Civilized People Should Buy Gold

Tea Party Economist

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  “Gold is a great thing to sew onto your garments if you’re a Jewish family in Vienna in 1939 but civilized people don’t buy gold – they invest in productive businesses.” ~ Charlie Munger

Charlie Munger is Warren Buffett’s partner. He is 88 years old. You can see his remark in this brief extract from an interview on CNBC.

That sounded clever. But cleverness can conceal a great deal.

Jews in Vienna were civilized people. Uncivilized people had been running the government ever since March 1938. The Nazis were in charge.

The trouble facing civilized people who are under the control of uncivilized people is that they suffer from an illusion. They don’t understand the degree to which the uncivilized people are uncivilized.

Munger should have been more specific. The hypothetical Jewish family in question should have done a lot more than sew gold coins into their clothes in 1939. The head of the household should have sold his house and his business. He should have transferred all of the family’s assets to Switzerland, England, or the United States. Then he should have directed the family to pack their bags and follow their money. After August 31, 1939, this became illegal. World War II broke out.

They should have begun the process no later than March 12, 1938, the day Germany’s troops crossed the border. Here’s why, according to Wikipedia.

Devoted to remaining independent but under considerable pressure from both Austrian and German Nazis, Austria’s Chancellor Kurt Schuschnigg tried to hold a referendum for a vote on the issue. Although Schuschnigg expected Austria to vote in favour of maintaining autonomy, a well-planned coup d’tat by the Austrian Nazi Party of Austria’s state institutions in Vienna took place on 11 March 1938, prior to the referendum, which they canceled. They transferred power to Germany, and the Wehrmacht troops entered Austria to enforce the Anschluss. The Nazis held a plebiscite within the following month, asking the people to ratify the fait accompli. They claimed to have received 99.7% of the vote in favor.


I shall now tell a story known to a handful of people. It is the story of a man wise enough to get out: the Vice Mayor of Vienna, a long-term opponent of the Nazis. His name was Ernst Winter.

On the day the troops marched in, Winter sat down with his teenage son, Ernest Florian Winter, and told him that he was leaving. He did not say where he was going. He told his son to burn all of his papers. His son said that there was not enough time. His father then revealed why he was a man of great wisdom.

Son, this is Saturday. No bureaucrats work on Saturday or Sunday, not even Nazi bureaucrats. They will arrive here on Monday morning. They will arrest you, but they will not be able to hold you. You are 14 years old. They will release you soon enough. When they let you go, you will leave the country. I will contact you later.

They had a place outside Austria where they had already planned as an escape haven.

It happened exactly as the father described.

I was told this story in the late 1990s by the son.

The son later married the daughter of another man who took his family out of Austria: Col. Von Trapp.It gets even more interesting. Years later, I asked him how his father had escaped. He told me that he had headed where the Nazis would not have thought to look: into Germany. As the troops were crossing the border into Austria, he headed in the other direction. He had contacts in Germany who took him in. Then, when the search for him grew cold, he headed for the agreed-upon destination. The family wound up in the United States.

Ernst Winter, Sr. fully understood how uncivilized the Nazis were. He had fought them politically ever since 1933, when the city of Vienna was in a civil war. Communists and Nazis shot up Vienna. Both sides were armed.


The Nazis were Keynesians. Hitler’s Minister of Economics, Hjalmar Horace Greeley Schacht, was the head of the central bank until 1937. He was a believer in fiat money and government spending, especially spending on public works projects. He believed this would reduce unemployment. He was a shovel-ready kind of guy.

He opposed military spending. He also opposed persecution of the Jews. He lost his position in 1937. He remained in Germany. He spent time in a concentration camp during World War II.

He should have gotten out in 1933. He surely should have gotten out in 1937. But he stayed, hoping for the best. The best eluded him.

The Keynesianism of Nazi Germany was of a special kind: highly centralized. Keynes had written this of the German planning system in the Preface to the 1936 German translation of The General Theory.

The theory of aggregated production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state [eines totalen Staates] than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire. This is one of the reasons that justifies the fact that I call my theory a general theory. Since it is based on fewer hypotheses than the orthodox theory, it can accommodate itself all the easier to a wider field of varying conditions.

Although I have, after all, worked it out with a view to the conditions prevailing in the Anglo-Saxon countries where a large degree of laissez-faire still prevails, nevertheless it remains applicable to situations in which state management is more pronounced. For the theory of psychological laws which bring consumption and saving into relationship with each other, the influence of loan expenditures on prices, and real wages, the role played by the rate of interest – all these basic ideas also remain under such conditions necessary parts of our plan of thought.

Keynes understood that his general theory is in fact a theory of central economic planning. He saw that it would be easier to apply his theory under the Nazi economy than under the free market.The centralization of power in the hands of politicians, central bankers, and their economic advisors is the characteristic economic feature of our era. It distinguishes our era from the nineteenth century, both in theory and in practice. Keynes understood this, and he railed against the earlier era’s economic theory and practices. The earlier era had promoted the international gold standard, free trade, low taxes, and limited government. By 1936, Keynes rejected all of this. He believed in planning by experts like himself.

European critics of the Nazis, such as economists Ludwig von Mises, Wilhelm Röpke, and F. A. Hayek, were hostile to Keynes. They recognized that the Nazis’ fiat money, central planning, fiscal deficits, and price controls were all part of a worldwide movement away from the nineteenth century’s concept of free markets. The Keynesians demanded the substitution of expert economic planners for the decentralized planning that is characteristic of the free market.The post-World War II era brought the triumph of Keynesianism in the West. Keynesianism is still dominant in academia and in central banking. Nowhere is this more clear than on the campus of Princeton University. Princeton gave us two representative figures: Ben Bernanke, who is now chairman of the Federal Reserve’s Board of Governors, and Paul Krugman, who won the Nobel Prize in 2008 – the year the recession escalated – and who writes a blog for The New York Times. These men are the leading spokesman for Keynesianism in the American intelligentsia.


Bernanke wrote a textbook on economics. It is Keynesian. He has timidly condemned federal deficits, but he has not called on Congress to balance the budget too soon, meaning anytime soon.

His Federal Reserve has supplied the raw materials of Keynesianism: fiat money. The monetary base in 2008 was $900 billion. Today, it is $2.9 trillion. This was the largest expansion of the monetary base in peacetime U.S. history.

In the meantime, Congress has legislated annual deficits in the $1.2 trillion range. This pattern shows no sign of decline. These are the largest deficits in peacetime U.S. history.

With this in mind, consider Krugman’s assessment of the current economy, as of May 3, 2012.

He begins with utter nonsense – nonsense beyond the fringe.

Now, however, the Republican Party is dominated by doctrines formerly on the political fringe. Friedman called for monetary flexibility; today, much of the G.O.P. is fanatically devoted to the gold standard. N. Gregory Mankiw of Harvard University, a Romney economic adviser, once dismissed those claiming that tax cuts pay for themselves as “charlatans and cranks”; today, that notion is very close to being official Republican doctrine.

The full gold standard has not been advocated by any national Republican politician over the last 40 years, other than Ron Paul. Krugman is either lying for rhetorical purposes or else he is hypnotized by paranoia over what Ron Paul stands for. In either case, no one should trust him.

Note: he calls the current economy a depression. This, you understand, is four and a half years after the National Bureau of Economic Research dates the origin: December 2007. This is over three years after Obama was inaugurated.

Which brings us to the question of what it will take to end this depression we’re in.

Many pundits assert that the U.S. economy has big structural problems that will prevent any quick recovery. All the evidence, however, points to a simple lack of demand, which could and should be cured very quickly through a combination of fiscal and monetary stimulus.

I see. It’s a “simple lack of demand.” There really is nothing to solving this problem. It “could and should be cured very quickly through a combination of fiscal and monetary stimulus.” That’s all it would take? Why didn’t Congress and the Federal Reserve take these steps in 2009 and 2010? Pelosi’s House and then Reid’s Senate had the votes. Democrats had majorities. They controlled the White House. They passed a $787 billion stimulus package. Meanwhile, the FED more than doubled the monetary base. But, no, it is the Republicans’ fault. They did it.

No, the real structural problem is in our political system, which has been warped and paralyzed by the power of a small, wealthy minority. And the key to economic recovery lies in finding a way to get past that minority’s malign influence.

You see, despite the fact that the Congress was in the hands of the Democrats, 2009-2011, and despite the fact that Obama swept the Presidential election, the Republicans were the cause of the problem.

On partisanship: The Congressional scholars Thomas Mann and Norman Ornstein have been making waves with a new book acknowledging a truth that, until now, was unmentionable in polite circles. They say our political dysfunction is largely because of the transformation of the Republican Party into an extremist force that is “dismissive of the legitimacy of its political opposition.” You can’t get cooperation to serve the national interest when one side of the divide sees no distinction between the national interest and its own partisan triumph.

The Democrats did not seek bipartisanship in 2009-2011. They rammed Obamacare through, despite the votes of Republicans.

The Republicans had backed Henry Paulson and Bernanke in October of 2008, voting for the big bank bailout that the voters overwhelmingly opposed. They lost in November as a result of backlash against this bailout.

Bernanke, who has taken a leave of absence from Princeton to serve with the FED for a decade, emerges with clean hands. Krugman lets him off with nary a word of criticism. Somehow, the FED has not done all it could to overcome “this depression we’re in.” The reason is Republican partisanship. And here I imagined that the Federal Reserve System is independent of politics, as well as being run by professional economists, most of whom are Keynesians.


Charlie Munger thinks that gentlemen should buy profitable companies, not gold. But he fails to realize that the economy is being managed at the top by people who are not reliable. It is being run by Congress, the executive bureaucracy, and the Federal Reserve System. It is being run by men who share the views of Keynes, namely, that the gold standard is a barbarous relic and that politicians and bureaucrats and central bankers are the people who should set policies under which companies become profitable.

Men who shared these economic views – deficits, regulation, and fiat money – ran Austria in 1939. They had been running Germany since 1933. Some of us see that the present economic system cannot be trusted. So, we get out our sewing gear and start to work.

Civilized people should buy gold when uncivilized people are in charge. They should also buy it when civilized people in power adopt the economic policies of uncivilized people.

May 9, 2012

Gary North [send him mail] is the author of Mises on Money. Visit He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

Copyright © 2012 Gary North