Guest
Analyst
June 22, 2001

KONDRATIEFF REVISITED
GOLD AND THE LONG-WAVE
ECONOMIC CYCLE

Antal E.
Fekete*

Talk
given at the BabeÕ-Bolyai University, School of Business Administration,
Sf. Gheorghe, Romania, on May 2, 2001

Abstract

The long-wave inflation/deflation cycle discovered by
Kondratieff is generated by huge speculative money-flows to and fro
between the commodity market and the bond market. The oscillation
pattern of these flows reflects changes in the propensity to hoard. The
problem of the long-wave cycle is thus reduced to the question: what is
causing the fluctuations in the propensity to hoard, and how can it be
contained?

The Propensity to
Save

Let's start
with the uncontroversial proposition that the greater the propensity to
save, the lower is the rate of interest. The mechanism whereby the flow of
savings regulates the rate of interest under a gold standard is very
transparent. Savers who feel that the rate of interest is too low will
exchange their bank notes and deposits for gold coins. In this way, savers
have direct control over the level of bank reserves, and they can confront
the banks with the choice of either raising the rate of interest, or
calling in some of their credit outstanding. The mechanism that regulates
the rate of interest is the savers' privilege to hoard gold, and any
effort to tamper with it is bound to cause distortion in the
economy.

Our present
monetary arrangements have removed the gold coin as a regulator of bank
reserves, in order to disenfranchise the savers who no longer have a say
in setting the rate of interest. The banks are now free to pursue a credit
policy motivated by political rather than economic considerations. Worse
still, the government has assumed power over monetary policy in
contemptuous disregard of the wishes of the savers. It goes without saying
that such a monetary regime is unconstitutional and flies in the face of
the principles of representative government of limited power.

But for our
purposes it is even more important to note that the abridgement of the
savers' rights and privileges predated their total disenfranchisement by
several hundred years. The banks have always had a bag of tricks on hand
to dissuade their depositors from taking the gold coin - which was the
depositors' legal right to do. When the banks were at the end of their
rope, they could always count on the government to suspend the gold
standard in order to save the banks' face - and skin - in making the
banks' bad liabilities legal tender. The banks were rewarded, rather than
punished, for their wrong credit policies. No wonder that more credit
abuse was heaped upon credit abuse throughout the centuries.

Double
Standard

The legal
right of the savers to demand gold coins in exchange for bank notes and
deposits whenever they get worried about the state of banks or the
spending habits of the government, is eminently just and equitable. It is
the little man's protection against the powerful without which, as history
has made it abundantly clear, the former would get plundered by the latter
for all his worth. This protection has been compromised by a double
standard that was surreptitiously introduced in contract law. Originally
creditors were free to press for the liquidation of firms that had failed
to perform on their promises. Now banks were made exempt - they got
blanket protection against the wrath of their creditors. Of course, there
is no justification in jurisprudence for extending special privileges to
banks, the spurious argument that bank failures cause too much economic
and social pain notwithstanding. All should stand equal before the law.
But the banks got still more protection from the government when they
overstated the value of their assets and understated that of their
liabilities. Other firms doing this kind of window-dressing, if caught,
are found guilty of fraud and punished accordingly. Bank examiners look
the other way when they discover fraudulent accounting practices. They do
this with the full knowledge, if not at the outright request, of the
government.

Economists
are not famous for their curiosity about this peculiar tolerance for fraud
that governments the world over have displayed for centuries. Yet the
explanation is rather simple: 'you scratch my back and I scratch yours'.
The banks had ample opportunity to return the favor to the government when
they were expected to buy up treasury paper which the market was no longer
willing to take at the yields offered, and to deliver other similar
sweetheart deals.

It would be
naive in the extreme to assume that savers meekly acquiesced in this act
of double-dealing and coercion manifested by the sabotaging and ultimately
destroying the gold standard. Instead of (or in addition to) hoarding gold
coins, savers started hoarding marketable commodities. The list of these
is endless. There are the traditional ones such as salt, sugar, spices,
spirits, tobacco, tea, coffee - not to mention drugs such as cocain and
heroin. The suggestion cannot be easily dismissed either that the
escalation in illegal drug trade during the twentieth century was in
direct consequence of the destruction of the gold standard. (Consider the
fact that as long as governments tolerated the gold standard, there was
little problem of illegal drug trafficking.) In more recent times
semifinished products such as crude oil and raw lumber have joined the
list of hoardable commodities.

It would be
an impossible task to estimate, however tentatively, the size of existing
stores of goods held not for impending consumption but, rather, in protest
against the low level of the rate of interest, or against reckless
government spending and against the banks' plundering of the savings of
individuals. This is where statistics must plead impotence. The only way
to grasp the hoarding instincts and habits of the people is through
theoretical understanding.

The divorce
of the act of hoarding from that of saving was in response to the
conspiracy between the banks and the government. The propensity to hoard
has been gaining ground as an independent economic force at the expense of
the propensity to save, in direct consequence of the practice of
governments to protect the banks against their creditors, and of the banks
sheltering illiquid government debt in their balance sheets.

Mainstream
economics bypasses the problem of hoarding altogether. It suggests that in
the modern economy with a well-developed capital market hoarding is either
non-existent, or if it is practiced at all, then it is confined to boorish
and uninformed people whose action can safely be ignored. However,
economists can dismiss the problem of hoarding in the modern economy only
at their own peril. The means of hoarding are just as ingenious as its
objects are varied. Examples are not confined to housewives buying more
sugar to fill up their pantry, or to small-time smugglers holding
contraband merchandise in mountain caves. They also include sophisticated
inventory management techniques by multinational firms such as
inventory-padding, the deliberate use of leads and lags in warehousing by
producers, distributors, and industrial users, the slowing down of input
or output at either end of the production line. In recent times cutbacks
in production quotas of marketable goods (e.g., crude oil) were utilized
for the same purpose with dramatic effect. The Japanese import far more
raw lumber from Canada than they need for current consumption. Having
treated the excess with an impregnating solution, they sink it to the
bottom of their mountain lakes. The same applies to their import of coal.
Hoarding energy-carriers is not confined to energy-poor countries. The
U.S. government is filling up disused salt mines with crude oil. The
supertanker construction boom in the 1970's is another point proving the
enormous increase in the propensity to hoard. The supertankers were built
as floating warehouses, not as efficient carriers of crude oil. Futures
and options trading has opened up new avenues for the general public for
participation in the hoarding-game.

Linkage

There is a
phenomenon for which economists have failed to offer a satisfactory
explanation. This is the apparent linkage binding the long-term movement
of the price level and that of the rate of interest together. Apart from
inevitable leads and lags, the two appear to be linked: they always move
together in the same direction whether up or down. A host of excellent
economic thinkers such as Knut Wicksell, Wilhelm Röpke, Gottfried
Haberler, and many others who considered it, found the phenomenon
'puzzling'. Irving Fisher went as far as saying that "it seems impossible
to interpret [the linkage] as representing an independent relationship
with any rational basis". G. F. Warren and F. Pearson in their 1932 book
Gold and Prices claimed that they have found the causal
relationship explaining linkage. They asserted that rising (falling)
prices are the cause, and high (low) interest rates are the effect. They
argued that creditors notice the rise in the price level and demand
compensation from the debtors in the form of higher interest.

In 1947 this
reasoning was rejected by Gilbert E. Jackson. In his paper The Rate of
Interest he pointed out that linkage works in both direction:
sometimes price level leads and the rate of interest lags, at other times
the other way around. Jackson summarized his comparison of British
wholesale prices and the yield on British consols for a period of over 150
years from 1782 to 1947 in the form of a chart (included at the end). In
order to iron out short-term fluctuations in the data-base due to the
business cycle and other factors, Jackson replaced the raw figures by
eleven-year moving averages. His chart shows the inflationary spiral as a
rising, and the deflationary spiral as a falling trend of the two curves.
Inflationary and deflationary spirals alternate. Sometimes prices lead,
and sometimes they lag behind the rate of interest. Neither Jackson, nor
anyone else who studied the phenomenon could offer a full theoretical
explanation for the linkage. The most they could say was that it appeared
to be an 'accidental coincidence'.

The Great
Tug-o-War

Our own
explanation for the linkage is as follows. Frustrated savers sell their
bonds and put the proceeds in commodities. Thus a rising price level can
be characterized by huge speculative money-flows from the bond market to
the commodity market. As bonds are sold, their prices fall, that is, the
rate of interest rises, together with the price level. But as soon as
prices start to fall in earnest, the money-flow reverses itself and moves
from the commodity market to the bond market. As bonds are bought, their
prices rise, that is, interest rates fall, again emulating the movement of
prices.

The linkage
is therefore explained by the fluctuation in the propensity to hoard. When
it is rising, the price level and the rate of interest are rising with it,
and conversely. Although Fullarton recognized already in 1844 that gold
hoarding is just a protest of the savers against the banks' loose credit
policy and against the government's budget deficits, Keynes almost a
hundred years later looked at gold hoarding as a psycho-pathological
aberration. He invoked the authority of Ricardo, who also failed to
recognize its economic significance. But to explain gold hoarding with
psycho-pathology is nothing but scientific obscurantism. Keynes had a
hidden agenda. He wanted to forge a weapon against the gold standard out
of the fact of gold hoarding. The British economist was a bully. He was
determined to sell the idea that the gold standard was unworkable, first
to F.D. Roosevelt, and then to the rest of the world. In this he did
succeed.

Mainstream
economics is still at the retarded level of Keynes when it comes to
assessing the merits and demerits of the gold standard. It refuses to
recognize the protest-aspect of gold hoarding, and it is forgetful about
the axiom that saving must precede spending, and that without saving there
is no economic development. Gold is the leash on which the frugal must
keep the prodigal. It was this leash that the banks and the governments
wanted to escape from when they first sabotaged and then junked the gold
standard. Although the sabotage started several hundred years ago, the
world economy being run without the leash of the gold standard has only a
short history of hardly 30 years. It is not a glorious history.

One could say
that since taxation and treasury departments were invented, a great
tug-of-war has been going on between the frugal and the prodigal. The
latter is the consortium of the banks and the government. The former is
the saving public, which includes not just the creditors, but the little
man as well, who is forced to keep his savings in the form of cash, that
is, paper money open to plunder by the consortium. It would be a great
error indeed to take it for granted that the tug-of-war will eventually
end with the defeat of the frugal, only because the prodigal has succeeded
in knocking the weapon of the gold coin out of his hand. Enter the
propensity to hoard, the newest and extremely efficient weapon which,
however, is not free of some very dangerous side-effects. A jump in the
propensity to hoard can siphon off a tremendous amount of money from the
bond market, which would make the rate of interest jump, too. The last
time it did that was in the years 1973-1980. It shook the world as it
heralded the beginning of the deflationary spiral in the long-wave
cycle.

Contra-cyclical
Policy

The increase
in the propensity to hoard has its limits. The hoarding of goods reaches
its saturation point when it dawns on people that a high price structure
and high interest-rate structure can no longer be maintained in the light
of the high level of inventories. The inflationary spiral is ending and
gives way to the deflationary. The painful process of inventory
liquidation starts, and the money-flow from the bond market to the
commodity market makes an 'about-face'. Liquidation is another prolonged
affair that may cause the failure of many a firm and may bring on a
depression.

The so-called
contra-cyclical policy of Keynes, that has been dogmatically applied by
central banks since the 1930's, not only fails to help but, actually,
makes things worse. Following the Keynesian script the central bank is
trying to contain the weakening of prices through open market purchases of
bonds. As a direct result of this bond prices rise, that is, the rate of
interest falls. The linkage will then make sure that prices will fall, too
(or at least stay weak). We see that during the deflationary spiral the
central bank is unable to stem the tide of money flowing from the
commodity market to the bond market. As a matter of fact, its
contra-cyclical moves can only pour oil on the fire. But exactly the same
is true of the inflationary spiral, when the main worry of the central
bank is the high rate of interest. To bring it down, once more, the
central bank resorts to open market purchases of bonds. In doing so it
puts new money into circulation that quickly finds its way to the
commodity market and bids up prices there even more. Linkage will see to
it that the rate of interest is up, too. The contra-cyclical policy fails
again.

In the
deflationary phase the central bank combats weakening prices, causing the
rate of interest to fall - which leads to more weakness in prices. In the
inflationary phase it combats the high rate of interest, causing prices to
rise - which leads to a still higher interest rate. The contra-cyclical
policy of Keynes backfires in either case, because Keynes was ignorant of
the linkage. For example, during the 1947-1980 inflationary spiral, the
rate of interest rose five-fold, and the price level rose ten-fold in the
United States, in spite of the vigorous contra-cyclical intervention of
the Federal Reserve banks.

As we have
seen, the long-wave economic cycle is caused by the enormous speculative
money-flows back-and-forth between the bond and commodity markets, which
are further reinforced by mindless contra-cyclical intervention. The
speculative money-flows are generated by the fluctuation in the propensity
to hoard. It is futile trying to correct these money-flows; one should
direct them into channels where they can do no harm. Keynes was so
obsessed with the thought of gold hoarding that he missed the problem of
hoarding goods that was potentially infinitely more dangerous. Keynes was
the high prophet of the anti-gold agitation. He preached that if the gold
coin were kept away from man's greedy palms, then there would be no
hoarding, no economic contraction, no deflation. His was a colossal
mistake, the kind that only a doctrinaire can make. After the destruction
of the gold standard by the government, hoarding did not cease: it only
changed forms. The benign tumor turned into malignant. The withdrawal of
gold coins from the monetary bloodstream by government coercion not only
failed to stop the deflation, but it set off a huge suction pump in the
bond market siphoning off money from every other corner of the economy. In
particular, it created a devastating liquidation and depression from which
only a world war could pull out the economy. We can't help but notice that
gold is the philosophers' stone: in its possession the propensity to hoard
can be directed into its proper channels, but without which the world
economy becomes a plaything in the hands of commodity, bond and foreign
exchange speculators.

Competitive
Devaluations

Since 1981
the world appears to be in the grips of a deflationary spiral which has
not run its course yet. Some liquidation has taken place, but the worse
seems still to come. The politicians and economists are congratulating
each other for having succeeded "squeezing inflationary expectations out
of the system". They squeezed nothing of the sort. Inflationary and
deflationary spirals are caused not by expectations, but by actual
money-flows to and fro between the bond and the commodity markets. The
international monetary system is still the same rudderless ship it was in
1971, and it is still exposed to the same monetary storms. The only
difference is that the direction of the gale has changed.

The dangerous
deflationary spiral threatening the world's prosperity is most obvious in
Asia. In Japan the stock market collapsed, followed by the real estate
market. The banks are at the edge of the brink. The sun appears to be
setting on the economy of the Land of the Rising Sun. The devastation
caused by deflation in Japan in the 1990's was of the same order of
magnitude in as that caused in America in the 1930's. Both deflations
could be characterized by an irresistible money flow to the bond market,
drying up the resources in all other departments. In Japan, the rate of
interest fell to almost 0 percent. In 1995 the Japanese government reacted
in the same way as the U.S. did in 1933: it devalued the yen by 50%. The
yen's devaluation, however, was just as futile as the devaluation of the
dollar had been. The latter triggered competitive devaluation of the
world's currencies in the 30's. The yen's devaluation could very well have
the same effect. This is suggested not only by the death-throes of the
ruble and a number of other Asiatic currencies, but also by the infantile
diseases of the euro.

At the
moment, the American economy may appear healthy and robust. But as one
observer has aptly put it, the Japanese deflation-tumor could very well
metastasize across the Pacific. All is not well in America. The stock
market boom has not been justified by corresponding increases in
profitability and productivity - any more than it was in the 'roaring
twenties'. If the stock market crashes, the already irresistible
speculative money-flow to the bond market could be reinforced - as it
happened after the 1929 crash. Falling interest rates could cause
over-indebted firms to scramble. That could trigger a credit collapse.
Already, the long-term rate of interest has been pushed down from 16 to 6
percent. The danger is that it will keep falling to 3 percent or lower,
due to the speculative orgy in the bond market. Like a gigantic vacuum
cleaner, the bond market could siphon off resources from the real economy.
It is not generally realized that a depression, far from depressing the
bond market, creates boom-conditions for the bond speculator who makes a
killing while everybody else suffers.

The
suggestion that the present deflationary phase may have another ten years
to run is not a prognostication. There are too many imponderables. For
one, governments know only one nostrum to cure economic ills: devaluation,
and if it does not help, more devaluation. Central bankers may lose their
cool in the deflationary inferno, and open the spigots to flood the world
with worthless paper currency. The race of the world's paper currencies
towards the brink is still on.

Economic
Cycles

The idea of a
long-wave cycle in the capitalist economy was put forward in 1922 by the
Soviet economist N. D. Kondratieff (1892-1930). He had been anticipated by
J. van Geldren in 1913 and, even earlier, by H. Clarke in 1847 and Jevons
in 1878, and also by others. Independently of Kondratieff, De Wolf
proposed a theory involving a long-wave cycle in 1924. Kondratieff's is
only one of four cycles generally recognized by economists:

(1)

Kitchin's short-wave
cycle of 3-5 years duration, discovered in 1930

(2)

Juglar's cycle of 7-11
years duration, discovered in 1862

(3)

Kuznets' medium-wave
cycle of 15-25 years duration, discovered in 1923

(4)

Kondratieff's long-wave
cycle of 45-60 years duration, discovered in
1922

The Kitchin
cycle is otherwise known as the inventory cycle. The Juglar business cycle
is the best known and was discovered first. (3) is the building cycle.
Kuznets noticed that residential and industrial buildings have an average
useful life of 21-23 years, and his cycle is about the fluctuations caused
by the amortization and replacement of ageing buildings. The cycles were
named after their discoverers by J. Schumpeter with the exception of (3)
which he doesn't recognize. As a consolation, Kuznets got the Nobel prize
for his discovery. It is interesting to note that all three students of
cycles whose names begin with a K were Russian.

Some
economists insist that the cycles operate independently of one another.
This is the view of Forrester, for example. Others, like Schumpeter,
believe that the cycles are interdependent. It was noted that the average
duration of each type of cycle is approximately double of that of the
immediately preceding shorter cycle. In the 1930's the historians F.
Braudel, F. Simiand, and E. Larousse looked at changes in the 'secular
trend' that was taking place every 100 years, so that Kondratieff's cycle
might also be followed by one of twice the duration.

Kondratieff's Long-Wave
Cycle

Kondretieff's
methodology involved the analysis of 21 statistical series. These were
economic indicators such as price indexes, the rate of interest, wage
rates, rents; the volume of production, consumption, employment, exports,
imports, etc., as well as their standard deviations. In studying volumes
Kondratieff worked with per capita data. He used the method of least
squares to calculate the deviation from the trend. He employed 9-year
moving averages in order to filter out noise caused by the shorter cycles.
He took his data base from the French, British, German and the U.S.
economy.

Only in 6 of
the 21 series could Kondratieff not confirm the presence of a long-wave
cycle (the price level and the rate of interest were not among them). His
ultimate conclusion was that there was enough empirical evidence to
support the hypothesis of a long-wave economic cycle in the capitalist
countries that he studied, with an average duration of 54 years. He
allowed a 25 percent deviation from this average. In particulat,
Kondratieff identified three waves:

(i)

The
rising phase of the first wave from 1780-90 to 1810-1817;

The
falling phase from 1810-1817 to 1844-1851

(ii)

The
rising phase of the second wave from 1844-1851 to
1870-1875;

The
falling phase from 1870-1875 to 1890-1896

(iii)

The
rising phase of the third wave from 1890-1896 to
1914-1920;

The
falling phase started 1914-1920

Kondratieff
was exiled to Siberia by bolshevik officials who flatly rejected his
conclusions, maintaining that there can only be one falling phase of the
capitalist economy, which must be followed by socialist revolution and the
dictatorship of the proletariat. Kondratieff died in the Gulag in 1930 at
the age of 38. His work was later updated by other economists using his
original methodology. They found that the falling phase of the third wave
ended 1947-1948, and also that

(iv)
The rising phase of the fourth wave started 1947-1948 and ended
1973-1980, the falling phase started 1973-1980

The current
fourth wave is also confirmed by an extrapolation of G. E. Jackson's
results. We may assume that Jackson was unaware of Kondratieff's work.
Therefore it is remarkable that the two economists working independently
came to almost identical conclusions. Moreover, Jackson's results suggest
that there is no need to study 21 series since two of them, the price
level and the rate of interest, already determine the outcome. These two,
together with the linkage, suffice to provide the theoretical foundations
for the long-wave economic cycle. If this is so, then we may conclude that
the long-wave cycle of the world economy is caused by huge speculative
money-flows to and fro between the bond market and the commodity market.
These money-flows are in turn governed by the fluctuations in the
propensity to save, the tide of which creates the inflationary, and the
ebb the deflationary, spiral.

The most
worrisome aspect of Kondratieff's long-wave economic cycle is its global
nature. There is no place in the world to hide from the deadly
consequences of the deflationary spiral. Far from being confined to the
economy, its effects extend to demography, politics, education, crime,
fashions, literature and the arts.

Mutations and
Catastrophes

The existence
of the long-wave cycle forces us to give up the earlier, optimistic models
of uniform growth of the capitalist economy - at least until the world is
ready to return to the principles of classical liberalism and limited
government including its harbinger, the gold standard. The following is a
paraphrase of the thoughts of the Hungarian philosopher, Béla Hamvas
(Secret Minutes, 1962, see: Works of B. Hamvas, vol. 17, Medio,
Budapest, p 104-106, in Hungarian.)

The government,
without the limitations imposed upon it by the principles of classical
liberalism, makes for a fair-weather system. Under such a paternalistic,
omnipotent, and omniscient government modern civilization may appear to
work productively and humanely enough - as long as the fair weather
lasts. But let drought strike or flood engulf the land, our democratic
unlimited government will at once show its feet of clay. No sooner does
social disturbance, civil strife, or distrust raise its face than will
centralized government lose its grip and get entangled is one crisis
after another, all of its own making. The government that was omnipotent
in fair weather, would be helpless in foul. The government that was
omniscient during the smooth evolutionary phase would plead ignorance at
the first sight of a mutation. The fair-weather system of unlimited
government is forever unable to cope with catastrophes.

Older schools of
evolution did not assume continuous progress. They were not given to
thinking in terms of growth curves rising uniformly forever. They made
allowance for mutations, they admitted the possibility of setbacks,
abrupt reversals and tumbles. Older philosophers assumed that nature
abhorred uninterrupted continuity - as much as she abhorred vacuum. They
knew that in nature there was no continuous transition from one state to
another. We should do well to remember the teachings and emulate the
humility of those older philosophers. They were wise men, immeasurably
wise. Certainly far wiser than ourselves. Their thinking had one great
advantage: they were not afraid to warn of the day when the weather
would turn from fair to foul. They dared to think mutations. They dared
to think catastrophes. While they were aware that dull times called for
dull theories, they believed that critical times called for theories
altogether alien and different from those dull theories. In critical
times you must think deeper, you must be wiser, and more
imaginative.

We are in the
habit of slighting and disparaging the accomplishments of older
philosophers. We seem to be incapable to benefit from their wisdom. They
bequeathed a theory of limited government to us, a theory we have
passionately rejected in favor of dull theories suitable for dull
times... Yet the days of fair weather are numbered... We have lost our
compass and the sea is growing stormy... Our boat of government
omnipotence is in waters teeming with dangerous reefs under the
surface... We are in deep trouble... Que sera,
sera...

What is to Be
Done?

We need not
conclude our excursion on such a pessimistic note. We are able to temper
the deleterious effects of the long-wave economic cycle, even though we
are unable to eliminate it. If we cannot legislate away the propensity to
hoard, we may confine it to its proper channels. The role of gold in the
world is to provide just this. As it were, God created gold in order to
render the propensity to hoard harmless. Gold hoarding has no effect on
essential consumption, only on jewelry consumption. Under the regime of
the gold standard there was no bond speculation, still less foreign
exchange speculation. This is the only road to stabilization: to put
speculation into its proper place, and to confine speculators to fields
where they could do no harm, but they could do some good: to commodity
markets where the supply of goods is controlled by nature, not by
governments or central banks.

The
significance of the gold standard is not to be seen in its ability to
stabilize prices, which is neither possible nor desirable. It is, rather,
seen in its ability to stabilize the rate of interest at the lowest level
that is still consonant with the state of the economy. The stabilization
of the rate of interest and foreign exchange will then impart as much
stability to the price level (and to all other important economic
indicators) as can be humanly achieved. By letting the saver withdraw the
gold coin (that is, bank reserves) when the rate of interest falls to a
level he considers unacceptable, the irresistible speculative money-flows
to and fro between the commodity and the bond markets - the engine of the
inflationary and deflationary spirals - would be shut down at the source.
Benign bond/gold arbitrage would replace the malignant bond/commodity
speculation. Since the former is self-limiting, while the latter is
self-aggravating, economic stability would be enhanced.

The
alternative to a gold standard is too horrible to contemplate:
unemployment more devastating than that of the 1930's, earthquake shaking
the foundations of the international monetary system, construction of
unscalable protective tariff walls, world war in which governments are
hoping to find an escape route from economic chaos.

Jackson's
Linkage

MOVEMENT OF
WHOLESALE PRICES AND LONG-TERM INTEREST RATES 1782-1947

The record of
wholesale prices is taken from Jevons, The Statists, and the
British government. The record of long term interest rates shown is the
yields of British Consols and is taken from Warren and Pearson, Gold
and Prices, (New York, 1935) and The Economist. The figures are
shown in eleven-year moving averages, so as to bring out their essential
characters.

* Professor Emeritus,
Memorial University of Newfoundland, Canada; recipient of the 1996
International Currency Prize awarded by Bank Lips, Zürich, Switzerland,
for his essay Whither Gold? This talk is based on a Chapter from the
author's projected 3-volume treatise Credit. Mr. Fekete was former advisor
to Congressman W. E. Dannemeyer of California on the gold standard bills
he introduced to Congress,
1984-1990