By Ralph Benko ——Bio and Archives--May 5, 2014
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Understanding gold's real role in the monetary system requires reliance on history, not histrionics; analysis should be based on demonstrable data and reasonable inference rather than accusation and speculation. When a refined view is taken on the subject of gold, the truth turns out to be more interesting than either the gold haters or the gold bugs might lead one to believe.He goes on to strip the bark off of some of the criticisms of, and polemics surrounding, the gold standard. First he disposes of the myth that "there's not enough gold." (This myth is even more persuasively demolished by George Mason Professor Lawrence White, elsewhere. Further refutations are welcome until the culture fully assimilates just how asinine is the myth of "not enough gold.") Rickards then disposes of the even more pernicious myth that the true gold standard caused and perpetuated the Great Depression.
The Great Depression, conventionally dated from 1929 to 1940, was preceded by the adoption of the "gold-exchange standard," which emerged in stages from 1922 to 1925 and functioned with great difficulty until 1939. ... The gold exchange standard was, at best, a pale imitation of a true gold standard and, at worst, a massive fraud. ... The sequence of events from 1922 to 1933 shows that the Great Depression was caused not by gold but rather by central bank discretionary policies. The gold exchange standard was fatally flawed because it did not take gold's free-market price into account. ... The gold exchange standard did contribute to the Great Depression because it was not a true gold standard. It was a poorly designed hybrid, manipulated and mismanaged by discretionary monetary policy conducted by central banks, particularly in the U.K. and the United States.Central bank mismanagement as causing the Great Depression is in no way a fringe claim. As then Federal Reserve Board governor Ben Bernanke stated, in a 2002 speech on the occasion of Milton Friedman's 90th birthday, "I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again." In retrospect, incredulity at the promise that "we won't do it again" seems justified. Rickards concludes that
There are few more tendentious comments on gold than the a priori statement that a gold standard cannot work today. In fact, a well-designed gold standard could work smoothly if the political will existed to enact it and to adhere to its noninflationary disciplines. A gold standard is the ideal monetary system for those who create wealth through ingenuity, entrepreneurship, and hard work. Gold standards are disfavored by those who do not create wealth but instead seek to extract wealth from others through inflation, inside information, and market manipulation.This columnist, while in general agreement, has some quibbles with Rickards. The one that matters most is this: resistance to the restoration of the classical gold standard does not come from a failure of "political will." It comes from a lack of familiarity with it on Capitol Hill. This columnist, on behalf of American Principles In Action for which he serves as Senior Advisor has briefed well over 100 Congressional legislative aides on the importance of good monetary policy for creating a climate of equitable prosperity. "Political will" makes it sound as though adopting the gold standard is a painful counsel of rectitude rather than one of equitable prosperity. Rather the opposite. As Forbes.com's Nathan Lewis has pointed out, in The Correlation Between The Gold Standard And Stupendous Growth Is Clear, possibly the most prosperous epoch in world history correlated tightly with the era of the true gold standard in America. Lewis teaches us that real GDP grew almost sevenfold over around 40 years. By contrast, over the 40+ years of fiduciary dollar management ushered in, on August 15, 1971, by Richard Nixon, industrial production grew by a paltry 159%. Congresspeople universally favor equitable (especially Democrats) prosperity (especially Republicans). Adopting a policy--the classical gold standard--that has a plausible chance of dramatically increasing the rate of equitable economic growth does not require "political will." It merely requires more "demonstrable data and reasonable inference." The Death of Money makes a valuable contribution to our economic discourse. One can but hope that our Senators and Representatives find their way to it ... and find themselves moved to explore this important matter, perhaps in the context of supporting the Brady-Cornyn Centennial Monetary Commission which is proposed to study the data pertaining to six monetary regimes, including the gold standard. A lot of data suggests that the gold standard is the best formula to bring America, and the world, out of economic stagnation. Rickards, in The Death of Money, is less interested in the death of Federal Reserve Notes than in the resurrection of the dollar as Gold Certificates. That resurrection is a recipe for equitable prosperity, job creation, ending wage stagnation and restoring equitable income distribution, and curing our chronic federal deficit. Call it the Rebirth of Money. Originating at Forbes.com
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