Professor Jesus Huerta De Soto sent me a copy of his new film called “In Defense of the Euro (An Austrian Perspective)”. You can watch it here.
For those truly interested in the Gold Standard as a potential solution to our monetary crises, whilst the Euro is a very weak imitation of it, it does force governments in the euro area, in the absence of any ability to mint up money out of nowhere, to confront their profligate over-expenditure and move towards being honest with their citizens over it.
We who sit in nations that can mint up new money from nowhere – the UK, USA, and Japan – can seemingly avoid the pain of confronting our profligacy, but we wither on the vine; the pain is required to and grow and prosper again. The eurozone area will be on a stronger footing, with governments living within their means, much quicker than in the nations where monetary nationalism rules the day.
To all those who trash the Euro and Euro-style solutions, you should listen to what the Professor has to say, reflect on this contrary view, and challenge your perspective. You may find that, surprisingly, the Euro could lead to smaller governments and more honest money.
Thank goodness this is being noticed now amidst all the anti-euro propaganda, probably eminating from those arch-printers in The City. Mises hated floating currencies ,and at least within the eurozone ,countries don’t have that option. That is still worse than the gold standard and the euro is far from perfect and ultimately it will meet the same demise of all fiat currencies, but compared to this QE nightmare we have, the euro block will be far ahead when their restructuring is complete.
The caveat is that bank collapse may yet take us all down.
Hello Gary.
Just curious as to why you think the gold standard ever stopped governments from over-spending?
I have seen Britain and then the US overspend and simply come off the gold standard.
But they destroy their currencies in the process.
At least with the Euro set-up, countries can get themselves into debt (as they have done) but the currency will be kept stable whatever happens.
The Euro architects have moved is forward, rather than backwards to a system that has failed repeatedly.
Some advice for people producing videos like the above.
1. Re the first two minutes which consists of lots of pictures of impressive European buildings and nice music, no one with a brain is impressed by that. And second, most people with a brain don’t have time for it.
2. Re the explanation as to how economies evolved from barter to using money, anyone with a knowledge of economics, if they haven’t already switched off half way thru the above music and pictures of buildings, will probably switch off, like I did.
3. When producing a video, provide a transcript at the same time, preferably divided into sections each with a heading. Most people can read much faster than a speaker presenting a video, particularly the one above. And some people can read ten times faster.
Hello Ralph.
Just curious, is your understanding that we evolved from barter to money through the ages?
Yes and no- The official debt/GDP limit under the EU mandate is 60% isn’t it? with the vague caveat that if it is- ‘it should each year decline with a satisfactory pace towards a level below’. That’s hardly been strongly enforced, it doesn’t hold the politician in office into account, heaven help who has to take over from Francois Hollande. Not that we’re in any better shape in the UK. The undoing of business regulation is still the biggest thing hamstring the economy, and the drive to create a federal Europe, with full political union can never work, surely its overstepped the mark, this was always the purpose of the EU, that’s a big porky in the film, if ‘Europe’s diversity is what makes Europe competitive’ why the grab for all the laws and legislation- so that it is to be blunt; horse pooh.
There is no doubt though, the world desperately needs an alternative to the dollar as the reserve currency.
Hello AndyV,
Did you notice how the Southern European states were hamstrung a couple of years ago? Not by regulations, but by the bond market?
Over in the UK/US/Japan, the central bank effectively takes over the bond market when push comes to shove. Big difference.
As for the EU, it is currently a gravy train, but who funds it? And where will those funds come from when the sovereigns have ‘adjusted’ one way or another?
These things take time, but the EZ model will lead the world forward I am sure.
There seems to be an assumption in the video that the EU is not engaged in money printed/QE.
The truth is, as the rescue funding to Spain, Greece, Portugal show….. they are doing it!
This undermines the premise of the film
I dislike talk of a gold “standard” or any other “standard” – either the gold is the money or it is not, talk of a “standard” just opens the door to fraud.
As for the Euro – the rules it was set up with (whether they were good rules or bad rules) are no longer relevant, as the E.U. Central Bank (and E.U. governments) has broken these rules.
Saying “these rules are good” is not a praise for a currency if the rules are then broken – which they have been.
Hello Paul,
Why do you think the rules have been broken?
Price stability is the only mandate for the ECB, they’ve done a good job so far wouldn’t you agree?
You will no doubt be surprised by their monetary policy actions in the next couple of years, but they will all be ‘within the rules’.
Quite right, Mr Marks! I find myself in agreement with you quite often. All so-called standards, laws, regulations, and even moral imperatives are now subject to change for the sake of perceived political expediency, always short term although it may be described as long term as the ‘1000 year Reich’. It is the system with which we must cope as we do with such things as the weather and stupidity, and which will destroy itself, although we do not know when. The very use of the word ‘standard’ now beginning to be used in connection with gold, differs from its previous usage. It is part of a PR campaign to set up a so-called ‘gold standard’ with the very purpose of its being corruptible, so that it may assist the present system to survive for a while. I recommend the works of Hans-Hermann Hoppe.
I also agree with Mr Musgrave. The video on the Euro was obviously designed to interest simple-minded people, who are apt to be impressed and influenced by pretty pictures, speeches, music, flags and other emotional stimulus. Unfortunately almost all people are now incapable of independent thought, right or wrong. That is probably genetic. Modern times have been tolerant of their ability to survive long enough to reproduce. ‘Commonsense’ is now a meaningless term.
Keith Goodenough
Compared to our manic, state sanctioned QE-on-steroids and govt underwriting of the housing market, the EU is a paragon of virtue. de Soto is saying that ideally gold should be the currency/money, but in a world of QE , the Euro is relatively good. Remember sterling once bought you about €1.70 , now you get €1.17 and falling.
Gary,
Why should gold be money? Who not sea shells, or tally sticks, or knives, or horses (all also money at one time.
Every time gold has been money, it has ended up being loaned, and hey presto, you have a debt-based money system again.
I prefer to see gold as a reserve asset, for individuals as well as for currency issuers.
I might add that the euro is marked to market in gold in the official ecb accounts, while in the USA officially gold is marked at $42 . Gold is ignored here.
http://fofoa.blogspot.com/2011/07/euro-gold.html?m=1
Arguing over who is following the worst policies (the Japanese, the Euro Zone, the Americans, the British….) is a waste of time.
The truth is that all these government are following demented policies.
Keith G.
I think you know what to do.
Make sure you have physical gold (not these silly promise notes from City institutions) – but do not let anyone (especially the government) know you have physical gold.
I agree Paul. What have we become when we are comparing the least worst toilet paper currency ?
Gary – agreed.
Paul,
You seem to be confusing the EZ with Japan/America/UK.
In the EZ, monetary policy is not the remit of government.
I wonder if you can see what a huge difference that makes?
Perhaps consider why unemployment is so high in the periphery states of the EZ when compared to the UK, happy in our little monetary-fuelled boomlet.
Then compare RPI with HICP for the past (you choose) years.
Perhaps you will notice some differences that might help your understanding.
Good video and good arguments. There are a number of catches though.
1. The EUR (or prospect of joining the EUR) has brought down borrowing costs for Greece, Portugal etc, to unsustainable levels. Thus, even though the EUR is disciplining now, it was also part of the reason why the crisis came about in the first place.
2. Given the lack of adjustment mechanisms within EMU there is really no alternative to full-scale economic/political union with fiscal equalization, if the EUR is going to be maintained. If this is impossible (as Prof. Huerta de Soto suggests it is), then there is no way to keep the EUR, despite its favorable properties.
3. The EUR enforces more centralization in Europe. Prof. Huerta de Soto seems to object to that, for good reasons as I believe, but he also wants to keep the EUR. In my view, keeping the EUR means accepting more centralization. You cannot have it both ways.
Dirk,
Re your comment: ‘Given the lack of adjustment mechanisms within EMU’ I think you just need to be patient.
These things are done in stages, first the union and the single currency, next the clearing of dead wood and resetting the system, then the adjustment mechanism will be introduced, and target balances will be settled, the old-fashioned way!
GaryM – I am not sure what you mean by “EZ”.
As for the European Union Central Bank it has broken (repeatedly broken) the rules around the Euro (on bailouts and so on).
For the details see the German anti Euro party (the leadership is made up of lawyers and academics who have studied the Euro and ECB).
There are a lot of urban legends around the Euro (that is fixed to gold and so on) all of which are false – in PRACTICE it is just as much a fiat currency as the Pound and the Dollar.
The “independence” of the ECB is the same as the independence of the Bank of England and the Federal Reserve – it is the independence of officials (not the independence of the market place).
By the way “price stability” is a terrible rule for a currency – it was the smoke screen behind which such people as Benjamin Strong in the late 1920s and Alan Greenspan (in recent years) did terrible harm.
Forget price indexes – they are Irving Fisher folly, exposed (as a mistaken rule of monetary policy) by Frank Fetter more that 80 years ago.