Gold standard lecture

Saifedean presents his book The Gold Standard — which he describes as a work of economic fiction, an alternative history of the 20th century. He argues that the pivotal event that pushed civilisation "back into barbarism" was the First World War and, above all, how it was financed, and that Britain's suspension of gold convertibility in 1915 effectively suspended the gold standard for the entire world, since London was the global centre of settlement. The book then asks a single question: what if money could have left? — ie what if a technology in 1915 had allowed people to withdraw their gold from the banking system and thereby "rug" the central banks' Ponzi schemes.

1. The historical argument: how the war was financed

• Before 1914 the Bank of England was already effectively insolvent, holding only 31% gold backing against the liabilities it issued. It could get away with this because it held a near-monopoly on international settlement, which most of the world's modern economies relied upon.
• To finance the war the British government printed roughly £300 million that was not redeemable in gold — a point Ammous says is rarely mentioned.
• A run on gold followed: in the first week of the war, before Britain had even entered it, about £12.3 million of £26.5 million in reserves was paid out to depositors. This culminated in August 1915 in the formal suspension of the gold standard in Britain — and therefore, in practice, worldwide. People could no longer redeem their money; they were told to make payments in gold while accepting paper from the government and the Post Office.
• The November 1914 episode, revealed only in 2017. Bank of England staff clearing out the basement found an old report on the government's attempt to sell £350 million of war bonds. The British public — "to their eternal credit" — bought only £91.1 million: 97,000 buyers in a nation of 46 million, less than a quarter of one per cent. Facing the shortfall, the Bank of England bought two-thirds of the outstanding bonds plus another £250 million, roughly £450 million in total, registered in the names of two employees — the bank's cashier and one other. In effect, two individuals were extended a credit line that financed British entry into the war. Ammous calls it "a huge scam" whose exposure would have changed everything.
• Keynes, then a Treasury official and one of the few who understood what had happened, called it "a masterful manipulation of the bank returns": the bonds were placed on the Bank's balance sheet under the label "other securities".
• In Austrian terms this was circulation credit, not commodity credit — credit not backed by savings (Mises's distinction). Its consequences are currency devaluation, boom–bust, and malinvestment; here, the malinvestment was the war itself.

The structural diagnosis: as industrial trade spanned greater distances, gold could not travel as fast as money was needed, so reserves centralised in central banks. The greater the distance between people and their own money, the greater the state's capacity to finance itself by inflation. Hence Mises: the gold standard did not fail; governments were eager to destroy it, because they wanted inflation to fund their "criminal and stupid ideas" — and they could only destroy it because the gold lay in their hands. Mises's letter also warned that the real danger was mass withdrawal: if enough people demanded their money, the "shell game" would collapse.

2. The counterfactual: aviation as the exit technology

• The fork in history occurs around February 1910. Inspired by Stephan Kinsella's work on intellectual property, the Wright brothers forgo litigation and instead reinvest their time in building aircraft and a commercial application.
• They ally with Louis Blériot — the French pioneer (and inventor of the car headlight) who first flew across the Channel — cast here as the book's "Satoshi Nakamoto". Blériot's insight: aviation must stop being "a rich man's plaything" and find a commercial use. He chooses moving gold, because gold is the most economical good to carry — very high value per unit of weight.
• The venture is the Blériot Transport Corporation (BTC) — "subtlety was never my strong suit". It lets anyone move gold without going through central banks: a peer-to-peer, final-settlement system for gold, uncensorable in the manner of Bitcoin, since aeroplanes could take off from and land in any empty field, launching far from borders and beyond the range of guns.
• By 1915 there were 144 aircraft operating across Europe and the United States. When war breaks out, demand surges: people can remove money from central banks and trade directly with counterparties.
• The result is literal capital flight. Gold leaves the belligerent countries for the neutral ones; paper currencies collapse; governments can no longer pay soldiers. By September–November 1915 the war ends — the trenches empty, with no proper resolution.

"The illegal exporters of capital are benefactors of their nations, because capital flees when senseless and spendthrift governments squander it, and then by taking it elsewhere they save it from devastation and preserve it for future use when common sense has returned."

Capital flows to Switzerland, Liechtenstein, the United States, Canada, the Netherlands, Spain and Norway — the neutral countries become the war's real winners, having fired no shots. The belligerent empires are left bankrupt with collapsing currencies and unpaid armies.

3. The Geneva settlement: a framework built on three pillars

A conference in Geneva is convened by the Swiss and Americans to resolve the crisis: the neutrals hold too much capital but dare not return it, and the former belligerents cannot afford to fight. The dramatis personae are "the best people who would have been around in 1915":

• Ludwig von Mises (free trade)
• Henry Ford
• Sergei Witte (Russia)
• John Morley (Britain)
• Ralph Eucken† (Germany)
• Prince Sabahaddin (Ottoman Empire)
• Luigi Einaudi† (Italy)
• Johann II of Liechtenstein — then Europe's longest-reigning monarch (and among the longest-serving in history, since overtaken by Queen Elizabeth II); he serves as elder statesman, carrying the ideas his great-nephew Prince Hans-Adam II later set out in The State in the Third Millennium — here written a century earlier as The State in the 20th Century.

The package rests on three ideas:

1. Free movement of capital — the engineers' and Blériot's demand, plus guarantees for the safety of aircraft, which underpins monetary and financial freedom.
2. Free trade (Mises) — if goods can cross borders, armies need not: the war's motives of securing seas and trade routes dissolve, since one can move goods through territory rather than conquer it.
3. Self-determination (Hans-Adam II's ideas, moved a century earlier).

The mechanism — the International Committee for Self-Determination, a neutral Swiss body enforcing independence referenda worldwide:

• Any area with more than 50,000 residents may secede, join another government, or become independent.
• Any result can be reversed by a later referendum, via a clear process.
• The incumbent sovereign must respond without force or the threat of force, and may not restrict the movement of goods — though it may restrict the movement of people (it need not admit them).
• 1% of adults in the territory must sign; the campaign must be self-financed, paid to Switzerland, which sends Swiss referees and arbiters to run the vote.
• A majority "yes" binds all signatories of the Treaty of Geneva to recognise the new entity; refusal means exclusion from the system of free capital and goods movement.
• Enforcement comes from capital itself: money seeks safety, and safety requires a civilised order with protected property rights. The incentive to conquer falls, because ruling people yields little; and the standard pretext for war — protecting a minority — evaporates, since any territory may simply secede.
• Result: no victor, no Treaty of Versailles, no acrimonious settlement. "Choice, not voice" — people no longer vote on who governs them but on which government to join. Politics becomes a market.

Scale: the number of political entities mushrooms to up to 228 (the transcript says "by 1934 or 1943"), then consolidates somewhat by the 1970s as economies of scale draw polities together — but the system stays fluid, with governments merging and splintering and people free to move. Ammous compares it to consumer choice: you don't vote on what Apple does with the iPhone; you choose whether to buy it — and that produces better iPhones. This is Professor Hoppe's vision of thousands of Liechtensteins, approached.

4. Economic consequences

From borrowing to saving.

• Money appreciates; inflation no longer pays; saving becomes normal and lucrative. It becomes ordinary for everyone to hold multiples of annual earnings in savings.
• The yardstick of sovereign finance shifts from credit ratings and debt-to-GDP to the reserves-to-expenditure ratio — roughly 10, i.e. ten years of spending held in reserve, for individuals, firms and governments alike.
• Money is given at birth and appreciates; by 25, a couple can buy a house outright without debt — "what naturally should have happened if the money wasn't designed to rob you".

Government.

• Monarchies would likely outperform — long-term family businesses with identity, tradition and belonging, which fiat destroyed in the 20th century. ("I become perhaps more Hoppean than Hoppe here.")
• Private, corporate government emerges: John Cowperthwaite (credited with Hong Kong's miracle) is recast as founding a private governance company that takes over any territory that votes for it, offering a tax deal and running the country.
• Lending to governments dies: citizens can vote their way out of public debt, leaving the government personally liable, which no government can bear. Governments must therefore be fiscally responsible and accumulate savings; capital migrates from irresponsible to responsible governments; efficiency rises.
• The cost of government falls below 1% of income, with flat fees and possibly land taxes replacing income tax.

Prices. With gold supply growing about 1.8% a year, any good whose supply grows faster gets cheaper, and the faster it grows the faster the price falls. Computing is cheapest (invented earlier, since money is not wasted on wars); then energy, industrial goods, metals and minerals; food falls slowest, being bound by natural limits.

Wages fall in real terms for the first fifty years — gold is being remonetised as silver, government money and government bonds are demonetised, so gold's value rises sharply — then recover as living standards rise, hours fall and population growth slows. In our world the reverse happened: houses became dearer because they are used as savings accounts, so buyers compete with savers rather than with other occupants — the core of the housing-affordability problem for the young.

5. What would not exist

• "Unemployment" — a fiat phenomenon, born of monetary manipulation and the business cycle; the concept did not exist before 1918 (verifiable via Google Ngrams).
• "Inflation" as everyday terminology — negligible before 1914, ubiquitous after.
• National income, GNP, GDP — constructs of the 1930s that treat society as a farm for the government to milk rather than people to be served.
• "Recession", "business cycle", "economic downturn" — not genuine scientific categories but functions of fiat money's destruction.
• Leftism — without central banks, nobody finances "the Bolshevik criminals" to seize Russia; leftism is intellectually, financially and operationally dependent on modern central banking.
• The Second World War — no Versailles, no Weimar, no Hitler; Germany remains a monarchy, with territories entering and leaving the German Confederation under self-determination.
• Israel — an "entirely fiat phenomenon": the Balfour Declaration, promised to the Rothschild family in return for bringing the United States into the war, never happens; with the war over in 1915 there is no Soviet Union and no British money printer to subsidise the project.

6. Conclusion

The book's thesis is the freedom of money to leave:

• If money can exit places that mistreat it: money disperses, banks must stay solvent, governments must tax responsibly and transparently, savings grow, and states must compete as service providers.
• If money is trapped: reserves centralise, banks pyramid credit, states borrow against their citizens, savings are destroyed, and governments grow totalitarian, despotic and unaccountable.

References named in the lecture