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EUROPE’S CENTURY
OF CRISES UNDER
DOLLAR HEGEMONY
A Dialogue on the
Global Tyranny
of Unsound Money
—
Brendan Brown
Philippe Simonnot
Europe's Century of Crises Under Dollar Hegemony
Brendan Brown • Philippe Simonnot
Europe's Century of
Crises Under Dollar
Hegemony
A Dialogue on the Global Tyranny
of Unsound Money
Brendan Brown Philippe Simonnot
Hudson Institute Paris, France
Washington, DC, USA
© The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2020
This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the
whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations,
recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or informa-
tion storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology
now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does
not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective
laws and regulations and therefore free for general use.
The publisher, the authors and the editors are safe to assume that the advice and information in this book are
believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors
give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omis-
sions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published
maps and institutional affiliations.
This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG.
The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
In memory of Irene Brown
Brendan Brown
To Marie Solies
Philippe Simonnot
Invitation to Our French-Speaking Readers
Brendan Brown
Philippe Simonnot
vii
Acknowledgments
ix
x Acknowledgments
Brendan Brown
Contents
Part I Introduction 1
Part II Dialogue 21
2 Phobia of Deflation 23
Question 1 23
Question 2 24
References 25
xi
xii Contents
5 Explaining 1929 51
Question 5 51
Question 5, Part 1 54
Question 5, Part 2 55
References 57
17 Banking Union123
Question 27 123
Question 28 125
Question 29 125
Question 29, Part 2 126
Question 29, Part 3 127
Question 29, Part 4 127
Question 30 128
Part III Conclusion 177
Appendixes203
Index231
Part I
Introduction
1
The Tyranny of Unsound Money
In a sentence which Milton Friedman made famous, J.S. Mill wrote: “most of
the time the machinery of money does not matter but when it gets out of
control it becomes the monkey wrench in all the machinery of the economy”
(Friedman 2006). In the century of US dollar hegemony, since the break-
down of the international gold standard during the First World War, money
has mattered most of the time because it has been almost continuously out of
control. Money has been profoundly unsound.
Unsound money has spawned and enabled tyranny in multiple ways.
Sometimes the link runs from the generating of bubbles and busts to devastat-
ing geopolitical consequences. The extreme example here was the role of a
massive bubble in stocks and global credit fuelled by the Federal Reserve and
its subsequent burst in the Weimar Republic’s collapse. Other times political
malaise forms due to unsound money’s destruction of opportunities for gen-
eral sustained advances in economic prosperity over long periods.
Always, under unsound money regimes, the state gains tremendous power to
obtain revenue without explicitly levying new taxes or hiking old taxes. Monopolists
and would-be monopolists use bubble finance as generated by monetary infla-
tion—including fantastically priced equity issues to investors mesmerized by spec-
ulative narratives of vast eventual profit margins—to crush free market competition.
Historical examples extend from the Dutch East India Company in seventeenth-
century Holland to the notorious list of suspects under anti-trust investigation in
the US at the start of the 2020s. Monopoly power is inimical to free society.
Individuals constrained by laws and practice to use fiat monies whose
issuers pursue monetary inflation are exposed to the huge risks of sudden
evaporation of their financial well-being, whether from asset inflation
turning to asset crash, or from the outbreak of goods and services inflation.
Widespread economic and financial suffering imperils always fragile liberty.
The propaganda machine of the tyranny (including the central banks and
their “transparent communications”) grinds on relentlessly. In sum, the severe
ways in which “the machinery of money” has acted as monkey wrench go well
beyond anything that J.S. Mill imagined or Milton Friedman described.
(the so-called price level or the inflation rate) whilst moderating the fluctua-
tions of the business cycle (in the process, lengthening economic expansions).
The ways in which the monkey wrench jams up the economic machinery
go far beyond the traditional (and sometimes misplaced) concerns of con-
sumer price inflation (or deflation) or violent business cycle fluctuations. The
starting point (for the monkey wrench) is the haywire signalling of prices,
particularly in asset markets. This leads on to a general malfunctioning of the
invisible hands, together with misallocation of resources—especially capital.
The false signalling guides capital into a whole range of projects far more
intensely than what would have occurred otherwise (with correct signalling).
The resulting opportunity losses in prosperity from such malinvestment are
potentially huge and long-lasting, even though there might be for a consider-
able periods of time some apparent benefits to consumers. Extraordinarily
low-cost capital to some firms, reflecting wild speculative narratives about
future monopoly profits, allows these to gain market share by predatory
action, including extended periods of cheap pricing and also systematic elimi-
nation of any new entrant challenger by pre-emptive buyouts.
The second exit from the failure of monetarism is to abandon the quest for
sound money and instead install top macro-economic managers in the mon-
etary administration (via the central bank) whose stated aims would be high
employment and stable prices.
The tools at the disposal of these managers would be designed to manipu-
late interest rates along a path mapped out by powerful econometric models.
They do not use the monetary base as a control mechanism, though in princi-
ple they determine its size. They would not return to the practice of the Federal
Reserve at times between 1920 and the mid-1980s in cross-checking that their
chosen path for short-term money market rates results in the monetary base
cumulatively staying within a target or quasi-target range. (The cross-check in
the 1920s and 1960s occurred in the context of whole and then partial con-
vertibility of the dollar into gold; growth in the fiat component of monetary
base as consistent with the Fed’s chosen rate path could bring into question
whether gold reserves were sufficient and trigger a tightening of policy.)
The managers would also have “emergency access” to a bag of unconven-
tional tools to be deployed towards reaching their aims. The monetary admin-
istration, headed by political appointees, is a part of government, albeit with
some weak outward semblance of independence. A key unstated part of the
monetary administration’s purpose is the levying of monetary repression tax
and inflation tax; their success in this is very important in terms of their rela-
tionship with government.
Through the 1990s, after the global asset price deflations and recessions of
1989–92, the Federal Reserve having totally abandoned the last vestiges of
monetary rules with respect to monetary aggregates (broad or narrow) and
focusing under Alan Greenspan on masterly piloting of short-term interest
rates, gained acclaim for the so-called Great Moderation. The NASDAQ crash
and apparent mini recession of 2001/2 blemished that record, such that in
2002/3 President George W. Bush, facing difficult elections in 2004, resolved
to use the power of appointment to guide the Fed on to a “pro-growth course”.
Accordingly, President Bush appointed renowned “inflationist” and neo
Keynesian Professor Ben Bernanke (a disciple of Stanley Fischer) as a Fed
Governor (then fast-tracking him into the “Economic Cabinet” in prepara-
tion for the top Fed post), and meanwhile extended Greenspan’s tenure for a
half-term—all in the implicit expectation (no evidence of any direct negotia-
tion on this) that policy would be “stimulatory” in the run-up to the 2004
elections. The “breathing in of inflation” on the basis that this was too low at
around 1% became a milestone in the development of the 2% inflation stan-
dard and in Europe similarly we had the famous press conference of the ECB’s
eminence grise, ex-Bundesbanker Otmar Issing, in early 2003.
The payment of market interest rates on monetary base (authorized by
Congress in autumn 2008) and successive bouts of quantitative easing (QE)
dealt the final coup de grace to any residual ailing anchor to the US monetary
system. The demand for monetary base became so unstable and indeed unknow-
able that it could not possibly function as anchor. All of this was a far cry from
the norm of Fed practice through most of its prior existence, at least until the
early 1990s, where in setting the interest rate path, it accepted that the growth
of monetary base in some loose fashion constrained its freedom of action.
Counterfactually, what would have been the sound money way out of the
flaws of monetarism? Short answer: to reconstruct the monetary regime in a
way which would ensure a strong and resilient anchor to the monetary system
such that the principles of sound money could triumph.
A longer answer starts with a look at what we should learn from the flaws
of monetarism.
Both Jew and Gentile will agree that true religion is the fear of the
Lord, but the difficulty is how are we to know it, and what are the
marks that will help us to distinguish the true from the false? The
Word of God gives many, of which at present we select this one:—
ראשית חכמה יראת ה׳ ׃
“The fear of the Lord is the beginning of wisdom.” (Psalm cxi. 10.)
True religion, as the Bible teaches, does not only better the heart,
but also improves the understanding; whereas false religion not only
corrupts, but also makes its votaries foolish. This is the uniform
representation of the Bible, and thus we read of true religion, “The
law of the Lord is perfect, converting the soul: the testimony of the
Lord is sure, making wise the simple.” (Psalm xix. 7.) And again, the
wisest of men says, “Then shalt thou understand righteousness,
judgment, and equity; yea, every good path. When wisdom entereth
into thine heart, and knowledge is pleasant to thy soul, discretion
shall preserve thee, understanding shall keep thee.” (Prov. ii. 9-11.)
The votaries of false religion are, on the contrary, described as
devoid of all wisdom. “They are altogether brutish and foolish; the
stock is a doctrine of vanities.” (Jer. x. 8.) And again, “None
considereth in his heart, neither is there knowledge nor
understanding to say, I have burned part of it in the fire; yea, also, I
have baked bread on the coals thereof; I have roasted flesh and
eaten it; and shall I make the residue thereof an abomination? Shall I
fall down to the stock of a tree? He feedeth on ashes; a deceived
heart hath turned him aside, that he cannot deliver his soul, nor say,
Is there not a lie in my right hand?” (Isaiah xliv. 19, 20.) According to
these passages of Scripture, wisdom is a test of true religion, and
folly of a false one, let us then apply this test to the religion of the
oral law, does it commend itself to the understanding by its wisdom,
and the wisdom of its teachers? It is true, that it speaks well of itself,
and calls all its doctors “ חכמיםWise men,” but the chapter on
amulets, quite fresh in the memory of our readers, excites some
doubts upon the subject, though of these we consider only the
theory. The histories, which the Talmud gives of the Rabbinical
practice with regard to such charms, lead to the inevitable conclusion
that wisdom is not one of the characteristics of the oral law. Take for
example the following direction to stop a bleeding at the nose:—
לדמא דאתי מנחירא ליתי גברא כהן דשמיה לוי ולכתוב ליה לוי למפרע ואי לא
ליתי אינש מעלמא ונכתוב ליה אנא פפי שילא בר סומקי למפרע ואי לא ניכתוב ליה
הכי טעם דלי במי כסף טעם דלי במי פגם ואי לא ליתיה עקרא דאספסתא ואשלא
דפורייא עתיקא וקורטסא ומוריקא וסומקא דלוליבא ונקלינהו בהדי הדדי וליתי
גבבא דעמרא וניגדול תרתי פתילתא ולטמיש בחלא וניגדבל בקיטמא הדין וניתיב
בנחירא ואי לא ליחזי אמת המים דאזלא ממזרח כלפי מערב וניפסע וניקום חד
כרעא להאי גיסא וחד כרעא להאי גיסא ונישקל טינא בידיה דימינא מתותי כרעא
דשמאליה ובידיה דשמאלא מתותי כרעא דימיניה ונגדול תרתי פתילתא דעמרא
וניטמיש בטינא וניתב בנחיריה ואי לא ליתיה תותא מרזבא ונייתי מיא ולישדי עליה
ולימרו כי היכי דפסקי הני מיא ליפסק דמיה דפלניא בר פלנירא ׃
“For a bleeding at the nose, let a man be brought who is a priest,
and whose name is Levi, and let him write the word Levi backwards.
If this cannot be done, get a layman, and let him write the following
words backwards:—‘Ana pipi Shila bar Sumki;’[23] or let him write
these words, ‘Taam dli bemi keseph, taam li bemi paggan;’[24] or let
him take a root of grass, and the cord of an old bed, and paper and
saffron, and the red part of the inside of a palm tree, and let him burn
them together, and let him take some wool, and twist two threads,
and let him dip them in vinegar, and then roll them in the ashes, and
put them into his nose. Or let him look out for a small stream of water
that flows from east to west, and let him go and stand with one leg
on each side of it, and let him take with his right hand some mud
from under his left foot, and with his left hand from under his right
foot, and let him twist two threads of wool, and dip them in the mud,
and put them into his nostrils. Or let him be placed under a spout,
and let water be brought and poured upon him, and let them say, ‘As
this water ceases to flow, so let the blood of M., the son of the
woman N., also cease.’” (Gittin, fol. 69, col. 1.) Now we ask any Jew
of common sense, whether this passage savours most of wisdom or
folly? Vinegar and water may be very useful in such a case, or even
mud, if used in sufficient quantity, might stop up the nose, and
therefore stop the bleeding too, but what manner of benefit can
proceed from the word Levi written backwards, or from those words
which Rashi pronounces to be magical? Why is the mud of water
flowing from east to west more efficacious, and why is it to be taken
with the right hand from under the left foot, and with the left hand
from under the right foot? Plainly because the authors of this
passage thought there was some charm or magic power, and their
minds were so overpowered by superstition, as to lead them to
disregard the plain words of Moses forbidding all magic. It cannot be
pretended that this is a rare case, the Talmud abounds in such
remedies, all equally wise. For instance, take the following mode of
treatment for the scratch or bite of a mad dog:—
תנו רבנן חמשה דברים נאמרו בכלב שוטה פיו פתוח ורירו נוטף ואזניו סרוחות
וזנבו מונח לו על ירכותיו ומהלך בצדי דרכים ויש אומרים אף נובח ואין קולו נשמע
ושמואל אמר רוח רעה שורה, ממאי הוי רב אמר נשים כשפניות משחקות בו,
מאי בינייהו איכא בינייהו למקטליה בדבר הנזרק תניא כותיה דשמואל, עליו
כשהורגין אותו אין הורגין אותו אלא בדבר הנזרק דחייף ביה מסתכן דנכית ליה
מיית דחייף ביה מסתכן מאי תקנתיה נישלח מאניה ונירהוט תב הונא בריה דרב
יהושע חף ביה חד מינייהו בשוקא שלחינהו למאניה ורהיט אמר קיימתי בעצמי
והחכמה תחיה בעליה דנכית ליה מאית מאי תקנתיה אמר אביי ניתי משכא דאפא
דדיכרא וניכתוב עליה אנא פלניא בר פלניתא אמשכא דאפא דדיכרא כתיבנא עלך
כנתי כנתי קלירוס ואמרו לה קנדי קנדי קלורוס יה יה ה׳ צבאות אמן אמן סלה
ונשלחינהו למאניא ולקברינהו בי קברי עד תריסר ירחי שתא ונפקינהו ונקלינהו
בתנורא ונבדרינהו לקטמיה אפרשת דרכים והנך תריסר ירחי שתא כי שתי מיא
לא לשתי אלא בגובתא דנחשא דלמא חזי בבואיה דשידא וליסתכן כי הא דאבא בר
מרתא הוא אבא בר מניומי עבדי ליה אימיה גובתא דדהבא ׃
“The rabbies have handed down the tradition, that there are five
things to be observed of a mad dog: his mouth is open, his saliva
flows, his ears hang down, his tail is between his legs, and he goes
by the sides of the ways. Some say also, that he barks, but his voice
is not heard. What is the cause of his madness? Rav says, it
proceeds from this, that the witches are making their sport with him.
Samuel says, it is an evil spirit that rests upon him. What is the
difference? The difference is this, that in the latter case he is to be
killed by some missile weapon. The tradition[25] agrees with Samuel,
for it says, In killing him no other mode is to be used but the casting
of some missile weapon. If a mad dog scratch any one, he is in
danger; but if he bite him he will die. In case of a scratch there is
danger; what then is the remedy? Let the man cast off his clothes
and run away. Rav Huna, the son of Rav Joshua, was once
scratched in the street by one of them; he immediately cast off his
clothes and ran away. He also says, I fulfilled in myself those words,
‘Wisdom giveth life to them that have it.’ (Eccles. vii. 12.) In case of a
bite, the man will die; what then is the remedy? Abai says, He must
take the skin of a male adder, and write upon it these words, ‘I, M.,
the son of the woman N., upon the skin of a male adder, I write
against thee, Kanti, Kanti, Klirus.’ Some say, ‘Kandi, Kandi, Klurus,
Jah, Jah, Lord of Hosts, Amen, Amen, Selah.’ Let him also cast off
his clothes, and bury them in the grave-yard for twelve months of the
year; then let him take them up and burn them in an oven, and let
him scatter the ashes at the parting of the roads. But during these
twelve months of the year, when he drinks water, let him drink out of
nothing but a brass tube, lest he should see the phantom-form of the
demon and be endangered. This was tried by Abba, the son of
Martha, who is the same as Abba, the son of Manjumi. His mother
made a golden tube for him.” (Joma, fol. 83, col. 1.) This is a very
plain case of the use of an amulet and of magic, but whether it be a
proof of profound wisdom we leave to the judgment of the reader.
What good can the poor man get from certain words written on the
skin of a male adder? or from first burying and then burning his
clothes, and scattering the ashes on the cross-roads? It cannot be
pretended that this is medical treatment, and still less that it is the
treatment commanded by the Word of God. If it had pleased God to
command all this, we should not only submit, but gladly recommend
this recipe in every similar case. To God Almighty no man can
prescribe. He chooses what means he pleases, and may do so
because his omnipotence can render them effectual. He healed the