Part I: Lessons from the 20th Century
The biggest lesson from the 20th Century taught to world leaders on the continents of Europe and Asia is to avoid World War III. The European Union itself was formed for this very reason.
With 40 million deaths in what was then known as The Great War (before they needed roman numerals to distinguish World Wars like Rocky movies and Super Bowls), that turned out to be a family cookout, only a warm-up for the ensuing Act II, an apt doubling of casualties in WWII:
“Word War II was the deadliest military conflict in history. An estimated total of 70–85 million people perished, or about 3% of the 1940 world population (est. 2.3 billion)… More than half of the total number of casualties are accounted for by the dead of the Republic of China and of the Soviet Union.”
Over 98% of 120 million deaths across both World Wars were Eurasian, and (even if you more than double Wikipedia’s high-end estimate of casualties), less than 0.5% of those were from nuclear weapons, America’s dropping of atomic bombs “Little Boy” and “Fat Man” on Hiroshima and Nagasaki.
The United States detonated two nuclear weapons over the Japanese cities of Hiroshima and Nagasaki on 6 and 9 August 1945, respectively. The two bombings killed between 129,000 and 226,000 people, most of whom were civilians, and remain the only use of nuclear weapons in armed conflict. In the final year of World War II, the Allies prepared for a costly invasion of the Japanese mainland. This undertaking was preceded by a conventional and firebombing campaign that devastated 67 Japanese cities.
Can you imagine the death and destruction – 75 years into the future – of World War III today? There are now thousands of much more powerful warheads across more than 40 countries.
“Russia, the United States, the United Kingdom, France, China, India, Pakistan, Israel and North Korea possess an estimated total of nearly 14,000 nuclear weapons, most of which are many times more powerful than the nuclear weapon dropped on Hiroshima.”
Self-preservation of the ruling class
Before we start singing Kumbaya at the levelheadedness and compassion of world leaders who have thus far kept us out of WWIII, let’s remember, it’s their own self-interest at stake.
It’s not civilian or military casualties that keep sociopaths up at night.
While they rarely see third and fourth order consequences, they do understand (a) the uncertainty of outcome (i.e., should there be a conflict, can they maintain power throughout?) and (b) regardless of who wins, wars that need roman numerals have an uncanny ability to destroy capital.
What good is it to dominate scorched earth through nuclear winter?
Ahh, the things that keep us safe to tuck our little ones in bed or gather in the morning for coffee with colleagues, bald villains weighing the pros and cons of mutually assured destruction…
The only real victor in WWII was the USA, supplying the Allied war efforts in exchange for gold, tipping the balance in their favor, holding a position of strength to dictate monetary terms to the world, then supplying rebuilding efforts with the only manufacturing base not left in smoldering ruins.
FDR sure was a cunning fellow.
Connecting the dots
Here in the American public education system, we teach our children about World War I, the Great Depression, and World War II as if these events were unrelated, almost random. Why do we do this?
Then, we wonder why the education system graduates elect fools and charlatans, and have zero understanding of the money system or Austrian business cycle.
Perhaps that is exactly why government schools do it…
If we taught them why everything happened, how it was all connected, can you imagine the cons exposed? I am pretty sure the last 50 years would look much better if we had.
While these are among the biggest historical events imparted on our children, unfortunately, with them they receive zero context.
The biggest, fattest line we fail to connect is the tracing of Super Bowl II WWII directly to its predecessor through the Treaty of Versailles.
Signed at the Palace of Versailles outside Paris on June 28, 1919 – exactly five years after the powder was lit with the assassination of Archduke Franz Ferdinand – the onerous treaty’s “War Guilt” clause forced all blame for the war on Germany and the Central Powers, including loss of land (13%), and massive reparation payments to the Allies led by France, the United Kingdom, and the USA.
“In 1921 the total cost of these reparations was assessed at 132 billion gold marks (then $31.4 billion or £6.6 billion, roughly equivalent to US$442 billion or UK£284 billion in 2021)”
The German (gold) mark seems to have had 0.35838 grams (or 0.01152 ounces) of gold, so right here we see how poorly official measures of inflation undercount its insidious affects.
Wikipedia reports 132 billion gold marks equate to $442 billion today, but at today’s gold price, the value of the gold itself is $2.75 trillion. Despite recent activities by the Fed and the Biden Administration (continuing a string of Presidencies desensitizing us to big numbers), that’s a, well, very big number.
German GDP in 1921 was $410 billion in 2017 dollars, meaning if you believe official measures of inflation, reparations were about 90% of GDP, and if (like me) you prefer to trust markets, using a 2017 gold price of $1,260, reparations were $1.9 Trillion, about five times GDP (which dipped to $371 billion in 1923).
How did anyone expect Germany to dig out of that hole?
Should we be surprised that it led to the authorities’ excessive printing of money? Should we be surprised that excessive printing of money led to hyperinflation?
Should we be surprised that hyperinflation led to the rise in power of a megalomaniac who used propaganda effectively to target a scapegoat, and promised to make Germany great again?
If it wasn’t entirely predictable, it makes perfect sense in retrospect (so much so that we might want to be more careful with the money-printing and scapegoating today, no?).
We can draw a few more fat lines while we’re at it, from WWI to the credit bubble of the 1920s, and from that (along with a move towards socialist policies) to the Great Depression.
How much time do you have? This piece – written in 1969 by Ludwig von Mises’s first PhD student in the United States, Hans F. Sennholz (1922-2007) – is a good place to start.
“The spectacular crash of 1929 followed five years of reckless credit expansion by the Federal Reserve System under the Coolidge Administration. In 1924, after a sharp decline in business, the Reserve banks suddenly created some $500 million in new credit, which led to a bank credit expansion of over $4 billion in less than one year. While the immediate effects of this new powerful expansion of the nation’s money and credit were seemingly beneficial, initiating a new economic boom and effacing the 1924 decline, the ultimate outcome was most disastrous. It was the beginning of a monetary policy that led to the stock market crash in 1929 and the following depression. In fact, the expansion of Federal Reserve credit in 1924 constituted what Benjamin Anderson in his great treatise on recent economic history called ‘the beginning of the New Deal.’ The Federal Reserve credit expansion in 1924 also was designed to assist the Bank of England in its professed desire to maintain prewar exchange rates. The strong U.S. dollar and the weak British pound were to be readjusted to prewar conditions through a policy of inflation in the U.S. and deflation in Great Britain.”
A boom brought about by credit expansion… Where have I heard that before? It concludes as follows:
“Nothing would be more foolish than to single out the men who led us in those baleful years and condemn them for all the evil that befell us. The ultimate roots of the Great Depression were growing in the hearts and minds of the American people. It is true, they abhorred the painful symptoms of the great dilemma. But the large majority favored and voted for the very policies that made the disaster inevitable: inflation and credit expansion, protective tariffs, labor laws that raised wages and farm laws that raised prices, ever higher taxes on the rich and distribution of their wealth. The seeds for the Great Depression were sown by scholars and teachers during the 1920s and earlier when social and economic ideologies that were hostile toward our traditional order of private property and individual enterprise conquered our colleges and universities. The professors of earlier years were as guilty as the political leaders of the 1930s. Social and economic decline is facilitated by moral decay. Surely, the Great Depression would be inconceivable without the growth of covetousness and envy of great personal wealth and income, the mounting desire for public assistance and favors. It would be inconceivable without an ominous decline of individual independence and self-reliance, and above all, the burning desire to be free from man’s bondage and to be responsible to God alone. Can it happen again? Inexorable economic law ascertains that it must happen again whenever we repeat the dreadful errors that generated the Great Depression.”
Sounds familiar (and ominous), no? Why they don’t draw connections in school, I will never understand. We raise our children to believe these events completely unrelated, random, and unpredictable.
With Hitler’s army dominating most of Europe, how and why did the USA get involved? To save the world, and because the Japanese attacked Pearl Harbor, right?
But why would the Japanese attack Pearl Harbor? Why wake the sleeping giant?
FDR wanted to get involved, and when he couldn’t get Hitler to take the bait, he turned his attention to Japan, goading them into attack by blockading the country from oil and iron and leaving Pearl Harbor as a sitting duck. He needed Japan to commit an act of war to get the American people behind it.
“The Roosevelt administration, while curtly dismissing Japanese diplomatic overtures to harmonize relations, accordingly imposed a series of increasingly stringent economic sanctions on Japan. In 1939, the United States terminated the 1911 commercial treaty with Japan. ‘On July 2, 1940, Roosevelt signed the Export Control Act, authorizing the President to license or prohibit the export of essential defense materials.’ Under this authority, ‘[o]n July 31, exports of aviation motor fuels and lubricants and No. 1 heavy melting iron and steel scrap were restricted.’ Next, in a move aimed at Japan, Roosevelt slapped an embargo, effective October 16, ‘on all exports of scrap iron and steel to destinations other than Britain and the nations of the Western Hemisphere.’ Finally, on July 26, 1941, Roosevelt ‘froze Japanese assets in the United States, thus bringing commercial relations between the nations to an effective end. One week later Roosevelt embargoed the export of such grades of oil as still were in commercial flow to Japan.’ The British and the Dutch followed suit, embargoing exports to Japan…”
As outlined in the McCollum Memo…
“The McCollum memo, also known as the Eight Action Memo, was a memorandum, dated October 7, 1940 (more than a year before the Pearl Harbor attack), sent by Lieutenant Commander Arthur H. McCollum, who ‘provided the president with intelligence reports on [Japan]… [and oversaw] every intercepted and decoded Japanese military (though the military code had not been broken) and diplomatic report destined for the White House”[1][unreliable source?] in his capacity as director of the Office of Naval Intelligence’s Far East Asia section. It was sent to Navy Captains Dudley Knox, who agreed with the actions described within the memo, and Walter Stratton Anderson. The memo outlined the general situation of several nations in World War II and recommended an eight-part course of action for the United States to take in regard to the Japanese Empire in the South Pacific, suggesting the United States provoke Japan into committing an ‘overt act of war’. The memo illustrates several people in the Office of Naval Intelligence promoted the idea of goading Japan into war: ‘It is not believed that in the present state of political opinion the United States government is capable of declaring war against Japan without more ado… If Japan could be led to commit an overt act of war, so much the better.”
Note FDR may have had the best intentions; heavy is the crown that seeks a third and fourth term, right? Here we only note that we are rarely treated to the real story by our government overlords.
The memo shows they felt the Axis powers would likely turn to war against the United States following a defeat of Great Britain, and that the USA would be better served neutralizing a Japanese threat in the Pacific while Britain’s Navy still controlled the Atlantic if we could get them to strike first.
However, one glaring miscalculation was the expectation that the neutral Soviet Union would side with the Axis. Between the McCollum memo and the attack on Pearl Harbor, something quite different and pivotal happened: Germany’s surprise attack on the Soviet Union in June of 1941.
Fighting the Nazi’s may have been necessary at some point, and I don’t mean to play Monday morning quarterback, but Stalin was equally bad. The American people (at the time) would have preferred to keep their boys safe at home and let Stalin and Hitler pound each other to smithereens.
It was an attack on Pearl Harbor goaded by the administration that changed sentiment. We are mere pawns on a chessboard for those who aspire to political power.
Let’s be clear though, the Holocaust (and conditions that led to it) was an atrocity. Regardless of how they got there, the Greatest Generation deserves much credit (including two I knew well).
The next dot? WWII leads to the Bretton Woods Agreement, placing the US Dollar at the center of the world’s monetary system, leading to the “exorbitant privilege” for the USA.
Called Triffin’s Dilemma, economist Robert Triffin articulates that the country whose currency serves as the global reserve must supply the world with an abundance of it to meet world demand for foreign exchange reserves and trading. What this means is that our biggest export for as long as any of us can remember (or most of us have been alive) has been the US Dollar.
In 1944, America made a strong case:
- We promised to exchange US Dollars for gold – and we had most of it – one ounce of gold for every $35 presented, no questions asked
- We had the atomic bomb, and just dropped two of them on Japan – so watch out!
- We were the only major developed country with a manufacturing base left standing
- We were the world’s largest creditor, and
- We were a bastion of liberty, free markets, property rights, and enforceable contracts
The next dot?
This led to welfare and warfare, guns and butter, the rise of the Military Industrial Complex, and the fattening of the American populace with handouts (plus processed carbs and prescription meds).
Vietnam and LBJ’s Great Society programs – whose main goals, BTW, were to end poverty, reduce crime, abolish inequality and improve the environment (how’d we do there?) – led world leaders like Charles de Gaulle to call BS on rampant money-printing, lining up to exchange dollars for gold.
By 1971, the run on the bank was on, Fort Knox was halved, and “tricky Dick” closed the gold window (temporarily, because, you know, speculators…).
And thus began the 50-year binge, the great financialization, the hollowing of America (and the world) with debt. Money is now debt and debt alone, and the US can print it by the boatload.
Guns and butter went into overdrive, globalization, financialization, and bubble economics. The healthcare system became a giant bloodsucking squid, same for banking and Wall Street. Everything the government touched – housing, college, healthcare – became massively inflated instruments of debt.
Debt that requires interest.
Debt that requires growth.
Debt that requires exponential economic growth, on a finite planet.
Resource extraction, energy consumption, and carbon emissions.
The Soviet Union collapsed on itself, and the peace dividend was pushed back into the pot for a parlay of sport wars toppling dictators du jour in the Middle East loosely categorized as a War on Terror.
Conveniently, that came with plenty of new domestic rackets like the TSA, the Patriot Act, and Office of Homeland Security.
Sufficiently pacified with dollars, drugs and doughnuts, forced to elect leaders that offered only different flavors from the same menu, Americans tried to look away and focus on family.
And that, my friends, is how we got from here to there, from 1919 to 2022. The most important dots I’ve connected over approximately 100 years, in 2,800 words, none of which they’ll teach in school.
But where is it going? Join us for Part II, which begins at a pivot point…
About the Author: Phil Denniston joins as contributing author from BadDaddy Publishing, better bedtime stories for free-thinking parents. Titles include “Where does money come from?”, “Good-Debt, Bad-Debt, and the Big Green Blob”, “The Big Bad Business Cycle”, and “The Beautiful Bitcoin Book”. Save 40% and try us risk-free.
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