Forensic Economics 101
by Rob Kirby
KirbyAnalytics.com
January 18, 2007

How many of you have ever heard of the term ‘postmortem’? For those of you who have not – it’s a procedure in a branch of Medical Science that developed to enable folks to clearly and unambiguously identify cause of death. 

Another science that boasts its own forensic branch is that of Engineering. When catastrophic failures occur, be they structural, mechanical or electrical; forensic engineers are often charged with determining – procedurally through examination and documentation - exactly what happened.

The reason[s] why anyone would want to discern “what happened” should be obvious to most – they range from liability and insurance issues to ensuring that criminal wrong-doers are brought to justice.

But what about the dismal science – economics?

Forensic economics is the scientific discipline that applies economic theories and methods to the issue of pecuniary damages as specified by case law and legislative codes. Topics within forensic economics include (1) the analysis of claims involving persons, workers, firms, or markets for evidence concerning damage liability; (2) the calculation of damages in personal and commercial litigation; and, (3) the development and use of generally accepted forensic economic methodologies and principles. 

The Wikipedia definition of forensic economics above conveys the ‘basic concept’ but primarily in a micro-economic or “dismal” case study sense. What I’m suggesting is that the definition of Forensic Economics needs to be fundamentally REWRITTEN to reflect the fact that its practice deals with the fundamental issues of what money is – or ought to be - and how it derives its value. Moreover, the definition of Forensic Economics needs to be rewritten to acknowledge and make room for a new breed of economic thinkers – ones concerned with uncovering and making right what the “DISMALITES” before them have made so very wrong. Few, if any, would argue that official government statistics – as reported – run the gamut from little white lies to blatant whoppers. Celebrated practitioners of forensic economics already include such notables as John Williams of Shadow Government Statistics., ‘Midas’ Bill Murphy’s GATA group along with Doug Noland and his Credit Bubble Bulletin and the rest of the crowd over at David Tice’s Prudent Bear. 

Having been bitten with the bug myself, drawing from first hand professional experience of my own in financial markets, using forensic economic techniques - I’ve demonstrated how Central Banks [the Bank of England] had – beyond a reasonable doubt – directly intervened [mobilizing sovereign gold bullion] in the physical gold bullion market as early as 1987, some 7 years prior to that widely espoused by GATA. Additionally, using forensic economic techniques, I’ve explained how the Bank of England has conducted Gold Quality Swaps with the U.S. Federal Reserve and/or Treasury.

It is worthy of note that until the late 1990’s the credible application of Forensic Economics was most impractical if not impossible. 

The proliferation of the internet has changed all of this and provided the medium where a new breed of forensic economic science could take root – all despite the proclivity of self interested or co-opted main stream media and academia to silo, stifle, or silence contra status-quo intellectual discourse. 

Primary Thrusts

While John Williams’ Shadow Government Statistics principally uncovers and documents gross misreporting of key government economic data, Murphy’s GATA primarily tracks, collects and documents inconsistencies in the official [Central Bank dominated] gold bullion markets. As for myself, I’m more of a generalist – and try to keep my thinking more big picture.

Because there exists in today’s world monetary order, polar views as to the importance of gold; the question whether or not monetary authorities [Central Banks and/or the U.S. Treasury] interfere with its free market price discovery mechanism is of vital importance. After all, one of the main tenets of Capitalism in the Western World is and has always been our “free markets”.

Proponents of the thesis that Central Banks or their agents suppress or “rig” the price of gold are often referred to as gold bugs. Gold bugs maintain that the price of gold is rigged to ensure the maintenance of U.S. Dollar hegemony. In so doing, they have by-and-large, employed forensic economic techniques to develop an impressive body of evidence to support their claims. Balanced debate of the merits of this crucial research, to date, have been spurned by both academia and the main stream media. Never the less, this debate rages on in cyberspace. 

Another outstanding economist who has made vital contributions in the name of spirited and balanced debate in the gold arena is Professor Antal E. Fekete. Professor Fekete’s field of expertise stems from his broad understanding of the history classical economics and the Gold Standard. Fekete’s knowledge and efforts as a practicing forensic economic practitioner have allowed him to draw some rather startling conclusions as they relate to the demise of the Gold Standard nearly one hundred years ago. In his analysis in this regard, Mr. Fekete has recently authored a series of brilliant papers outlining the causal relationship between the destruction of the gold standard and the “lagged” rise in unemployment. 

An earlier series of papers by Professor Fekete discusses the how a proper functioning Gold Standard with an accompanying Real Bills [clearing system] Doctrine “guarantees” full employment.

Fekete tells us that Real Bills symbolize a system of ‘discounted’ self liquidating credit [it matures as physical gold coin] that stands for the embodiment of the wage pool. 

While there are some in the Austrian Camp that dispute the merits of ‘self liquidating credit’ – the most balanced and reasoned forensic account or discussion of its viability that I’ve come across can be found here. 

Professor Fekete also explains that Gold Standard never did fail at all, as many mainstream economists would have us believe, it was actually sabotaged – with the introduction of fiat currency that repudiated the Real Bills Market [self liquidating credit] and replaced it with ‘more paper promises’.

I bring all of this up for a reason.

Recently, I had the opportunity to ask Professor Fekete a question:

            Dr. Fekete;

I have been reading with great interest your series of articles on Real Bills and the Gold Standard. I thank you for sharing your expertise. 

I agree with you, completely, that the Gold Standard did not fail – it was sabotaged – with the elimination of its ‘clearing system’ [or Real Bills / wage pool being supplanted by fiat instruments].

What I am having trouble coming to grips with is this: was this act of sabotage Conscious and      premeditated or did happen by accident?

The reason I ask this question:

While I’m not trying to put words or thoughts in your mouth - It seems to me that you make the conclusion that “once the financial elites REALIZE their folly” – because you characterize this event as a ‘mistake’ - they will amend their ways and RETURN us to a Gold Standard cum Real Bills. This line of reasoning ‘presupposes’ that the act of sabotage was indeed an accident.

If, however, the sabotage was premeditated – what then?

Best,
            Rob Kirby

His response to me was to the effect that, 

“he’s willing to give them the benefit of the doubt but one can never be too sure”. 

All the while, in his response, he rhetorically asked me, 

“why it’s taken so long to, or more to the point, why no one has ever exposed the causal connection between the destruction of the gold standard and unemployment?”

Professor Fekete’s question - as to why the causal connection between the destruction of the gold standard and unemployment has never been debated or reported – is a good one, worthy of forensic analysis in its own right. As for ‘extending benefits’ or grace of any kind to the architects of our current monetary system – I must deeply question this.

Today’s mainstream economic thinkers - the Keynesians and the Monetarists – tell us that the Gold Standard was archaic and unworkable. Forensic Economic scrutiny – supplied to us by the brilliance of Professor Fekete - would appear to suggest otherwise.

The Gold Standard was indeed sabotaged!

We’ll discuss who merits inclusion on the list of likely sabotageurs in our next piece.

© 2007 Rob Kirby
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Rob Kirby
Kirby Analytics
Toronto, Ontario, Canada
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