The Paper Bureaucracy

Picture of Gordon Brown

Photo by Remy Steinegger//World Economic Forum

Gordon Brown as the next head of the IMF? What a splendid idea – at least as long as Charlie Sheen is not available.

No seriously, the despicable, interventionist IMF and the unpopular etatist Brown – a perfect match –perfect, I hope for further discrediting the global paper money bureaucracy, the new political elite lording it over us at our expense, the guys who brought you the crisis and now promise to fix everything – with more paper money and more debt and more policy interventions.

Here is a man who was never elected Prime Minister by popular vote but put in that position by the kind of backroom-dealmaking that is the hallmark of such institutions as the IMF; a man who left his country in a veritable mess, first and foremost in a dreadful recession that Brown tirelessly blames on the bankers  - conveniently forgetting that he himself bathed for a decade in cheap money, taking credit (no pun intended) for the get-rich-quick housing boom while vaingloriously pronouncing the ‘end of boom and bust’, and spending with cheerful abandon the borrowed billions that will now be a millstone around the necks of generations of British taxpayers. Under Blair/Brown the share of government spending in the overall economy has risen to levels higher than in World War I and only ever exceeded during the height of the war effort in World War II. In 2009, when the public sector spent more money than all private enterprises and private citizens combined, then Prime Minister Brown declared to his chums at The Guardian newspaper, “Laissez-faire has had its day.”

Well, maybe – under Gladstone.

And now he slips with ease into a senior position in the global paper money bureaucracy to make his expertise, knowledge and experience available to many nations around the world. As we have seen, under the state-bank alliance, for the bankers, failure is not an option. And for the politicians, after failure, there are many options.

As a friend of mine and former IMF insider told me once: The IMF exists for one purpose and one purpose only – for the benefit of those who work for it.

In 1976, the American economist and speculator, the late Howard S. Katz wrote a book that – albeit flawed – proved somewhat prophetic although it is now out of print and almost forgotten. The title was ‘The Paper Aristocracy’. In it, Katz predicted the rise of a new elite, a powerful new aristocracy, the unique privilege of which being the right to legally create money from nothing. This new aristocracy would exercise substantial control over the broader economy by printing paper money and thus providing credit from nothing- as opposed to backed by savings. This aristocracy consists of -naturally- the government, now no longer restricted in its spending by what it can collect in taxes which are never that popular; the state central bank that administers the state’s money monopoly; and the banking sector to which the paper-money franchise is generously extended. And, importantly, the Paper Aristocracy also includes a range of interventionist institutions, such as the World Bank, the IMF, the EBRD and others, that benefit from the paper money infrastructure, often by making it their job to apparently correct or ‘fix’ the various dislocations that the global patchwork of politicized local fiat monies necessarily creates but that are never openly linked back to the disruptive effects of paper money expansion.


Richard Nixon

President Nixon - photo White House Photo Office

Katz was prophetic because he wrote the book in 1976 – five years after Nixon had allowed the United States to default on her promise to central banks in other countries to exchange reserve dollars for gold. With the gold window closed and the last link between gold and paper dollars severed, the world had been put – for the first time in human history – on a global paper standard. And 1976 was also two years after Americans saw the last restrictions to private ownership of gold lifted. A proper gold standard had not existed in America’s domestic economy since Roosevelt had -per executive order 6102 – confiscated all privately held gold in the US in April 1933- yes, dear reader, we are still talking about the United States of America, the land of the free. Although the executive order expired, private ownership continued to be severely restricted in the U.S. until – 1974. And Katz was a gold bug. As ‘The Paper Aristocracy’ predicted the supply of paper dollars exploded, the privileged paper money producers – state and banks – greatly expanded their weight in the economy, and the paper dollar declined, in particular versus gold, the eternal form of money and store of value.

Over the 35 years since the publication of Katz’ book, industrial production in the U.S. has roughly doubled but the Fed has expanded the part of the money supply that is under its direct control by a factor of about 24. Dollar-prices – as measured by the government itself in its official CPI - have quadrupled, and the gold price has risen roughly twelve-fold.

I am not advancing a conspiracy theory here. Just pointing out that we live in a class society, one in which, strangely, the people at the check-out counter at Walmart or Tesco are frequently in the same class as Bill Gates, namely the class of people who pay their own bills, who generate income by producing something or by delivering a service that other citizens voluntarily purchase. Then there is another class, which receives its income – either directly or indirectly – from the privileges of state power, namely the power to tax, to regulate and legislate the use of ‘private’ property, and to print money. This class includes all the net recipients of state transfers, the extensive political and bureaucratic class and – the banks, which – in a state paper money system, a system of soft, elastic and constantly expanding fiat money- cannot be entirely capitalist enterprises but must ultimately be an extension of the central bank. Easy money, cheap credit, ‘quantitative easing’ and serial bailouts are part and parcel of the system. Citibank – one of America’s premier banks – has practically been bailed out three times since I obtained my driving license in 1982.


IMF Headquarters in Washington

The IMF headquarters in Washington (of course) Photo by IMF

Maybe the intelligent Gordon Brown, like his predecessor at the IMF, Dominique Strauss-Kahn (DKS), once a socialist drawn towards academia, railed in his youth against the ‘military-industrial complex’. That does not preclude him, now in his more mature years, from seeking a role of power and prestige in the new ‘political-financial complex’ that has grown like a malicious cancer on the back of four decades of unrestricted paper money production.

And his expertise will indeed come in handy. Remember that, in 2008 at the height of the crisis, Mr. Brown, famously and ruthlessly used anti-terror legislation that had been implemented to curb Al-Qaeda activities in the UK to seize the assets of banks from – Iceland, a friendly nation that doesn’t even have a standing army.

This is the type of behaviour that I expect to see more of from the folks at the global finance politburo as the paper money system teeters towards its inevitable endgame and the paper bureaucracy and aristocracy tries to keep the system going for another round. Rules and restrictions that are ostensibly implemented to counter money-laundering or terror-funding are already obstructing many previously routine transactions. It is no secret that the paper bureaucracy is suspicious about rising commodity prices and falling government bond prices. Behind both it expects the evil speculator. I fear we will see many more market interventions and anti-free market legislation hit the global economy in coming years, including capital controls. The IMF under Brown will happily sign off on it. How did he put it again? “Laissez-faire has had its day.”

Since 2008, it has become common in policy parlance to say “We will do whatever it takes….” Sadly, I think they may mean it.

That is obviously not how the mainstream media portray the IMF. Of course not. The writers and journalists of the major newspapers and TV outlets have, for the most part, become the groupies of the global paper money bureaucracy, following its members from one gig to another, from Davos to Jackson Hole to Bretton Woods, hobnobbing with the policy bigwigs, reading between the lines of an ECB official here, picking up an unconventional policy proposal from a Chinese delegate there, occasionally being critical of them but always differential and never questioning the very existence of these boondoggles, or indeed the very need for an IMF or any other part of the paper money infrastructure.

The IMF has its enemies, of course. The people who throw the stones at the annual IMF meetings and create all sorts of havoc strike me as morons. The people who really should be demonstrating look different, they are society’s producers, a group that includes taxi-drivers, shop-keepers, workers in private enterprise, entrepreneurs small and large, capitalists, savers…..the people who rely on voluntary cooperation with others on markets, the people who pay for themselves and their families – and who are forced to also pay for the state. They have to share the burden of ever higher government spending, bank bailouts, higher taxes, ongoing monetary debasement and the constant erosion of their savings through persistent inflation. But they are not demonstrating. Luckily for Brown & Co. they are too busy working……




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  1. says

    Excellent post Detlev. The use of libertarian class analysis is one of our most useful tools.

    I understand that Cameron has to approve the appointment of head of the IMF. If I were Prime Minister I’d be sorely tempted to approve Brown’a appointment and then at the very moment he starts his new job announce Britain’s resignation from the damned thing…

  2. says

    Good to see a mention of the late Howard Katz. I very much enjoyed his writing and was sad to hear of his death. Katz himself must have been furious.

    I particularly enjoyed his line that for most people the Depression was in fact a time of increased prosperity.

  3. Geschex says

    Further to all the people mentioned in the text as belonging to the new comprehensive class of parasites all those should be added working for subsidized companies. This grand total should then be excluded from the right to vote. If not they will continue to vote for ever higher transfer payments making the coming catastrophe ever deeper.

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