In Jim Cook's Archive


The apparent reason to buy silver and gold is to profit. Underlying that motivation is a more profound reason, the need for protection. The mainstream economic view argues that buying precious metals is an exercise in futility. They believe that Washington and Wall Street have it right. The economic policies of the government and the central bank are correct and you don’t need silver or gold.

However, another school of economic thought stands squarely against the Keynesians in Washington. They argue that the prevailing philosophy is a prescription for disaster. Although small in number, the Austrian School of economics levels trenchant arguments against the policy prescriptions of the liberals in charge of our economic destiny. Chief architect of the Austrian School in America was Ludwig von Mises (1881-1973) who emigrated to the U.S. from Austria prior to World War II. He taught economics at NYU and wrote 15 or more books that are still read today. His views are the primary reason silver and gold have a following.

Sound money advocates and free market economists consider him to be the greatest economic thinker in history. He believed in limited government, the gold standard, sound money, capitalism and personal freedom. Mises attended the University of Vienna during the high tide of the Austrian School. His accomplishments are prodigious. In 1920, he showed that socialism and planning must fail because of the lack of market pricing. Mises’ checkmate to collectivism was widely acknowledged when communism collapsed seventy years later.

Mises was able to show that inflation was no more than taxation and redistribution of wealth; that prices will most often fall without government induced money injections; that increases in the money supply, e.g. a sudden doubling of everyone’s money holding benefits society not an iota and in fact only dilutes purchasing power. Nor can government originate money. Money is not arbitrary pieces of paper but must originate as a useful and valuable commodity.

Recognizing that the market economy could not generate by itself a series of booms and busts Mises fixed the blame on an outside factor – the habitual expansion of money and credit. He argued that a credit-induced boom must eventually lead to a depression. He wrote, “The boom can last only as long as the credit expansion progresses at an ever-accelerated pace. The boom comes to an end as soon as additional quantities of fiduciary media are no longer thrown upon the loan market. But it could not last forever even if inflation and credit expansion were to go on endlessly. It would then encounter the barriers which prevent the boundless expansion of circulation credit. It would lead to the crack-up boom and the breakdown of the whole monetary system.”

He warned, “The credit expansion boom is built on the sands of banknotes and deposits. It must collapse.” He stated, “If the credit expansion is not stopped in time, the boom turns into the crack-up boom; the flight into real values begins, and the whole monetary system founders. Continuous inflation must finally end in the crack-up boom and the complete breakdown of the currency system.”

Said Mises, “Credit expansion is not a nostrum to make people happy. The boom it engenders must inevitably lead to a debacle and unhappiness.”

“The final outcome of the credit expansion is general impoverishment. Some people may have increased their wealth; they did not let their reasoning be obfuscated by the mass hysteria, and took advantage in time of opportunities offered by the mobility of the individual investor…but the immense majority must foot the bill for the malinvestments and the overconsumption of the boom episode.”

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