Standing At A Crossroads

Authored by Claudio Grass,

“The more we gained knowledge of these new totalitarian systems of mass-rule, the more we realized not only their similarity of structure, but also the fact that we had to do with a type of dominance that had been known in earlier epochs. We discovered that what the ancients called “tyrannis,” or ‘cheirokratia,” what Sulla or the tyrants of the Italian Rennaissance had practised, and what finally alarmed the world in the French Revolution and under Napoleon, had surprisingly many similarities with modern totalitarianism, although this latter had elements with which they cannot be compared, and although it possessed means of domination unknown in past ages.”

– Willhelm Röpke

This is an old quote I very much admire, it is as relevant today as it was in the past. History does not repeat but it does rhyme. Therefore, I believe it is fair to say that the world has already changed tremendously over the past few months in an irreversible way. The current central planners are already promoting the future reality they have in store for us – to let the old economy and system crash and prepare for government-controlled and planned transition into a new economy that is “green and emission-free”. The new Modern Monetary Theory (MMT) is ready to finance this “man-made paradise” that we have analyzed in detail in the previous two issues of this magazine. The digitalization shift that occurred over the last 20 years also massively contributes and accelerates this process. 

Of course, this technology, like any other, can be used for good or evil, for decentralization and increased independence, or for the concentration of power in the hands of the few and for the exertion of control over everyone else.  The government naturally prefers the latter, as it recognized its practical value. We see real-life implementations of this more and more over the last few years. The establishments and promotion of “anointed experts”, who practice the art of divination while playing God and making decisions “for the greater good”, will inevitably lead to a relentless technocratic system of governance, if it hasn’t already, where individuals as treated as units, to be counted and to be tallied, in a vain attempt to forcefully balance a meaningless equation. 

In the end, and this must be clear by now, this path leads to the full-scale nationalization of the private economy, to a system without private property rights and without individual liberty. The political measures in connection with the Corona crisis have already served as a preview to that bleak future. They also highlighted that the greatest losers in that system are the poorest, the weakest and the most marginalized among us, as low-income workers and small business owners were the hardest hit by the lockdowns and the shutdowns and they’ll be the last to recover, if they recover at all, which seems increasingly unlikely. 

The only way out 

Ludwig von Mises said it best, decades ago: 

“The market system is the basis of our civilization. Its only alternative is the Führer principle.”

People today have to decide for themselves if they want to remain in a system were central planners will be in full control or if they want to opt-out. There are many ways one can do that, depending on their circumstances.  It can be as simple as using private money and decentralized technologies to regain personal sovereignty, privacy and control, or it can be done through jurisdictional diversification of one’s assets and wealth or even by relocating to areas with like-minded people. At the end of the day, we always have a choice. If people want to live in a system that espouses the virtues of socialism and if they like having to sing the international anthem every morning, they can. Whoever likes the sound of that can join, whoever doesn’t can move to a different town, that embraces different ideas and values. 

Let the competition begin, by moving away from a centralized government and allowing people to have options. Allow ideas to freely compete with each other, without forcing anyone to live under a system they don’t like. This would be the crucial first step in the right direction and I personally expect that we are about to take it. I believe we’re at a historical turning point, at the beginning of a shift that will eventually inspire and enable people to organize everything on a much smaller scale, to gather together on the level of small towns and municipalities and to form their own social and political systems, based on the principles that all the people on the local level consent to.

This brings me to the antidote to the current monetary system and all its toxic effects. Physical precious metals, in particular gold and silver, are the insurance against all the arbitrary experiments and monetary manipulation of the last decades. They can’t be printed and controlled by central banks and they cannot be used to support and transmit any of their political goals and agendas. This is why I expect physical precious metals to play a key role in the foundations of any truly free society. Without the financial shackles of fiat money, direct control can be reclaimed and reasserted by the individual. 

The rational aspect of owning physical precious metals

John Maynard Keynes turned the world upside down with his argument that saving is not the lifeblood of investments; instead, he argued, it is a burden for the economy. His opinion was that wise and all-knowing central planners (in other words, a pseudo-benevolent politburo) could correct macro-economic imbalances by manipulating market signals. The implication of such a system, wholly congruent with Marx’s fifth “commandment”, is that it enables a massive centralization of power. However, as is taught (or should be taught) in every political science 101 class: power corrupts, and absolute power corrupts absolutely! 

This central planning precept furthermore contradicts not only common sense and trivial observation, but also the full historical record: indeed, the driving force behind economic health are savings, financial prudence and investment; not reckless spending, mindless consumption, and debt.

In the same way that nihilism is a self-refuting ideology (if existence is meaningless, being the prophet of that meaninglessness is a proof against it), the Keynesian school (and its neoclassical successor) is contradicted by reductio ad absurdum: if all that matters is debt, then let’s all stop working, let’s only print paper, and we’ll solve world hunger!

The problem is exacerbated by the fact that paper money used to be a property title, but has become a debt security. These IOUs represent the promise that future generations will pay off their predecessors’ debt via taxes and inflation. In such an environment, the populace is automatically divided between winners and losers: the former being those close enough to the monetary spigot, the latter everyone else. Moral hazard becomes the rule of the game; merit and talent die with it. It is a fraud of gigantic proportions.

Gold and silver should not be seen as a trading vehicle, but rather as an insurance in a highly uncertain world, a protection against the insanity of central planners, and a safety net against a possible forthcoming crash of the monetary and financial order.

Although it is impossible to determine how fast it will happen, it should be obvious by now that the coming months, especially in the western world, will be dominated by a declining real economy, higher unemployment rates, financial repression measures, such as higher taxation and government restrictions. Interest rates, which are kept artificially low, are causing low or even negative real return on investments. In such an environment, gold is a high-yield asset!

Direct and unencumbered physical ownership of precious metals stored outside of the banking system is therefore essential, if you are interested in a real and practical insurance against the ongoing problems in our monetary system and the uncertainties in our world today.

The case for Switzerland

As a Swiss citizen, I can directly attest to the unique features and advantages of a nation that is defined by its own people’s will, having taken an oath not to pay taxes to foreign reeves. Even before the enforced confederation of 1848, Switzerland was the most industrialized country on mainland Europe. The economy was everywhere and politics nowhere. Even under intense external pressures, Switzerland retained its sovereignty and remained an armed neutral country, resisting two world wars, with a track record that it can be proud of. Up to this day, it still has one of the most decentralized political structures in the world. Its constitution outlines the basis of its political system and its government’s limits, according to the principles of subsidiarity and direct democracy. 

Instruments such as referendums “against the state” and initiatives “from the people” help to keep the state in check and the country as decentralized as possible. And although the last 20 years have seen political pressure put on Switzerland to follow the way paved by the EU rather than its own, a culture of trust, free speech, limited government and respect for private property remains more solid than in most countries on this planet. In other words, the Swiss still understand that the government cannot give away what it has stolen from someone else.

In terms of stability and security, especially from a physical gold investor’s point of view, it is clear that Switzerland has withstood the test of time. Its long-standing neutrality position, its solid non-interventionist foreign policy record and the fact that more than 50% of households in the country are armed, create a safe environment and provide peace of mind both for its citizens and for investors. Furthermore, the strict limits placed on its government’s powers and the long track record of the government staying well within those limits, make confiscation scenarios of precious metals stored under Swiss law very improbable. 

However, because you can never be sure of what the future holds, it always makes sense to look at other jurisdictions too, which might also offer a solid basis. Unfortunately, not many are left on this planet, but the Principality of Liechtenstein is a great candidate. 

Liechtenstein’s unique advantages 

The Principality of Liechtenstein is not in the EU; it is however a member of the European Economic Area and the Schengen visa zone. Although it became independent in 1806, it can be argued that the values exhibited by today’s Liechtenstein were mostly formed after WWII. It was then that today’s monarch, Hans-Adam, had to take over a bankrupt country and effectively managed to turn it into a highly competitive, innovative and agile financial hub of international renown. Liechtenstein is led by one of the oldest noble families in European history and its roots go back into the eleventh century. They have a long-established history as advisers, especially during the Habsburg Monarchy. 

The country’s standing as a reliable business and banking center and the princely house’s reputation as being ahead of the curve are still undeniable today. For example, Liechtenstein and members of the princely family have established the Center for Austrian Economics under the guidance of H.S.H. Prince Michael of Liechtenstein and H.S.H. Prince Philipp of Liechtenstein. Therefore, it is fair to say that the ruling figures of Liechtenstein fully embrace the values of individual and financial freedom and recognize the importance of private property rights. 

The system of government is classified as a constitutional monarchy, with the decision-making power being shared by the monarch and the democratically elected parliament. The Prince retains significant political power, as head of state, and also has veto power. Hans-Adam himself wrote the political treatise “The State in the Third Millennium” in 2009, in which he promotes sound money in the form of gold and silver. In it, he also defends the right of secession right down to the level of the municipality and he is a fierce proponent of limited government, free trade and free speech.

Overall, Liechtenstein remains a solid jurisdiction. It is built on a system of governance that shows great restraint and respect towards individual freedoms, private property, the right to privacy and the financial sovereignty of its people. From a military aspect, Liechtenstein is protected by the Swiss military and has strong ties with Switzerland in general, even though it remains independent when it comes to local laws and international policy. 

Weighing the options 

Both jurisdictions make a convincing case for gold storage, with regard to stability and private property rights, which is infinitely strengthened when compared to the risks and uncertainties that what most other jurisdictions entail. Even from a more practical perspective, it also makes sense to store gold in jurisdictions with ready access to active commercial gold markets, that are not bank-based, as for example is the case for London. Switzerland is a global leader and hub of gold refining and has extensive and vibrant bullion commercial activity. 

Overall, when selecting a location to store parts of your wealth in physical precious metals, one has to look carefully at the political system, as well as the government’s track record through thick and thin. It is also important to consider the country’s “gold culture” and relevant tradition, as in nations with a long history of widespread private gold ownership, governments face formidable obstacles and serious opposition against aggressive legislation, like ownership restrictions, seizures or confiscation orders targeting precious metals. Thus, overall, Switzerland and Liechtenstein definitely seem to have an advantage, at this point in time.