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10/September/2014

Fiat Money and Independence for Scotland

Hugo Salinas Price

Doctor: “I told you thirty years ago that you should stop smoking and you didn’t; now you have full-blown emphysema.”

Patient: “That’s all beside the point. I want to know what to do now.”

Scotland and England got along together fine, for 150 years; now half the population of Scotland says they want a divorce. Perhaps they will get it.

For most people it is probably beside the point to discover why the relationship between Scotland and England deteriorated. But “Enquiring minds want to know.”

The Austrian economists long ago pointed out that gold money, and the strictly limited government and limited government intervention in the economy that necessarily goes with it, are sine qua non prerequisites for holding a country together and promoting peaceable international trade.

When real money was in the hands of the people for daily use, to go from one country to another made relatively little difference.

Up to the 1920’s, an Englishman – or anyone else, for that matter – could travel from England to Mexico, and work in Mexico, without any need for a passport. Money in the form of gold and banknotes redeemable at sight for gold flowed from country to country without restriction.

In the 1700’s, there was a cordial relationship between Scotland and England, notwithstanding a recent war between them. Dr. Johnson accompanied young James Boswell on a journey to visit Boswell’s dear Scotland, where Johnson was warmly welcomed. The money Johnson and Boswell employed to pay for their travels was either gold itself, or banknotes redeemable in gold.

Today a 50% or more of Scots are clamoring for independence. This is rather like one who has emphysema saying he needs immediate help to keep breathing; he is not a bit interested in being reminded that he got that way because he smoked too much. The fact is there is nothing to be done about the emphysema, and that independence for Scotland may only delay the arrival of further problems, at best. At worst, it will hasten their arrival.

We have the same centripetal political force - motivated as in Scotland, by a centralized and highly interventionist government in a distant capital that imposes fiat currency issued by a Central Bank - at work in Catalonia, which speaks an entirely different language from that spoken in the Capital, Madrid, and which wants independence from Spanish speaking Spain: the money is created and distributed by the Spanish government in Madrid, and the Catalans feel left out.

In recent years, the Spanish government in Madrid had a hard time subduing the Basque nationalists in northern Spain, whose reasons were the same ones the Catalans are voicing: “Madrid distributes the fiat money, and we are left out! We speak a different language, we are a different ancient people, and we want out of this arrangement!”

The French-speaking Canadians in Quebec were recently striving to divorce from the British-oriented Canadians in Ottawa.

Northern Mexico is generally unhappy with the treatment it receives from the federal government in Mexico City, though divorce is out of the question – for the moment.

This same centripetal political force is enhanced by religious differences in various regions of the world: the Islamic Chechens are only provisionally at peace with the Orthodox Russians of Moscow; the Islamic Uighurs of Western China want independence from the Chinese of Beijing and their traditional religion.

Many years ago, Ludwig von Mises remarked that the Austrian Empire began to fall apart when it abandoned the use of gold as money.

Fiat money promotes Separatism. It tends to separate distant regions from the centre which issues the fiat money. It separates country from country, as each tries to defend its currency and its economy, from the adverse effects of the defensive fiat money policies of its neighbors.

Hence: “currency wars”. These wars are more properly named, “fiat currency wars”. The term “currency war” was unknown during the period that the Gold Standard prevailed in the world.

What we are going to see in the coming years is Separatism manifested in a breakdown of world trade. Countries will be seeking Protectionism or even “Autarky” – survival independent on reliance on the rest of the world. Each country will cut down on Imports to defend its economy. This of course means that each country will be able to Export less. Consequently, poverty around the world will increase. The cause is fiat money which each country issues for its people.

Separatism between nations implies an underlying hostility – Nationalism - which can break out into open warfare.

Another manifestation of Separatism under fiat money is the inevitable separation between the very rich and the poor rest of the population. Those close to the issuance of fiat money by their political and banking relationships are certain to become vastly wealthy. In this case, too, the cause of the vast differences of income between rich, middle class and poor is ignored; ideas on how to deal with the problem are floated, all of them various ineffective remedies centered on the idea of some “regulation”. With fiat money, the rich will get richer and the poor will get poorer, no two ways about it. No “Reform” will alter the fact.

Separatism is also at work in moving the populations of the world from their agricultural homes, to homes in the capitals where their fiat money is issued: those closer to the cow’s teat get more milk. Thus, the bloated populations of the world’s capitals are now national cancers.

Fiat money is toxic for the world. If the world insists on using fiat money, it is going to impoverish itself, and Independence for Scotland will be no remedy at all, quite as surely as if you get emphysema, you are doomed.

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Hugo Salinas Price, World Riba Conference, Kuala Lumpur, Malaysia, Nov. 26, 2012.
Hugo Salinas Price, World Riba Conference, Kuala Lumpur, Malaysia, Nov. 26, 2012.
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