I Testified Before the AZ Senate

Please bear with a brief quote from a favorite author of mine. I promise it relates to gold.

Having fought in World War I, and seen senseless loss of life, J.R.R. Tolkien had an extraordinary insight into the nature of evil. His iconic character, Gandalf the wizard, said this to Frodo in The Lord of the Rings:

‘Ever since Bilbo left I have been deeply concerned about you…. It would be a grievous blow to the world, if the Dark Power overcame the Shire; if all your kind [hobbits] … became enslaved.’

Frodo shuddered. ‘But… why should he want such slaves?’

‘To tell you the truth,’ replied Gandalf, ‘…He does not need you — he has many more useful servants — but he won’t forget you again. And hobbits as miserable slaves would please him far more than hobbits happy and free.

I have highlighted the money quote—if I may so describe the prose of the Master of English, Professor Tolkien. The evil character Sauron just prefers everyone to suffer.

This quote came to mind on February 10, while I was answering questions following my testimony. I came to the Arizona Senate Financial Institutions Committee to support the new gold legal tender bill. The bill contains a number of important provisions (I helped draft it), including most especially the elimination of the capital gains tax on gold and silver, and explicit language recognizing them as money. I may write more about the bill, but today I have a different point.

I thought about the questions one Senator was asking me. In past years, he has made no secret of his antipathy to gold. On that Wednesday, he wasn’t really asking anything, just trying score a political point: no one should be exempt from tax.

He put me in a tough position. I am not a professional lobbyist, practiced at the art of responding to cross examination. He, on the other hand, sits on Senate committees professionally. His goal was to trip me up, to make me say that repealing the capital gains tax on gold would be unfair.

He plays an asymmetrical game. He could try as many times as he wanted, but I had to avoid every pitfall, or else he would win. He wanted to show that even the gold economist admits the bill is just a favor to a rich special interest group. I did not give him that satisfaction.

The cat and mouse game was immediately obvious, but it took a bit longer for me to recognize Tolkien’s theme playing out, live. This Senator thinks it’s natural for government to rule over the people. So what if the government forces us to use its debt as if it were money—that’s nothing more than the legislative prerogative. And if the people suffer because of zero interest and other design flaws of the dollar, well too bad.

My testimony was not an explicit demand for freedom. I didn’t talk about liberty, limited government, inflation, or the Constitution. My remarks concerned the coming collapse of the pension funds. I said 400,000 retired union truckers face reductions in their pensions of 50 to 60 percent. I explained that this is just the first ripple in the water before the tsunami hits. Many millions of people will be devastated.

The Senator was not moved. He did not ask any questions about pensions. He was against gold before he entered the room, and he remained against it when he left.

Fortunately, there were other members on the Committee. The bill passed 4-3.

The problem is that pension funds cannot earn a return on capital with zero interest rates. Without a return, they will pay out all their capital until they fail utterly.

The antidote to zero interest on paper is positive interest on gold. This bill removes one obstacle preventing the market from offering the solution.

This is what we’re up against, folks. Many politicians don’t care about economics. They just want to control you.