History is a difficult study. People love to read and think about history but also edit it so it obeys various ideological rules. This way, one can read history and learn nothing. When I read people’s examinations about ‘money’ and ‘capital’ and ‘labor’ it is quite clear the US prohibition against reading Karl Marx has taken a huge toll on our collective ability to figure out what are essentially simple concepts. Instead, I see on the ‘left’ calls for printing and distributing paper money and on the right, tax evasion, a refusal to fund the government and an inability to understand how sovereign wealth operates.
Over the years, I have tried to explain all of this as best I could but it is still a mystery to many how systems operate. The present system we live under is ANCIENT. It has risen and fallen over and over again. The functioning parts are distinct and some are several thousand years old. For example, it was the Sung Dynasty of ancient China that figured out how to create paper money. They also discovered what happens next: it loses value and collapses. They also learned the horrors this entails: complete destruction, social unrest and foreign invasion.
Centuries, a dozen, follow and what happens? Why, this is done over and over again! The Romans were unfamiliar with the Chinese paper money thing, they did the even much older ‘degrade the coin by debasing the metal’ gambit which is much older than the paper money gambit. I remember, during the Vietnam War, how the coins were debased in the ancient Roman way. I thought it was hilarious back then, When Nixon cut the gold standard, I was not surprised, either. He had to, to print money to pay for our wars.
So, here is Michael Hudson, a favorite writer on the left, giving his version of WWI economic history: America’s Deceptive 2012 Fiscal Cliff » Counterpunch: Tells the Facts, Names the Names
When World War I broke out in August 1914, economists on both sides forecast that hostilities could not last more than about six months… But the Great War dragged on for four destructive years. European governments did what the United States had done after the Civil War broke out in 1861 when the Treasury printed greenbacks. They paid for more fighting simply by printing their own money. Their economies did not buckle and there was no major inflation. That would happen only after the war ended, as a result of Germany trying to pay reparations in foreign currency.
Actually, there would be inflation during a war but only if there is no rationing. Since all the parties in WWI and WWII rationed goods and controlled prices via government fiat, there was no ‘inflation’. But…as in ALL wars, the money used to bankroll the war efforts and to bribe leaders to cooperate with the Great Empires required hard gold bullion. No paper. Not a scrap.
During the Napoleonic wars, it was the same. Gold was the only way governments could gain the services of allies! At home, the coins were debased while the pure coins are collected and shipped overseas! This happened quite a few times and goes way, way back in time, too. Thousands of years, in fact. In ancient times, weak governments did this to pay off potential invaders like say, the Vikings. HClick here to see a BBC show, Horrible Histories The Viking Payoff – YouTube.
Back to Michael Hudson:
This pro-austerity mythology aims to distract the public from asking why peacetime governments can’t simply print the money they need. Given the option of printing money instead of levying taxes, why do politicians only create new spending power for the purpose of waging war and destroying property, not to build or repair bridges, roads and other public infrastructure?
Let’s review what used to happen if one won a war: the losers lost land, goods, property, population and political power and had to pay reparations or were exterminated or moved into reservations or enslaved! Wars could be very lucrative! Ask the ancient Vikings!
The gamble is, if you print up worthless money, it is turned into gold via seizing the labor of the losers (enslavement and taxing them to pay for the costs of the war/invasion) or via exploiting the natural resources of the losers (American Indians learned this lesson) or displacing them entirely (again, the American Indians are very familiar with this!). If you win a war, you can rebuild your home base easily. Except usually, it pays more to park the loot elsewhere.
For example, when the Spanish fought the natives of the New World, they enslaved them and made them work to death in gold and silver mines, for example. The Spanish stole everything. Where did the loot go? To the average Spaniard?
NO. It went to…the Vatican! In Italy. HAHAHA. So much gold, St. Peter’s dome was clad in gold. Both the Spanish government and Italy went bankrupt not because they printed money but because the cost of wars, the internal factional wars and revolts at home were very expensive and they lost control of military overhead costs. Exactly what happened to Russia, Germany, France and England in WWI. They all went bankrupt. All.
The US, on the other hand, was the biggest winner. We bankrolled the British and French war with Germany. Russia’s rulers were brutally killed or driven out by enraged populations in a massive, important revolution. The ruling elites in the rival empires were scared to death they were next so they did various electoral and social reforms, bit by bit, fearing communists would come in and uproot them.
The US had the world’s biggest gold stash at the end of WWI and everyone else was reduced to pretending to be empires when they were hollow giants ready to fall to an angry resurgent Germany and a hungry Japan. Hardly able to stop either country from launching WWII and taking over a huge part of the planet, the US, the one last capitalist country with a stable currency and no debts to speak off, had to bail everyone else out and fought a two empire front war simultaneously, we were so strong. We had the industrial base, the workers, the natural resources and a solid currency based on gold and silver.
Michael Hudson continues:
This $13 trillion debt creation to save banks from having to suffer a loss was not accused of threatening economic stability. It enabled them to resume paying exorbitant salaries and bonuses, dividends to bondholders and also to pay counterparties on casino-capitalist arbitrage bets. These payments have helped the 1% receive a reported 93% of the gains in income since 2008. The bailout thus polarized the economy, giving the financial sector more power over labor and consumers, industry and the government than has been the case since the late 19th-century Gilded Age…
Bank of England official Andrew Haldane recently observed. “‘In terms of the loss of incomes and outputs, this is as bad as a world war.’ he said.
How many millions of Europeans died from violent retribution in the last three years? Virtually none compared to WWI and WWII. The US and NATO did butcher a huge number of natives in former colonial properties in Africa and the Middle East. They have suffered a real war, real revolutions and real thefts of property and being shoved out of their homes by foreign invaders.
What we went through was similar to the Great Depression. We haven’t had the other half of the equation. That is, wars FOLLOW depressions, not cause them. Wars cause inflation. This time around, the NATO power holders (the Bilderberg gang) has decided to prevent war inflation not with rationing but with a clever scheme of regressive taxes and fees or scam operations parading as public moral duties to save the planet earth. Here is a classic Bilderberg example: In Ireland, Carbon Taxes Pay Off – NYTimes.com
The government imposed taxes on most of the fossil fuels used by homes, offices, vehicles and farms, based on each fuel’s carbon dioxide emissions, a move that immediately drove up prices for oil, natural gas and kerosene. Household trash is weighed at the curb, and residents are billed for anything that is not being recycled.
The Irish now pay purchase taxes on new cars and yearly registration fees that rise steeply in proportion to the vehicle’s emissions…The three-year-old carbon tax has raised nearly one billion euros ($1.3 billion) over all, including 400 million euros in 2012. That provided the Irish government with 25 percent of the 1.6 billion euros in new tax revenue it needed to narrow its budget gap this year and avert a rise in income tax rates.
These taxes and fees hit the poor and working class very, very hard. The higher price of fuel hits them in the guts, hard. Higher energy costs bother the rich like a gnat bothers an elephant. While it is like a wolf to the workers, chewing off their limbs. All of this regressive taxation is used to STOP TAXES ON INCOME! That is, the rich. Just like we see here. The US has seen the rich gotten much, much richer in the last two decades of tax cutting while the poor have gotten eaten alive by inflation.
That is, we have inflation, lots and lots of inflation. The housing inflation was fun because people could sit at home and see the value rise like a rocket and many went very deep into debt based on the theoretical value of their homes. No more. Now, this lost its value while inflation in food, fuel and medical care shoots upwards relentlessly.
This is why we see rationing during wars. Rationing food, fuel and other necessities as well as luxury items. To control inflation. And the US is at war. And printing money like mad only little of it is helping us at home, here is where it is:
“We are investigating it, and if we find this is a way of laundering money, we will intervene,” said Noorullah Delawari, the governor of Afghanistan’s central bank. Yet he acknowledged that there were more questions than answers at this point. “I don’t know where so much gold would come from, unless you can tell me something about it,” he said in an interview. Or, as a European official who tracks the Afghan economy put it, “new mysteries abound” as the war appears to be drawing to a close.
Figuring out what precisely is happening in the Afghan economy remains as confounding as ever. Nearly 90 percent of the financial activity takes place outside formal banks. Written contracts are the exception, receipts are rare and statistics are often unreliable. Money laundering is commonplace, say Western and Afghan officials.
HAHAHA…the Afghanis are taking the many, many, many billions of dollars we wasted there and are converting this to gold which is one of several reasons why the value of gold shot up so much during the last decade. As I explained in the past, this happened during the Civil War, WWI and WWII except in the US where gold was, after the Civil War mess, regulated by the government quite severely. During wars, everyone tries to convert their cash into gold. This is ancient history and no shock to see the clever Afghanis, invaded often, doing the right thing and hoarding gold, converting US money into gold and then hiding it. Duh.
Ancient history. Very ancient history. And boy, do they remember ancient lessons! Wish we could.
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