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Articles, Authors

Third Daily Bell Interview
The Daily Bell is pleased to present this exclusive interview with Antal Fekete.
Author: Prof. Antal E. Fekete

Daily Bell: You also explained that withering of the real bill market caused the Great Depression. This is a decidedly minority view, even within the hard-money community. Please revisit this topic.

Antal Fekete: This is the view of a minority of one: me.I again object to your choice of words. It was sabotage, not withering. In deliberately destroying the bill market, the Entente powers have unwittingly also destroyed the wage fund out of which workers producing merchandise for consumption could be paid, a good three months before their products were sold for cash. What politicians and economists forgot in 1918 was that without the bill market there is no wage fund, and without wage fund there is no employment. Instead, there is unemployment, lots of it. There is no way to finance the production of consumer good now, for which the consumer will pay only 91 days later, unless gold bill financing is available. In the euphoria after the Entente victory several bubbles were blown: the bubble in the U.S. government bond market in 1921, the bubble in Florida real estate in 1925 and, most notoriously, the stock market bubble in 1929. Nobody realized that the bubble-financed consumer goods market would be starved of funds once the last bubble was pricked. That happened in 1930 when it dawned on the world that the bloated inventory of consumer goods was unsalable.
Had the bill market been rehabilitated in 1918 as it should have, adjustment in inventory would have been made in time to avoid the glut, and financing for further production would have been available through discounting gold bills. The upshot was that workers producing consumer goods had to be laid off in six-digit contingents. Puerile pseudo-theories were concocted by Keynes and others, such as the theory of oversaving, the theory of underconsumption, the theory of disappearing demand in mature capitalist economies, the theory of contractionist nature of the gold standard, to mention but a few. No one was looking for an answer in the forcible destruction of the global gold bill market that alone makes multilateral trade possible, inspired by the chauvinistic jealousy of the victorious Entente powers that stemmed from their neurotic fear of German industrial competition. They thought, wrongly, that bilateral trade, through which they wanted to control German exports and imports, could be a working substitute for the system of multilateral trade as embodied by the international market for gold bills. Bilateral trade turned out to be a disaster.

Daily Bell: For readers who may be reading this for the first time, please explain how real bills work and why they are so important.

Antal Fekete:The market for gold bills is entirely spontaneous. It was invented by no one; it was promoted by no government. Like money itself, the gold bill was the result of an evolution. Here is how it works. The wholesaler delivers supplies to the retailer and bills him. Once endorsed by the latter the bill goes through a metamorphosis and becomes money in the hand of the wholesaler (and his suppliers, and the suppliers suppliers, etc.) that can be used in replenishing inventory. The gold bill, the next best thing to the gold coin, becomes money, albeit an ephemeral one. It is destined to expire in no more than 91 days. Gold bills are the best earning asset a commercial bank can have. Demand for them is virtually unlimited. Not only will producers and distributors of semi-finished goods scramble for them. Everybody with a large payment coming up, such as bond issuers just before the maturity date of their issue, or purchasers of real estate before the closing date will, too. They would not accumulate bonds, for example, in preparation of paying their obligations at maturity. Bonds are far too illiquid for that purpose.

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