Guest Post: Titanic – the ship that sank the gold standard

Taken from The Real Asset Co’s website, this brief article draws the parallels between the stewards of the Titanic and the stewards of our monetary system.

Read the original article here.

100 years ago tomorrow, at 2.20am the maiden voyage of the ill-fated RMS Titanic came to an abrupt end killing 1,522 people.

The events which followed the sinking of the Titanic provided a set of shaky foundations which would balance the most dangerous financial system seen in history.

A year on from the nautical disaster, US Congress enacted the Federal Reserve Act, whilst in 1914 Britain embarked on what would become World War I. Both governments, as a result of their decisions, created a money supply with greater elasticity and in turn excessive debt creation and money debasement.

In the century which has followed, the world has experienced the most brutal and expensive wars in history. As Dr Ron Paul writes, ‘It is no coincidence that the century of total war coincided with the century of central banking…Armed with central banks to cover liabilities, European governments began a war one year after the Fed was created.’

The sinking of the gold standard

Prior to 1913, governments had committed to convert their domestic currencies into fixed quantities of gold. The promissory notes reflected this. Promissory notes were just that – notes which promised, and upheld their promises. They did not represent a monetary system which was un-backed and based on money creation, as they do today.

Several gold, silver and copper coins were recovered from the wreck of the Titanic, despite the ship being full of several different nationalities. One Titanic survivor reportedly lost 400 gold sovereigns to the depths of the Atlantic.  Those fortunate enough to travel in 1912, between countries, knew that they could exchange like for like in gold and silver. Titanic’s passengers knew the gold standard would protect their wealth when moving from one country to another. Individuals were free to import and export gold.

They could travel half way across the world and their money would still count for something. There was basically a single global currency. What’s more the gold and silver coins they carried with them would still be able to buy them the same amount of goods as they would have in 1912.

Today both the unbacked dollar and the unbacked British pound have lost over 98% of their value. As Byron King asks, what happens when the last 2% goes, ‘leading to an almost complete destruction of both nations’ currencies.’ Will there be enough lifeboats to rescue us all?

Faith in authority

Byron King contrasts the promise of the ship to the promise of the new monetary system which was rudely thrust upon both Britain and the US in the years following the disaster.

The belief of the passengers, that this was an unsinkable ship, was strong. But it wasn’t enough to prevent it from having a terrible crash and sinking to the bottom of the ocean.

Individuals had faith in the monetary system as they had faith in the government and the central bankers. They assumed, because it was run by people in positions of power, some elected, that they must know what they were doing.

Mr King draws the similarities between the stewards of the White Star Line and the stewards of our monetary system.  The White Star Line, and therefore the Titanic, had a responsibility to provide a stable and safe voyage for their passengers. Whilst the Federal Reserve and other central banks also have an ethical responsibility to manage a monetary system which protects savings, maintains the value of people’s wealth and does not drive a wedge between rich and poor.

Detlev Schlichter argues that the move towards a central bank and more elastic forms of money was not because the circumstances of the economy were changing but because ‘politicians and bankers wanted to enjoy the upswing that easy money could provide for a limited time…It was the result of politics…Greater stability was now to be achieved making money more elastic rather than less elastic.’

Like the Titanic, our own stewards seem unprepared for the impending crash of this monetary ship. We haven’t learnt from history that fiat money and money creation ends in death and misery, so why shouldn’t the stewards of our monetary system have prepared for its colossal failure by coming up with a back-up lifeboat monetary system?

Also in 1912 Milton Friedman was born, who would later go onto say of the gold standard, ‘I regard a return to a gold standard as neither desirable nor feasible—with the one exception that it might become feasible if the doomsday predictions of hyperinflation under our present system should prove correct.’ Those doomsday predictions no longer seem so unbelievable. Perhaps it is time to raise the Titanic from the seabed and with it, the gold standard of monetary systems.

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