EUROPE REPEATS THE MISTAKES OF THE 1930′S
During the 1930’s, the world led by the U.S., suffered the greatest economic depression in the history of mankind.
Unemployment in the U.S. rose to 25 percent. All business enterprises cut back their activities drastically and a large number went bankrupt. Most dramatically, prices fell everywhere. A deflation covered the entire planet. Food and goods were available everywhere, but few had the money to buy them.
Farmers in the U.S. actually slaughtered their pigs and other livestock and buried the carcasses in a frenetic effort to raise prices. In California orange growers burned their oranges, again to raise prices.
This type of insane behavior typified the fear and frustration of American farmers and factory owners. No one had the money to buy and yet there were productive enterprises and more than abundant labor available.
But money in the form of capital was available to a small percentage of the population. This capital was held tightly by the extremely wealthy. In many cases it was shunted abroad to countries like Switzerland for fear that the government might nationalize it.
Gold was in demand across the world. Since the entire world was on the Gold Standard, people holding paper money could turn their paper money into their government in exchange for gold. This demand for gold grew so rapidly that the governments quickly went off the gold standard.
In the U.S., the president, Franklyn D. Roosevelt, signed a law in 1933 forbidding Americans to hold gold. We can see, retrospectively that the sooner a country left the gold standard, the sooner their depression ended.
At that period of time, if a country was on the gold standard, their treasury was restricted from printing money beyond what was available in the form of gold.
Today, in the U.S., the Federal Reserve is trying to stimulate the economy by printing large quantities of money. The danger in such activity is printing so much that the country is catapulted into inflation.
UNEQUAL DISTRIBUTION OF WEALTH
The major cause of the Great Depression of the 1930’s was the unequal distribution of wealth.
Over the previous three decades the U.S. and the rest of the world went through a fast period of industrialization. This meant that labor became downgraded in terms of its value. Machinery replaced muscles as the source of production. Therefore, the people that owned the machinery reaped the benefit of the sale of goods.
Labor only received a small portion of the money in circulation even though labor represented over ninety percent of the population.
Finally, the inequality in the distribution of wealth manifested itself as freezing of the economy. There were goods for sale in abundance, but the people who needed the goods could not afford to buy them. This precipitated the deflation in prices.
THE ROLE OF BANKS
A bank is a business which acts as an intermediary between owners of capital and borrowers who use the money loaned to them for purchases or to pay for services. When banks first came into being in the fifteenth century, they simply held the money of depositors, generally the wealthy people of their area, and lent part of this money to those who needed it for business.
The difference in the interest paid to the depositors for the use of their money and that paid by the borrowers who needed the money
for business resulted in income for the bank.
As time progressed, banks became involved with the activities of government.
The first thing the banks did was to obtain exclusivity from any competition. It became required to have a license from the government to operate a bank. Obviously, if you were not friends with the current bankers you did not obtain a license. In this way a unique and powerful allegiance developed between banks and governments.
The banks loaned money to the government and the government protected the banks from unwanted competition. One can easily see how this can easily turn into a relationship that would ultimately harm and perhaps destroy the economy.
Bankers and politicians became close friends. Each would protect the other. This obviously dangerous relationship was ignored by the general public who generally distrusted politicians but greatly trusted bankers.
The reason for this blindness was the fact that the general public needed banking services. They needed to deposit their earnings into a safe place and they needed the payment facilities of the bank, such as cheques and credit cards. Thus, banks grew in power with the growth in power of government.
As the population grew in numbers so did their government. The government slowly took over the duties of ensuring that the population was cared for. The government at first only operated the army, police and fire services. The infrastructure, roads bridges and water supply was their obligation since the days of the Romans. Then in the recent past, the government took over health care and retirement. These were new and important responsibilities.
Finally, the government became involved in every tiny facet of social living, from family care, to vacations, to the number of hours in the work week, and how food should be prepared or produced.
In Europe, this was known as the “Welfare State.†This was the beginning of a grand illusion. The public believed that the government, composed of political leaders and bureaucratic employees and service workers such as the police, the fire department and the army, were a productive part of the economy.
But, the government is almost totally non productive. Apart from the regulatory workers such as police, the remainder of government produces nothing neither in goods nor in services. Its major function is collecting money from the population in the form of taxes and fees and then disbursing this money to its friends, who, in general, are the very wealthy.
This methodology has not changed from the days of the aristocracy when kings and their families lived parasitically off the population. In the course of this collecting and disbursing of money a large civil service has developed and must be supported as well.
The public does not recognize how modern government supports the unequal distribution of wealth. They see the government only as police, soldiers and teachers and not as a conduit of money from the working class to the friends of the government, the extremely wealthy class. Since the activities of the government required money, the public blindly provided it.
But, the politicians wanted more than their salaries and corruption entered the system. More money was needed. The amount of money collected in taxes became insufficient for the politicians.
They turned to their banker friends and the wealthy people who had their deposits in the banks.
“Print bonds guaranteed by the government,†was the suggested solution. This would ensure that the politicians would have more money than they collected in taxes and that the wealthy depositors would have more interest added to their accounts than they could possibly earn by investing in the normal economy.
This was the beginning of a lending bubble. The borrower was the government and the lenders were the small wealthy class. But, the guarantors were the taxpayers of the country.
As we see in Europe today, this bubble is bursting. The taxpayers can no longer support it. The governments of Europe are rushing around trying to create money out of thin air. Their friends, the banks, are ready to go bankrupt as the bonds that were written are rejected by the investors of the world.
INEQUALITY OF WEALTH
We go back to the days of the Great Depression of the 1930’s.
Inequality of wealth, in those days, between the owners of the factories and the workers, pushed all the world economies into deflation, unemployment and economic depression.
Today, inequality of wealth, between the bank owners and the tax payers is pushing the European countries into unemployment and national default. The answer offered by the politicians is “Austerity!†“Don’t spend so much!â€
This is a recipe for economic recession and depression. Without spending, there is no economy and no taxes. Without taxes there is no repayment of debt and no active government.
But, this is where Europe is going. In their desire to save the wealth of the banks, and hence of the wealthy class, the politicians are pushing Europe back almost a hundred years to the period of the 1930’s.
The quick answer to this inequality of debt and a poor taxpayer base is not “Austerity†but default. Let the wealthy and their banks go down the drain. Society as a totality must survive. If the countries and the people of Europe do not recognize what their problem is and how to solve it they will repeat the days of the 1930’s.
We can see that this is exactly what they are doing.
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