Monetary chronicles of Machado de Assis
When we ask ourselves who are the authors of universal literature who criticize the invention of fiat currency, we first think, of course, of Johann Wolfgang von Goethe, who dedicated Book II of his magnum opus Faust to showing fiat currency as a diabolical invention. and dissected the spiritual implications of this nefarious creation.
Certainly, Goethe, when literary developing the relationship between Dr. Faust and Mephistopheles, had in mind the historical example of John Law (1671-1729), a Scottish nobleman who brought illusory fortune and the consequent ruin to the reign of Louis XV through of his cunning monetary alchemy. If you still don't know the details of Law's story and why he is known as the “father” of the scams that founded the modern fiat system, I recommend this explanatory video prepared by the Visão Libertária channel. And, whoever wants to better understand the importance of Goethe's work for modern monetary thought, I recommend reading the famous essay published in 1985 by the economist Hans Christoph Binswanger, which was published in Brazil under the name Dinheiro e Magia.
Even though it's short, it's an excellent essay, it was a reading that had a great impact on me and was fundamental for me to understand not only the technical superiority but also the moral superiority of Bitcoin - in fact, it was this essay that I recommended at the end of my conversation with João Grilo in November 2021.
Many, however, do not know that the greatest name in our literature, founder of the Brazilian Academy of Letters, Machado de Assis, probably influenced by reading Faust, was also a critic of fiat currency.
In the book The Economy in Machado de Assis: the shareholder's oblique gaze, organized by Gustavo Franco, we have the privilege of seeing in these chronicles Machado's criticism directed at the monetary discussions of the time. In addition to being a novelist, Machado was a great chronicler and it was in the chronicles published in the serials of the time that the Witch of Cosme Velho was able to turn his irony against the failed monetary expansion of the young Brazilian Republic, which became known as the Encilhamento policy, promoted by the then Minister of Rui Barbosa Farm.
In these chronicles, Machado laments the effects of inflation that came with the proclamation of the Republic, which is why he always alludes to the drop in the “exchange rate” - that is, the devaluation of the mil-reis against the pound sterling backed by gold - and the successive crises economic conditions that accompanied it. At that time, no one was used to such a huge devaluation of the currency. According to Raymundo Faoro's calculations, between 1829 and 1887, at the end of the Second Empire, the cost of living increased by around 1.5% per year, whereas, from 1887 to 1896, this cost increased to 11.5% per year, “numbers never seen in the Empire” (Machado De Assis: A Pirâmide e o Trapézio, 1975, Raymundo Faoro, p.182).
In a chronicle published in 1892, recalling all the economic crises that had been known until the beginning of time, Machado says:
“I can go before my birth, to Law. Great Law! You too had a day as a celebrity, then you became a troublemaker and fell into the house of history, the dishwasher's place. And so I will go from century to century, until the earthly paradise, rudimentary form of Encilhamento, where the first share in the world was sold. Eve bought it from the serpent, at a premium, and sold it to Adam, also at a premium, until they both went bankrupt. And I will go even higher, before the earthly paradise, to the Fiat lux, which, well studied to the gas of human understanding, was the principle of universal bankruptcy.
(The Economy in Machado de Assis: the oblique gaze of the shareholder, ed. Gustavo Franco, Ed. Zahar, 2007, p. 135)
After ironizing the Encilhamento as if it were a superior form of Earthly Paradise (isn't that how governments' economic plans are sold to this day?), Machado, a profound pessimist, even treats the creation of the universe, not as an act of kindness of the Creator, but as the beginning of successive bankruptcies motivated by the illusion of false enrichment.
Two years later, in another chronicle, once again denouncing the Encilhamento fraud and the mysteries surrounding that poorly explained economic miracle, he wrote:
“The mysteries of religion do not inflame us against each other; To believe in them, you just need to have faith, and faith cannot be discussed. Those from Encilhamento stunned for a few days or weeks; but since it was discovered that money fell from the sky, the mystery lost its reason for being. Whoever at that time placed a basket, a trough, a barrel, any vessel, in the moonlight or the stars, and found himself in the morning with five, ten, twenty thousand contos, immediately understood that it is only through forgery that we make money down here. .”
(The Economy in Machado de Assis: the oblique gaze of the shareholder, ed. Gustavo Franco, Ed. Zahar, 2007, p. 183)
The general tone of the chronicles that deal with the monetary issue oscillates between seeing the devaluation of the currency as a type of fraud or as a type of disease that was previously incurable, as a recent scourge, which the economists of the time did not know how to explain or resolve. The problem of currency devaluation is a “sneaky and silent enemy” (Idem, p. 205). Unfortunately, the success of medicine in treating various diseases does not seem to keep up with the restoration of the health of the national currency. In one of the chronicles, Machado asks himself what the cure for this disease would be:
The disease of exchange is a bit like that of yellow fever, but for yellow fever, Murray's fluid magnesia, which until now only cured headaches and indigestion, has been specifically tested this summer, according to what I read printed on a large plate. of iron. What magnesia is there against the exchange rate? That Murray has already discovered the right way to put an end to the progressive decay of our sad money and the famines that are coming, and, secondly, and the means of luxury, luxury rooms, and other melancholy consequences of this evil?
(The Economy in Machado de Assis: the oblique gaze of the shareholder, ed. Gustavo Franco, Ed. Zahar, 2007, p. 208)
I had already commented here that the beginning of our Republic was highly inflationary because of the printing of “papers”, that is, money without metallic backing - in 1893, Machado says that he would like to meet a banker friend who would explain to him “the difference between paper money and paper currency” (Idem, p.165) - and that this motivated a great debate between two opposing currents: the so-called paperists, defenders of legal tender paper money, that is, what we today call currency fiat; and the metalists, defenders of the metallic standard or backed currency. Paperists, of course, emphasized the economic boom that was generated by the unbacked currency and metalists not only highlighted the economic and civilizational stability that only the gold standard could guarantee, but also the essentially fraudulent nature of a paper currency, created ex nihilo, without no cost.
After all, metalists rightly say, the wealth created by the creation of money is only illusory and the Devil always takes his price later in the form of inflationary crises and social disintegration. This debate continued in Brazil until, in 1933, when the entire world was already migrating to an entirely fiat standard, the paper movement won by dictatorial means with the decree-laws promulgated by Getúlio Vargas and Oswaldo Aranha, as I briefly explained here .
Eight monetary standards later, accompanied by a hyperinflationary crisis at the end of the century, we only managed to free ourselves from the curse of fiat currency with the invention of Bitcoin in 2009. We found the magnesia that Machado de Assis was looking for which not only cured us of the evil of inflation, as well as the wrong treatment of economic phlebotomy practiced by the central banks themselves.