They knew the West’s Achilles’ heel was the modern equivalent of Genghis Khan’s mulberry-leaf paper, but without the great man’s despotic authority. In her long history, China has been there, seen it, done it, and has got the changshan.

Russia was late to this party, but the transformation in her understanding of the West’s monetary affairs was swift. America tried to use the dollar as a weapon to cripple Russia, but President Putin wasn’t to be panicked. He appointed a bright young woman, Elvira Nabiullina to head up the Central Bank of Russia. She reformed the banking system, strengthening commercial banks and replaced the Brussels-based SWIFT interbank messaging system with its own, which will link up with the Central Asian ‘stans, China, Iran and even Turkey. This will insulate Russia from Western banking crises, a point missed by Western commentators who only see isolationism. And it is Nabiullina who has overseen the selling of dollar reserves for gold bullion.

Russia and China have distanced themselves from the west’s financial system, so it can collapse without taking them down. Obviously, there will be collateral damage, but nothing unforeseen. They will be aware of the political consequences, so will not want to precipitate anything with their actions. Let the West destroy itself and for China and Russia not to be made the fall-guys.

- Source, James Turks Goldmoney

Crash Proof 2.0: How to Profit From the Economic Collapse

The Next Credit Crisis Could Change Everything

So far, China and Russia have resisted the temptation to act precipitously. Their economies are dependent on Western cooperation. Russia exports energy to the West, and China runs a trade surplus in goods and services. To dispense with Western trade, they need an Asia-wide self-contained market. They are building it, with China’s silk road projects and by consolidating the membership of the Shanghai Cooperation Organisation. But not all the groundwork has been done, certainly not enough to “go commando”.

The transfer from a dollar-centric world to gold-backed roubles and renminbi will continue to be at a pace determined by the monetary mistakes of America. That is why the next economic downturn is so important to geopolitical outcomes. And it won’t be just a rerun of Lehman, characterised by a sudden crisis, money-printing, and heaving a sigh of relief when the banking system doesn’t collapse.

The starting-gun for the next credit crisis has already been fired. A reversal of expanding cross-border trade is in full swing. The sales of dollars by foreigners has begun. There is little doubt there is a recession ahead, the only question is of its likely depth. The massive build-up of unsustainable global debt since the Lehman crisis tells us to expect the liquidation to be substantial. The coincidental combination of the peak of the credit cycle and trade protectionism warns us of something far worse than an ordinary recession: a possible rerun of 1929-32, only this time with unsound currency instead of currencies freely convertible into gold.

It is the sheer scale of the problem which is likely to prove the undoing of fiat currencies. A deep recession will do catastrophic damage to government finances, which can only be covered by massive monetary expansion. At the same time, monetary policy is designed to ensure the general price level does not fall. This occurs when a credit crisis wipes out demand, and prices in sound money fall significantly. We know this because in 1929-32 measured in gold-backed dollars prices did just that.

It may take a few months before the purchasing power of fiat currencies begins a renewed decline. The recent strength in energy and commodity prices is worrying in this context, but it is probably too early to call it the start of a definite trend of falling purchasing powers for the dollar and other currencies, measured against the commodity complex.

Trouble is likely to start with either the dollar or the euro. In a deepening recession, the euro will struggle with escalating problems in the PIGS[ii], Brexit, US trade protectionism and systemic risks in the Eurozone’s banking system. The Eurozone could easily disintegrate. A falling dollar, over-owned in the context of declining international trade, is also a racing certainty. A race to the bottom for both currencies is becoming the increasingly obvious outcome of a slump in world trade.

- Source, Alasdair Macleod via James Turk Goldmoney

The Great Deformation: The Corruption of Capitalism in America

Golden Straws In The Wind

Life in the world of gold bullion is full of mysteries. Each mystery is like a straw in the wind, which individually means little, but tempting us to speculate there’s a greater meaning behind it all. Yes, there is a far greater game in play, taking Kipling’s aphorism to a higher level.

One of those straws is Russia’s continuing accumulation of gold reserves. Financial pundits tell us that this is to avoid being beholden to the US dollar, and undoubtedly there is truth in it. But why gold? Here, the pundits are silent. There is an answer, and that is Russia understands in principal the virtues of sound money relative to possession of another country’s paper promises. Hence, they sell dollars and buy gold.

But Russia is now going a step further. Izvestia reported the Russian Finance Ministry is considering abolition of VAT on private purchases of gold bullion.[i] We read that this could generate private Russian annual demand of between fifty and a hundred tonnes. More importantly, it paves the way for gold to circulate in Russia as money.

We should put ourselves in Russia’s shoes to find out why this may be important. Russia is the largest exporter of energy, including gas, pushing Saudi Arabia into second place. This means she is also the largest acquirer of fiat currency for energy. That’s fine if you like fiat currencies, but if you suspect them, then you either turn them into physical assets, such as infrastructure and military hardware, or gold. Russia does both.

Then there is China. China has started announcing monthly additions to her gold reserves. China is up to her neck in dollars, and the relatively minor monthly additions to her reserves really make little difference. However, the link between the gold exchanges in Moscow and Shanghai strongly suggest Russia and China are coordinating gold dealing activities.

In any event, China now dominates physical bullion markets. Deliveries (withdrawals) from the Shanghai Gold Exchange’s vaults into public hands are running at roughly two-thirds of the world’s annual mine supply. At 426 tonnes in 2017, China is the largest gold mining nation by far, and the state owns all China’s refining capacity, even taking in doré from abroad. No gold leaves this version of Hotel California.

The frequently-expressed reasoning for their gold policies is Russia and China are locked in a financial war with their largest debtor. This is not the underlying reason these nations have chosen gold as an expression of their dislike of America’s weaponization of her monetary policies. They know the difference between unbacked fiat currencies and sound money, which has been chosen by people ever since they began to use a separate commodity to intermediate in transactions.

However, it is true the Americans have weaponised the dollar, bringing an urgency to China’s and Russia’s deployment of gold. US dollars have been the world’s reserve currency for the last forty-eight years, and America, which pays for everything in costless, newly-issued dollars, now says it wants a better trade deal. It obviously assumes the dollar’s supremacy is unchallengeable and in their need for dollars China and other exporters to America will be forced to comply.

Let’s pick this apart. The US Government pays for everything in a currency which it issues at will. New dollars only gain value once they are in circulation, but the cost of production is zero, stealing their circulatory value from previously existing currency. However, the US Government is unable to balance its books without recycling some of these duff dollars into its own IOUs (Treasury stock). Because they are required to be repatriated to balance the US Treasury’s books, the US Treasury borrows them back from foreigners who might otherwise question the dollars true value. So, foreigners get a Treasury IOU eventually paid out in a currency IOU. It really is pig on pork.

So far, the foreigners have been successfully conned, though questions are beginning to be asked.

Logic suggests that the US Government getting something for nothing is as good as it gets. But President Trump thinks this is unfair, not on the Chinese and other foreigners swapping goods for ultimately worthless paper, but on America herself! He holds out for an even better deal. He demands the Chinese and others stop supplying real stuff to his people in return for his costless, dubious paper. In other words, speaking on behalf of the American People, he is now dissuading the Chinese from giving Americans something for what amounts to nothing.

Those on Planet Asia could be forgiven for looking at things rather differently. After Mao’s death and a brief period of accepting the dollar scam on the basis that demand for dollars would always ensure they could be exchanged for value, the Chinese have for a long time smelled a rat. This is why in 1983 they appointed the Peoples Bank to be in charge of liquidating dollars for gold and silver. They have gently played along with the dollar scam ever since, not wanting to be the party that exposes it for what it is.

Now it is Trump himself who has blown the whistle on the dollar. China and Russia have undoubtedly got the message from this new art of the deal. But at the heart of it is a deep, wider malaise in the fiat currency world. Understand that, and we get to the true reason why Russia and China are wary about accumulating the West’s fiat currencies. Until now, they have run with the hare and hunted with the hounds. China in particular uses fiat renminbi to drive expansion. But then if she didn’t, today’s world order would have probably collapsed in the wake of the Lehman crisis as the flaws and weaknesses of fiat currencies would have been exposed...

- Source, Alasdair Macleod via James Turks Goldmoney

Collusion: How Central Bankers Rigged the World

John Rubino: With QT Ending, What Now For Gold?

John Rubino runs the popular financial website Dollar Collapse. 

He is co-author, with GoldMoney’s James Turk, of The Money Bubble: What To Do Before It Pops, and author of Clean Money: Picking Winners in the Green-Tech Boom (Wiley, 2008), The Collapse of the Dollar (also with James Turk), How to Profit from the Coming Real Estate Bust (Rodale, 2003) and Main Street, Not Wall Street (Morrow, 1998). 

After earning a Finance MBA from New York University, he spent the 1980s on Wall Street, as a Eurodollar trader, equity analyst and junk bond analyst. 

During the 1990s he was a featured columnist with TheStreet.com and a frequent contributor to Individual Investor, Online Investor, and Consumers Digest, among many other publications. He currently writes for CFA Magazine.

- Source, Seeking Alpha

The Collapse of the Dollar and How to Profit from It

The Delusional Psychology of Denying Free Markets

Cycles of human behaviour require a build-up of human prejudice until it becomes unsustainable. One human prejudice which is little examined is why establishments frequently stick to their convictions while denying reasonable debate. As we have seen, much of the answer is that a version of self-serving economic dogma becomes central to the credibility of statist policies. We see it today with our post-Keynesian economic establishment driving economic and monetary policies, while denying the superiority of unfettered markets in these matters. Anyone who challenges the unreason of the establishment’s economics will risk personal vilification and be side-lined.

Create the belief structure and the government can justify any action. Leadership becomes more effective when it is based on prevailing doctrines, with minds firmly closed to all evidence to the contrary. All types of socialism demonstrate opinions insulated from inconvenient contradictions. A socialising government can then appear independent and fair-minded, serving the people when it actually serves itself.

New dogmas become entrenched. The government and also the public, like our hunter-gatherer forebears in their communal caves, huddle round the mutual safety of the new consensus. Concerning the government’s contradictions, comfort is sought by the public from the government itself. It becomes an iterative process that allows the state to drift remorselessly away from free markets, not only with public consent, but public encouragement. It is the basis of groupthink, the enemy of reason.

To the building self-ignorance is added an overestimation of understanding complex issues: an understanding-bias that is reinforced by debate on terms set by society itself, represented by the media. Editors select complex issues which they reduce to simplified choices, that are then discussed by invited participants. The debate always proceeds on the basis of which government intervention or regulation is most likely to achieve a given objective. Spoil the party by insisting that personal freedom is preferable to any government intervention, you damage the media ratings and you will be deemed a maverick, never to be invited back.

Contradiction becomes too difficult to take. A form of naïve realism develops, whereby talking heads promote themselves as supporting the assimilation of a consensus. Furthermore, they believe that those that do not subscribe to the consensus are irrational, biased, uneducated and ignorant. By these means, the benefits of free markets and individualism are increasingly suppressed. Economists are paid to promote policies in favour of the state’s control of money. The universities develop an anti-market bias, and free-market economists are unable to secure paid professorships.

The position these toadying experts occupy was summed up by John Ioannidis, a professor of medicine at Stamford University:

“Scientists in a given field may be prejudiced purely because of their belief in a scientific theory or commitment to their own findings… Prestigious investigators may suppress via the peer review process the appearance and dissemination of findings that refute their findings, thus condemning their field to perpetuate false dogma. Empirical evidence on expert opinion shows it is extremely unreliable.”[ii]

Disappointingly, we all assume scientists are disciplined in their specialisations and unbiased. Not so. In economics, there is the extra problem of human unpredictability, to which is added a total lack of precise definition. Soundly-reasoned theory is swept aside by the introduction of unreliable, and often extraneous statistics as the feedstock for mathematical equations. Reason, freedom and free markets are the casualties.

Instead of reasoning for ourselves and recognising the flaws in debate, we trust an elite to guide our thoughts with their knowledge. Alongside the elite there is a cadre of self-anointing experts consulted by the media. We place value on their independence. We see them as informed insiders, but we forget their privileged access depends solely on supporting the party line. It is a profitable after-life for those who had power, a self-congratulatory basis for the concealed promotion of social policy.

When it gets left behind by progress, the static socialist state eventually becomes the author of its own destruction. Only then might the psychological consensus of denying free markets be broken. If we are lucky, out of the ensuing chaos a new commitment to free markets rapidly emerges. More likely, it becomes the opportunity for extremism, as Germany showed in the aftermath of its inflation collapse of 1923.

Contemporary socialist evolutions

As economic historians, we observe the faults of others usually without recognising them in ourselves, mainly for the psychological reasons noted above. Most economic historians selectively approach the subject with the bias of their culture and generation. The story of Bismarck’s Germany is hardly known in English literature and the lessons are lost in an English-speaking world. The fall of communism in the USSR is fresh in our minds, but the struggles of the state under Yeltsin to replace it with a market-based economy and the ensuing corruption is more topical.

In Britain, many have forgotten the appalling services and products of nationalised monopolies: British Railways, British Telecom, British Leyland, to name just a few. Consequently, the Brits as well as other socialists in the West are never adequately deterred in their antagonism against free markets to change their minds. Bernie Sanders’ desire to run again for President and the Marxism of Jeremy Corbin are testament to the short-mindedness of the voting public. It is a wilful ignorance that defends socialism and never defends free markets.

In America, socialism is being challenged by President Trump. Without us examining his beliefs too closely, he obviously knows that the government establishment has been strangling the US economy. His dislike of the Democrats and their policies under Obama identifies him as an enemy of socialism. But as a free-marketeer, Trump does not defend free markets. Instead, he ends up defending crony-capitalism, military spending and monetary inflation. His trade protectionism, strongly echoing Bismarck’s policies in the late nineteenth century, is similarly socialism under the banner of nationalism. Far from rescinding the socialist tide, Donald Trump is swimming in it.

Trump’s trade policies, as I’ve argued in another article[iii], are driving America and therefore the world into a deep recession. Under current monetary policies the result will be a spectacular increase in monetary inflation, which could lead to the destruction of the dollar. If this happens, Trump almost certainly will be blamed, not socialism. That being the case, the destruction of the American economy and perhaps the dollar with it will not be the end of socialism and the return to free markets. By not properly understanding free markets, President Trump risks condemning his nation and his legacy to a more intense post-crisis socialism similar to that which fuelled fascism in 1920s Germany.

If so, we can only hope the period will be brief. Economists in the free-market tradition can only forecast the likely economic and monetary consequences of current policies. The laissez-faire tradition tells us a failing government should stop intervening and restrict itself to ensuring basic criminal and contract law is enforced. It should stop monetary inflation. As Ludwig Erhard demonstrated in 1948, free markets left alone rapidly restore economic order. But that is not the socialising instinct. As long as there is breath in socialism free markets will continue to be supressed.

The foundation of the European Union echoes the tactical approach of Bismarck: corral a group of nations into a Zollverein customs union, then steer them towards political integration. As the German Historical School was for Bismarck, Marxist-socialism becomes the driving force for the EU, innocuously at first by encouraging free trade within the union. Free trade is then hampered by bureaucratic regulation in the names of common standards, fairness and further integration. Already planned are the imposition of new federal taxes to extend the power of the Brussels government, and the building of a new pan-European military force. Pure Bismarck, and pure Brussels.

Witness the struggle with Brexit, where it turns out the Westminster Parliament is comprised of an overwhelming majority of members who are committed to the EU’s socialising masterplan to the exclusion of democracy. Even a majority of Tory MPs, the party of free enterprise, prefers a federal socialist system to free markets.

It is the stuff of late-stage socialism. The whole world is in its grip, rather than just Germany, just the USSR, just America, just the EU, or just Britain. And these are only some among the traditionally advanced nations. Being cyclical, the bankruptcy of it all in time is for sure. It is set to throw up greater challenges than ever seen before because of its ubiquity. Assuming it does not end in a nuclear destruction of the human race, we will eventually turn our backs on the follies of socialising governments and go back to free markets. Then the cycle of humanity’s socialising madness will start all over again.

- Source, Alasdair Macleod via James Turk Goldmoney

In Defense of Free Markets

Why is it that no one defends free markets, and socialism, despite all the evidence of its failures, comes back again and again? Unsurprisingly, the answer lies in politics, which have always led to a boom-bust cycle of collective behaviour. Furthering our understanding of this phenomenon is timely because the old advanced economies, burdened by a combination of existing and future debt, appear to be on the verge of an unhappily coordinated bust. But that does not automatically return us to the free markets some of us long for.

Cycles of collective behaviour

Throughout history there have been few long-lasting periods of truly free markets. Contemporary exceptions are confined to some small island states, forced to be entrepreneurial by their size and position vis-à-vis the larger nations with which they trade. The governments of these islands know that the state itself is not suited to entrepreneurship. Only by the state guarding the freedom of island markets and the sanctity of property rights can entrepreneurs serve the people in these communities and create wealth for all.

This is not the normal condition for larger nations. Before the Scottish enlightenment which nurtured David Hume and Adam Smith, the benefits of free trade were barely understood. Since then, the wealth created by free trade and sound money has nearly always been the springboard for detrimental change. Sometimes a political strongman, like Mao or Lenin dictates to the people what they can and cannot do. Alternatively, a leader courts popularity by taxing heavily the few for the alleged benefit of the masses. This is the model of welfare states today. Debasement of the means of exchange is an extension of these socialising policies, furthering the transfer of personal wealth to the state.

To understand why free markets are more often than not unpopular, we must put them into a context of human behaviour. In this regard we can stylise a cycle of collective behaviour into three characteristic phases. The first is a lawless condition of no secure ownership of property rights; in the absence of enforceable law the means of possession are necessarily violent and uncertain. It is the natural condition of tribalism and pre-civilisation societies. It is the condition to which humanity returns when the cycle completes.

The second phase is the consolidation of property ownership, with enforceable laws to define and protect it. Out of the chaos that fails to advance the condition of the people comes order, and with it the aggregation of the means of production. Capital in all the forms necessary for production accumulates, and being scarce, is used most efficiently. The backbone of this phase is freedom for the individual to dispose of his or her resources at will. The pace of improvement in the human condition is governed by the level of accumulated wealth and technological innovation.

The third phase is the abandonment of free markets in favour of state control. The state, whose primary function in economic terms is to act as provider and facilitator of the law, increasingly supresses commerce by extracting escalating levels of tax. Taxes are imposed to redistribute wealth from those that earned and conserved it to those that did not. The state takes control of money, issuing its own currency which it can print at will. The damages to the economy are covered up by all the artifices available to the state.

The state regulates. The state confiscates. The state deprives its people of their freedom. The state’s demands become so insatiable, so counterproductive, so impoverishing that the economy collapses back into the first phase of the next cycle.

That is our theoretical cycle of collective behaviour. Out of chaos is created progress. Out of progress lies the course to destruction. The best of these times is the free markets of the second phase. No one defends them.

Empirical evidence of the cycle.

The assembly of German states into a unified nation in 1871 gave credence to a new socialising phenomenon, whereby Bismarck, Germany’s first Chancellor, promoted the state as a socialising entity, superseding free markets. He was the first politician to create a welfare state, introducing accident and old-age insurance and socialised medicine. Shortly after unification, in the mid-1870s Bismarck abandoned free trade and introduced trade protectionism.

His policies echoed the principles of the German Historical School, which drove intellectual thought in the Prussian administration. The Historical School rejected the classical economics of Smith, Ricardo and Mill in favour of a controlling state, backed up by analysis of historical events, hence the name. These lessons were applied to the changing conditions at that time. Workers were moving from the land into new factories, and it was the German establishment’s outdated response to an entirely new social phenomenon.

The creation of a new German socialising state and the denial of economic liberalism inevitably led to the founding of Chartalism, the state theory of money, which stated that only the state has the right to determine the currency used by the people. Georg Knapp published his State Theory of Money in 1905. He handed Bismarck the key to unlock constraints on state spending. The state was then able to consolidate its potential, both in its bureaucracy and military armament. We all know what happened: it fed into to the First World War and in 1923 resulted in the collapse of the currency.

It is worth reflecting that a cycle of events occurred taking ordinary Germans to full state socialism from a freedom to improve their personal circumstances. The start of it was promising, with the introduction of the Zollverein, a customs union between independent German-speaking states. The roots of the Zollverein were in the 1830s, consolidated and formalised in 1861. It preceded the formation of a greater Germany in 1871. It was the gateway to political union, and statist economic management.

It is a doppelganger for the development of the European Union today, but the underlying point for EU-watchers is that it was a cycle of events, taking a nation through the erosion of laissez-faire to full state domination of economic activity and monetary affairs.

In Germany’s case, the political consequences of the First World War and the collapse of the currency were not the end of the story, or the cycle. The rise of extreme fascist socialism finally led to the destruction of the German state in 1945. The return to free markets under Ludwig Erhard’s guidance followed his appointment as Director of the Economic Council for the Occupation Zone and completed the cycle.

Cometh the hour, cometh the man. Soviet-occupied Germany was not so lucky. Erhard had to ignore the instincts and orders of his fellow American and British military committee members, who were stuck in a bureaucratic militaristic frame of mind. In July 1948, without consulting them, Erhard abolished all rationing and price controls. Almost instantly, shops reopened, food became available, the suppressed mood lifted, and people began to rebuild their lives. By way of contrast, victorious socialist Britain continued with rationing until 1954, when meat rationing finally ended.

The evolution in Germany from free markets through increasingly destructive statism and back again to free markets had taken nearly eighty years from unification in 1871. Russia suffered a similar, though initially more dramatic, socialist change from relatively free markets. Instead of a progressive introduction of state control and loss of personal freedom, it was sudden and absolute. After three years of civil war and using a ready-made Marxist template Lenin seized and consolidated control. Both Lenin and Stalin his successor were ruthless in their suppression of freedom. Tens of millions were deemed to be enemies of the state, which included those who merely disagreed or of the wrong race. They were executed or sent to the gulags. That suppression lasted until the soviets had impoverished their people to the point where there was nothing left. In 1989, after seventy-odd years the USSR finally collapsed.

The German and Russian experiences tell us in their own ways that because the beneficiaries of free trade fail to defend it, free trade does not last. Anyone reading about life in Vienna before the First World War would be struck by the widespread prosperity, freedom and artistic flowering of the age, which was destroyed by the war and a subsequent collapse of the currency. It is unfashionable in our socialist times to defend those pre-war years as good times.

I personally grew up with the free-market prosperity of Britain’s African colonies; a prosperity that benefited not just the better-off Europeans but indigenous African and Asian communities as well. That was destroyed by political imperatives, the call for independence from British rule by those who had benefited from the free markets they set out to then destroy. Fully-functioning free-market economies were replaced throughout Africa by corrupt elites that still steal their way to personal prosperity.

It is no accident that post-independence African leaders embraced socialism as the justification for their actions. They argued that the European landowners had seized property which was in the communal ownership of the tribes, and that a newly-independent state had the right to seize it back. But they ignored the fact that before the arrival of Europeans there was no ownership nor property law to define it. Occupation was by force. It is a no more than a common socialist justification for the state to acquire for itself private property.

In only fifty years, free markets had taken the ordinary native in the African heartlands from ignorance of the wheel to the age of jet engines and skyscrapers. Never before have tribal communities witnessed such rapid social change. We forget the appalling conditions and routine cruelty that existed before the introduction of western capitalism. Those conditions are best summed up in a quote from Tacitus, writing about the German tribes in 98AD: “It seems feckless, nay more, even slothful, to acquire something by toil and sweat which you could grab by the shedding of blood.”[i] He could have been describing the cattle raids that still occur today in Kenya’s Northern Frontier District and Laikipia.

Nearly two millennia after Tacitus described tribal Germania, in Africa similar disorder reigned before white settlers developed the land. To escape a subsistence stasis that had seemingly existed for ever, disorder had to be replaced by the white man’s order. Through the introduction of capital and property ownership, free markets allowed the whole population to rapidly improve its condition.

Without these crucial ingredients there can be no progress. Socialism unwittingly returns civilisation to an unenlightened state by encroaching upon, then abolishing, both property ownership and the accumulation of capital. The economy is hindered in its progress, until it withers on the vine. A nation then returns to its pre-capitalist state of lawlessness, corruption, brutality and widespread poverty. Once again, cattle raiding and similar actions become the means of ownership.

But if this repetitive cycle is so obvious, why does humanity fall into the same cyclical trap time and again?

- Source, Alasdair Macleod via James Turk's Goldmoney