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You are here You are here: Home Study Money & Banking Gold, Freedom and the Search for Truth
  Gold, Freedom and the Search for Truth       From: Lips Institute
ferdinand lips-smFerdinand Lips

This page is a tribute to an exceptional person and outstanding personality: Ferdinand Lips spent decades pondering classical Liberalism and, together with this, the history of money. Why? Because he believed money (i.e. gold) and human freedom were inextricably linked to each other.

In an age in which the nations of this world gain more power each day and the schools teach only the lessons that serve the respective government and its ruling class, and in which the media has largely sold its independence and no longer sees its role as critical scrutiny and objective reporting, but rather allows itself to be misused as an instrument of public deception, we are in dire need of the knowledge and teachings that have been built up over centuries and made a decisive contribution to the enormous growth of the individual nations and thus also to the rise of a broad middle class.

In Memoriam

Ferdinand Lips knew we are now in a system that will ultimately lead to a loss of individual freedom and rob humanity of its wealth. He was convinced this path toward enslavement could only be averted through awakening an interest in people for a basic knowledge of economic and social history. He therefore wrote various books, which remain as relevant today as ever. His book Gold Wars represents the high point of his long career. His desire to offer the world in-depth knowledge outside the mainstream is something we (his daughter and I as his students) wish to foster on these pages.

This website gives you an overview of the history of money that extends back to its origins. It also conveys the enormous personal knowledge of Ferdinand Lips, which he acquired over his decades-long career as a banker. He was an expert on the precious metals industry. And his reputation as an advocate of gold to protect against the rising tide of inflation was internationally renowned.

We have granted you access to speeches and book excerpts of Ferdinand Lips that offer you deep insight into the Austrian School of Economics. Ferdinand Lips was strongly influenced by the thoughts of this group, especially by such notable political economists as Wilhelm Röpke, Friedrich August von Hayek, Ludwig von Mises as well as Max Weber and Jaques Rueff. You will also be introduced to the opinions and viewpoints of Riccardo, Lord Acton and Alexis de Tocqueville as well as Johann Wolfgang von Goethe, who made history as guiding intellectual forces in favor of classical Liberalism.

We want to show you the significant role gold plays within a liberal social system in guaranteeing the preservation of our greatest possession – the freedom of mankind.

This is a website for inquisitive people. It offers you the possibility to gain new insights step by step and expand your knowledge for the benefit of your loved ones and yourself.

We wish you many hours of inspiring reading.

Claudio Grass, student of Ferdinand Lips

The Economic Crisis

From:: Introduction

Claudio Grass, Student of Ferdinand Lips and proponent of the Austrian School of Economics

The theories men construct, and the words in which they are framed, often influence their mind more strongly than the facts presented by reality.

Röpke (1899–1966), German economist.

The current economic order is based on a socialist foundation in the form of a government-monopolized, legally prescribed currency and a centrally planned economic system of dictated interest rates through the central bank of a nation. It functions like this: First debt is incurred. Then, through distortion, this debt takes on the guise of paper money. Because the paper money is not backed by anything of value, however, these pieces of paper are effectively worthless. But since the government stipulates that paper bills shall be recognized as legal tender for private and public debt, it generates artificial demand for something that no one would accept as money (= main means of exchange) if they were not forced to do so.

Imagine the repayment of all the debt in the world. This would mean that not one piece of “paper money” would continue to circulate in the economic system.

Due to the interest on debt, this system is subject to exponential growth. This means that over a long period, the debt rises moderately at first and eventually experiences massive acceleration.

grafik einfuehrung einst

The diagram above shows how exponential growth (green) overtakes both linear growth (red) and cubic growth (blue).

  •  Exponential growth
  •  Linear growth
  •  Cubic growth

We are currently at a position between 9 and 10 in the above diagram. This is the reason why the entire system must be flooded with thousands of billions. Ultimately this means that debt is being combated through the issue of ever more debt.

Can a system based on debt and payment promises work?

History has shown that this system only works for a certain period of time and then breaks down. The current situation differs from earlier ones only in that the debt is higher today than ever and that paper money is no longer backed by any effective value (see “What role does money play?”).

The global level of debt is around USD 160 trillion while global economic output amounts to about USD 45 trillion. This means the debt is three times as high as the output produced in one year. This debt is counterbalanced by assets, but their value will fall massively in the future as a result of radical currency devaluation.

Upon closer inspection, it becomes clear that less than 40% of this USD 45 trillion is attributable to the production of goods. Over 60% of the respective GNP is attributable to consumption and national government economic programs. These figures gain weight when one considers that the Western countries account for around 11% of the world’s population but consume 60% of all goods.

Paying off this huge mountain of debt is becoming an impossibility.

One man’s debt is another man’s asset. Hence, for wealth to grow, the level of debt must also increase to the same extent. This mechanism is supported by the interest rate system. The resulting scissor-like effect will keep widening until the point when the interest on the debt can no longer be paid. Once this happens, additional debt becomes unfeasible because lenders have lost their confidence in borrowers.

Individuals and corporations have long since reached their maximum debt potential. Only governments are now in a position to take on added debt, through the sale of additional government bonds. But today we are confronted with the fact that nations such as the USA, the UK and Japan are no longer able to find takers for their government debt securities. They buy them themselves, with new paper money created specifically for this purpose by their own central banks at no cost (0% interest).

What role does money play?

Money was and is a substitute that enables traders to simplify the exchange of goods. The prosperity of our society is based on the division of labor and the exchange of goods that have been produced, harvested or extracted from the earth.

In PRINCIPLES OF ECONOMICS (1871) Carl Menger* (mathematician and Austrian economist) wrote the following:

“As each economizing individual becomes increasingly more aware of his economic interest, he is led by this interest, without any agreement, without legislative compulsion, and even without regard to the public interest, to give his commodities in exchange for other, more saleable, commodities, even if he does not need them for any immediate consumption purpose. With economic progress, therefore, we can everywhere observe the phenomenon of a certain number of goods, especially those that are most easily saleable at a given time and place, becoming, under the powerful influence of custom, acceptable to everyone in trade, and thus capable of being given in exchange for any other commodity. These goods were called Geld” (i.e. money) by our ancestors, [...].” (p. 260)

Here, Carl Menger describes how through the exchange of goods, money was brought into being by individuals without any mutual agreement. Over time, people began to exchange their own goods for other goods that they did not need or want to use themselves. They were only willing to do this because they were convinced that they could exchange these new goods quickly and universally to satisfy their own needs or desires. These means of exchange therefore had to be in demand by a vast majority of the people. As time went on, people employed fewer and fewer goods as a means of exchange, because they preferred to use only the means of exchange that had the greatest marketability. About 1000 years ago, “money surrogates” (convertible claims on goods) were developed for the first time and used as a means of exchange. At first, however, they were only coveted because they could be converted into commodity money at any time. But today, almost exclusively only fiat money is exchanged (which means former money surrogates that will never again be convertible into commodity money) because governments only accept such money as payment and legally require all citizens to accept it.

Money is only money when it is a store of value and is thus in scarce supply and cannot be readily duplicated. Until World War I, the Western countries therefore had a gold standard. This guaranteed that the vast majority of the money issued in the respective countries was backed by gold. And this meant that paper money represented nothing else than a sales receipt for gold that guaranteed the holder of the receipt the right to exchange it at any time for gold from the issuer.

In this way, it was impossible for governments and banks to entice and buy people with unfinanceable (election) promises through the creation of debt money (without backing).

The gold backing was gradually abandoned over the past decades. Since 1971, we have a system that allows governments to create money at will through the central banks.

Since money is no longer a scarce good if it can be created at will, it inevitably loses value. Looking for example at the history of the USD since establishment of the Federal Reserve System (US central bank) in 1913, one sees that the currency has lost more than 95% of its value in this period. This makes it clear that the necessary stability has been lacking for quite some time. Cheap money inevitably leads to bubbles in existing assets.

The unrealistically high valuations that result from this reflect only the inflation building up, concentrated within a few of these “asset classes” such as stocks, real estate and bonds. These assets are purely of a virtual nature. Be that as it may, bubbles always come to the same end, they burst.

*More on this topic by Carl Menger is available at:

http://docs.mises.de/Menger/Menger_Grundsaetze.pdf (German)

http://mises.org/books/origins_of_money.pdf (English)

What role does confidence play?

When we place the enormous global debt in the context of the inflated currencies (see “What role does money play?”), it becomes clear that we live in a system that is only kept going by confidence! It is the people’s confidence in the “paper promissory currency” that truly gives it value. But banknotes today offer only a paltry guarantee: You can exchange these slips of paper at any time for other equivalent banknotes.

Another aspect is the dependency of governments on other countries. This came about through the sale of gold reserves, which the countries replaced with investments in USD because most governments had great confidence in the USA at the time of the economic boom and expected higher returns on these investments than from the stockpiled gold. If the USD falls under these circumstances, however, the reserves of the respective central bank will also drop. Hence, an imbalance will arise and grow with respect to the actual amount of currency in circulation, causing the currency to lose value. When that happens, people will realize that paper money has no value because it has no backing. People will try as fast as possible to exchange banknotes for physical goods. The velocity of money circulation will increase, and so to inflation, leading to so-called hyperinflation. This will destroy the confidence in the paper money system completely and for good.

What role does the USA play?

After World War I ended, the gold standard at the time (see “The role of money”), which was suspended during the war, was replaced at the Genoa Conference (1922) by a gold exchange standard with the USD and the GBP. This meant no less than that from then on the GBP and the USD could also be recorded as official currency reserves in addition to gold. The next conference took place in July 1944, in Bretton Woods (USA), at which the GBP was eliminated as a reserve currency and the USD was designated as the sole global reserve currency apart from gold. This gold exchange standard functioned in such a way that the United States had to be ready at all times to repay debt accumulated in USD on demand in gold if so requested by a creditor nation.

This last anchor was also abandoned in 1971, under President Richard Nixon, when he refused to exchange additional gold for outstanding USD foreign debt. The reason for this was that the USA was already virtually bankrupt at the time. From then on, the world had to accept that only the USD qualified as the sole reserve currency. This privilege allowed the Americans to consume as much from abroad as they could cover with USD produced with the printing press.

What role does the current debt of the USA play?

grafik einfuehrung usaThe United States with its USD currently accounts for over 60% of the total global currency reserves held at the individual central banks (see “The role of confidence” and “The role of the USA”). For months now, it has been apparent that the other countries have grown more wary about maintaining the same level of help in shouldering the enormous debt burden of the USA. They are calling on the USA – but with only mild pressure – to curb its deficits at home. One reason for this is that the countries doubt whether the USA will ever be able to repay its debt. At the same time, however, the individual central banks abroad know that if the dollar collapses, their respective country will also fall apart.

For institutional and private investors, the attractiveness of US government bonds is quite low given the laughable interest rates and the threat of inflation. Hence, America faces the problem that it cannot keep expanding its debt at the same pace as up to now. This is the reason why the Fed is now itself buying US government bonds in the market – directly and indirectly.

In 2008, the total public and private debt in the USA amounted to over USD 111 trillion or more than 1,000% of the annual economic output, as illustrated by the following diagram from the Dallas Federal Reserve Bank:

(GSE = Government Sponsored Enterprises / SS= Social Security)

You can go to the well once too often. Time will tell how long this paper money game can persist before it implodes. Two things are clear, however. First, it will eventually break down. And Second, the longer it continues, the sharper and further the fall will be.

Money & Banking

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