Guest Post: Piketty's Gold?

Tyler Durden's picture

Originally posted at The New York Sun,

With all that has been written in respect to Thomas Piketty's new book, “Capital,” you would think that someone — Paul Krugman, say, or Jonathan Chait or David Brooks or Hendrik Hertzberg; we’re not worried about who it might be so much as someone among the liberal intelligentsia — would have remarked on an odd coincidence of timing. We’re speaking here of the timing of the rapid rise of the blasted inequality over which Professor Piketty is so upset. After all, this inequality has become the cause celebre of the season for President Obama and his entire political party. It’s the issue of the hour. Yet when it comes to the timing at which this phenomenon presented itself, nada. Omerta.

Well, feature the chart that Professor Piketty publishes showing inequality in America. This appears in the book at figure 9.8; a similar version, shown alongside here, is offered on his Web site. It’s an illuminating chart. It shows the share of national income of the top decile of the population. It started the century at a bit above 40% and edged above 45% in the Roaring Twenties. It plunged during the Great Depression and edged down in World War II, and then steadied out, until we get to the 1970s. Something happened then that caused income inequality to start soaring. The top decile's share of income went from something like 33% in 1971 to above 47% by 2010.

Hmmm. What could account for that? Could it be the last broadcast of the “Lawrence Welk Show?” Or the blast off of the Apollo 14 mission to the Moon? Or could it have something to do with the mysterious D.B. Cooper, who bailed out of the plane he hijacked, never to be seen again? A timeline of 1971 offers so many possibilities. But, say, what about the possibility that it was in the middle of 1971, in August, that America closed the gold window at which it was supposed to redeem in specie dollars presented by foreign central banks. That was the default that ended the era of the Bretton Woods monetary system.

That’s the default that opened the age of fiat money. Or the era that President Nixon supposedly summed up in with Milton Friedman’s immortal words, “We’re all Keynesians now.” This is an age that has seen a sharp change in unemployment patterns. Before this date, unemployment was, by today’s standards, low. This was a pattern that held in Europe (these columns wrote about it in “George Soros’ Two Cents”) and in America (“Yellen’s Missing Jobs”). From 1947 to 1971, unemployment in America ran at the average rate of 4.7%; since 1971 the average unemployment rate has averaged 6.4%. Could this have been a factor in the soaring income inequality that also emerged in the age of fiat money?

This is the question the liberals don’t want to discuss, even acknowledge. They are never going to get it out of their heads that the gold standard is a barbarous relic. They have spent so much of their capital ridiculing the idea of honest money that they daren’t open up the question. It doesn’t take a Ph.D. from MIT or Princeton, however, to imagine that in an age of fiat money, the top decile would have an easier time making hay than would the denizens of the other nine deciles, who aren’t trained in the art of swaps and derivatives. We don’t belittle the skills of the top decile. We tend to view them the way we view great baseball players or violinists — heroic figures. Neither do we make a totem out of economic equality; in inequality, after all, are found incentives.

In terms of public policy, though, we favor honest money. It works out better for more people. And there is a moral dimension to the question of honest money. This was a matter that was understood — and keenly felt — by the Founders of America, who almost to a man (Benjamin Franklin, a printer of paper notes, was a holdout), cringed with humiliation at the thought of fiat paper money. They’d tried it in the revolution, and it had been the one embarrassment of the struggle. They eventually gave us a Constitution that they hoped would bar us from ever making the same mistake.

There is an irony here for Monsieur Piketty. It was France who gave us Jacques Rueff, the economist who had the clearest comprehension of the importance of sound money based on gold specie. He was, among other things, an adviser of Charles De Gaulle. It was De Gaulle who in 1965, called a thousand newspapermen together and spoke of the importance of gold as the central element of an international monetary system that would put large and small, rich and poor nations on the same plane. We ran the complete text of Professor Piketty’s book “Capital” through the Sun’s own “Electrically-operated Savvy Sifter” and were unable to find, even once, the name of Rueff.

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logicalman's picture

As soon as a few grabbed the exclusive right to print 'money' inequality was sure to increase.

Until 1971 there was at least some connection to reality, however small.

And here we are.

DoChenRollingBearing's picture

Honest money != gold standard

FOFOA took a long look at "Honest Money" here:

http://fofoa.blogspot.nl/2011/05/return-to-honest-money.html

EDIT:

In the event of financial calamity, we're going to need the gold (each individual's own, private, non-confiscated gold) as capital to rebuild.

spine001's picture

Multigenerational Preservation of capital in the presence of inflation is a very complex task. Obviouslly the top decile is better equipped to defend their capital than the bottom 90. Henceforth, it is a valid inference to assume that inflation will preserve and increase the income divide between the top and the bottom. If somebody thinks otherwise they still need to present any reasonable case. 

Derezzed's picture

Dear zh readers, don't waste too much time on Piketty. He is just a fraud : a socialist keynesien, a pure ideologist who pushed for the election of the biggest failest moron president the country has ever seen, with the orwelien state that goes with it (novlang, full narrative, etc etc).

Poor us ...

SAT 800's picture

Maybe it's just a co-incidence.

Unknown User's picture

It's not the gold, it's the Fed and the fractional reserve. Besides, WTF is sound money?

ebworthen's picture

It's both.

Create central banking and fractional reserve systems while unhinging from tangibles.

This has allowed them to jigger and lie about everything else; currency valuation, inflation, employment, debt; everything.

Unknown User's picture

It's not like they let you see the gold in their volts. Fractional reserve gold is a scam. The issue is who prints money and not what it's made of.  History shows that successful monetary systems were based on twigs, copper, bronze, etc.

It is said “Let me issue and control a nation’s money and I care not who writes the laws.”  

 

ebworthen's picture

Right.

When you can't exchange a paper bill for tangible Silver or Gold or copper or beef or twigs you have a complete fiat paper mache dreams machine.

JFK was assassinated for trying to restore the Silver Certificate.

Nixon came along and ended the Gold standard 1972.

That was move 3 of FED and Income Tax circa 1913.

DoChenRollingBearing's picture

Had Nixon not ended the exhange of gold for foreignly held dollars in 1971, we would have no (national) gold, it was disappearing very fast, led by France!

Nixon had no choice.  All of our gold would have been gone, say, by 1977.  For $35 / oz.

Vint Slugs's picture

DCRB, I respect your views expressed here but this one is off-base.  Sure Nixon had a choice.  Instead of following Friedman's crackpot advice, he could have debased the dollar against gold.  Instead of closing the gold window and defaulting on the US international contractual obligations to redeem $ in gold, he could have debased the dollar price to, say $70- or even $100/oz gold.  Since that alternative was not adopted, now a dollar debasement would probably be around $8000/oz - that's at a minimum textbook debasement based on US M2.  Based on outstanding global fiat notes the per/oz number is probably north of $12000.

DoChenRollingBearing's picture

OK, yes, that would would have likely worked as well, one way or another, + 1.  He did have to do something fairly drastic though.

Rubicon's picture

He could have stopped printing dollars.

Dick Buttkiss's picture

Unknown User: "WTF is sound money?"

Sound money, UU, is whatever the people decide it is, nothing more and nothing less.

Get that through your head, and you're halfway home, the other half being what government has done to it:

http://mises.org/money.asp


ebworthen's picture

Yup.

They didn't create central banks and move away from sound money to benefit the citizenry.

logicalman's picture

The rich invented money to benefit themselves at the expense of others.

Started as soon as humans stopped being nomadic hunter-gatherers.

Still works, it would appear.

ebworthen's picture

Well, interest based lending and fiat at the least.

logicalman's picture

I should have put the word money in quotes.

Sloppy on my part, I was really referring to paper money/currency.

I do know the difference between real money and currency.

ebworthen's picture

Roger, you are correct, they love "money" and interest and non-tangibles that disconnect labor from reality.

NidStyles's picture

Some humans have stopped being hunter-gatherers. If you look on TV and watch the news and see the wlefare enrollment it's obvious that there are still a lot of primitives out there. 

Pickleton's picture

Never mind.  The huge error in your wording was addressed

Vint Slugs's picture

Lm,

"The rich invented money...."

You are so full of shit.  You have, literally, no idea about what your are talking.

Spungo's picture

It looks like workers around the world started getting a bigger piece of the pie between the years of 1932 and 1945. It went flat for about 20 years then went back the original highs as survivors of that generation became adults.

ebworthen's picture

Your thought is unclear, care to extrapolate?

Dr. Engali's picture

It's not that hard to comprehend. Without gold to tie the currency to, the fed can print with reckless abandon. Those closest to the printers reap all the benefits of freshly printed currency. By the time the rest of us get trickled on our buying power has been inflated away.

Unknown User's picture

"The government should create, issue, and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers. The privilege of creating and issuing money is not only the supreme prerogative of government, but it is the government’s greatest creative opportunity. The financing of all public enterprise, and the conduct of the treasury will become matters of practical administration. Money will cease to be master and will then become servant of humanity." - Abraham Lincoln

Charles Nelson Reilly's picture

Fucking Lincoln... What a statist prick. When he wasn't slurping on William Clay's nuts & stroking off his awful Whig Party, he was out promoting the nonsense of Hamilton's central bank ideas.

Not to mention the prick is revered for getting us into a senseless war that killed over 700k people. Only in America could we worship a killer like that,

Jimmy Carter was right's picture

How'd that slavery thing work out for ya? Still paying for unpaid wages 150 years later, whys that? Maybe shoulda done the work themselves? Who woulda thought all the social problems we'd have cause of slavery 150 years later. But it was Lincoln that dirty rat? Go fuck yourself.

Charles Nelson Reilly's picture

Uhhhh, yet another unenlightened clueless fucking shill. Explain to me newbie, how many other countries fought civil wars over slavery? From the history I've read, none. That's right, every other country in the world had ended slavery peacefully.... Except for old Honest Abe. Yep, there had to be a retaliation after that horse was killed at Fort Sumtner.

What a fucking statist dimwit you are. The civil war was never about slavery. It was about a powerful centralized govt having control over the states and their rights. Lincoln used slavery as the last vestige to win his war.

Jimmy Carter was right's picture

What the fuck Chuck?

Newbie? Look again. Yeah johnny reb woulda ended slavery about the same time our partners in freedom Saudi Arabia did, about 1964. We're still paying for confederate salt of the earth laziness 150 years later.

Inbetween is pain's picture

Talk about dimwits--you empty headed moron, you're probably a southerner who forgot his own history, or never learned it right in your backward school system.  Who fired the first shot of the Civil War?  Who seceded from the Union and declared War?  The Southern States, you unbelievably stupid motherfucker.  The only thing Lincoln did to provoke their anger was to get elected.  Despite what that closeted bigot O'Reilly says, Lincoln was our greatest president.

Sean7k's picture

The southern states had every "right" (international law at that time) to secede from the Union. Nothing in the Constitution allows for the forced taking of States. It was Lincoln that suspended Habeus Corpus, Illegally printed greenbacks and bears the responsibility of every rebel death and dismemberment. May he be sequestered in the deepest, darkest corner of hell.

Because of Lincoln, States and their citizens are now debt slaves of a federal government run amok. The tenth amendment is all but gutted. The Constitution held you were a citizen of an individual state, but the 14th amendment changed that and allowed for the slavery of all. While Lincoln did not live to see the amendments passed, thank you John Wlikes Booth, he knew what he was doing and what for. 

The South did not start the war, anymore than Spain, Germany, Vietneam, etc did. They defended themselves from an aggressor. We are all poorer for the road Lincoln set us upon. I would not be surprised to see secession again in our lifetimes, by many parts of the USA, because of the same North Eastern money establishment. 

You are a special kind of dimwit, the one who believes what he is told. Read real historical research, not the crap the government puts in schools. Start with, "A New Economic View of American History", "Bloodlines of The Illuminati" , "A History of Money and Banking in the United States". You could also go to www. state-citizen.org for additional information on legal changes and background. 

BigJim's picture

Cuz no other country ended slavery without a massive war that killed three quarters of a million people.

Riiiight...

Inbetween is pain's picture

The death of 700K people seems like a fair trade for the freedom of 4 million.  Particularly since half of the dead were mostly worthless, bigoted Southerners.

MeelionDollerBogus's picture

Could have just split into North and South with no war and no slavery in the North and keep getting slaves to escape in the South. It's not like slavery ended in the world.

nevadan's picture

Spoken by a man who needed to finance a war.

TheReplacement's picture

Best criticism of Lincoln I've seen yet.

To the guy below, who fired the first shot?

Ness.'s picture

  ...but it is the government’s greatest creative opportunity. 

 

They've created quite the paradise.

disabledvet's picture

as long as oil remains priced in dolares the Fed can print with impunity.

Until the Ukraine thingy i think a good argument could have been made that situation was in deep doo-doo. But then you the whole Syria thing (which Israel and Saudi Arabia opposed) which was then quickly followed up by Ukraine.

We've just had strikes deep into Yemen...I think you get the message as i'm really preaching to choir on this site.

The problem has become in my view and as i've said before one of a "crowding out effect" as treasuries simply become the only asset left standing here.

We cannot grow the US economy while that is still "in effect."

One solution...incredibly enough...is for the USA to return to gold. Say 1500 bucks an ounce or something.

The other is a very convoluted scheme to "go all in on Total War with Russia" which my Inner Historian says is a REALLY bad idea.

I think I might be too late on "Plan B" however.

Ironically...Plan "G" might still be effected in spite...or perhaps even because of...Plan B (or is it U?)

BigJim's picture

1500 bucks an ounce? Try 7500.

NoDebt's picture

Doc, honestly, given what I'm seeing going on (and increasing with every passing year), I seriously doubt that even a hard-gold-standard could stop the amount of distortion and corruption going on.  They'd just find a new way to game that system, too.  It would probably involve lying.

 

 

TheReplacement's picture

Don't forget stealing, raping, and pillaging!  Got tungsten?

Sean7k's picture

The Constitution was incredibly clear that we were to have a hard money regime based on the silver dollar and gold equivalents. Reading Alexander Hamilton'e arguments for a fractional reserve currency can make your blood boil. Reading Blackstone's commentary on paper money restores your faith in humanity. 

As long as you have law and the means to modify it, you will have tyranny. 

Now, the Constitution has not changed in this regard. Congress has neither the power to incorporate a central bank nor make FED notes legal tender. These powers were NEVER enumerated to Congress.Thus, these laws are null and void. A dollar will remain 374.5 grains of pure silver until an amendment is passed to change it. No Congressional, Executive nor Scotus declaration can change the fact that the Constitution is the SUPREME law in the land. Second only to We the People.

NOTaREALmerican's picture

Survival of the fittest, Bitchez.

The dumbasses getting eaten have no idea how it happened either.  As a society, we can't even pass predatory lending laws to keep the obvious sociopathic predators from feasting off the obvious least-smart people society, so how are we - as a society - supposed to have a moral frame-of-reference about "honest money"?   We're a nation that rewarded the predators for generations, laughed at the prey, and now that a few of the prey actually realize what's happening and happen to be intelligent enough to write a blog, we're supposed to stop the predatory society just-like-that?   Life don't work that way.

Nope, the predators are gonna feast.  Not sure exactly how it will stop, but our society won't stop it,  we don't even have the language to describe why is should be stopped.  

TheReplacement's picture

It needs to stop because it is causing many people to be hurt.  Soon it may cause a war.  If we look the other way on this crime then what is to stop them from escalating to more blatant, harmful, and violent crimes?  We see wrong we must act to right it.  Otherwise it will continue and eventually come back on us.  It is purely in our own self interest that we must protect ourselves from the wolves.  Yada yada...

jaxville's picture

Honest money is natural money. Gold is pretty rare for the average or low income person. Trade will involve a great deal of "commodities"  barter or just plain old deceit, violence and prostitution in the intial stage of a monetary collapse.

      Gold has been money for a very long time. It won't take long for the sheople to awaken to that cosmic reality.

Hughing's picture

Hiding the decline is a way of life for our public elders

Charles Nelson Reilly's picture

Fucking Keynesians are the most dishonest, disgraceful & cowardly bunch to crawl out from the campus dungeons where they were bred.

I'm not really a violent person, but after a couple of drinks I could see myself knocking Krugman's teeth out. Fuckheads like him make my blood boil.

TheReplacement's picture

You'd need a couple of drinks first... pansy.

MeelionDollerBogus's picture

Now try talking economics to a Marxist.