Opinion

Gold standard critics don the emperor’s clothes

J. Keith Johnson Senior Writer, The Gold Informant
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What for a long time was only discussed among gold-bugs, libertarians and the few Austrian economists who managed to hold on to their perspective is regaining attention. Ever since Reagan’s failed Gold Commission in the early ’80s, the idea of considering a gold standard has been taboo.

Of course, Ron Paul has been blowing that horn for a long time. Even Alan Greenspan, in his excellent 1966 article “Gold and Economic Freedom,” pointed to the fact that the gold standard is the best protection of a national currency.

Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets.

And he pointed out that fiat currency destroys savings by default because wealth is systematically destroyed through the inflation that central bankers must pursue.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold.

His comments were powerful enough for Ayn Rand to quote him in her “Objectivist” newsletter and again in her book, Capitalism: The Unknown Ideal. Even as recently as 1999 he told the U.S. House Banking Committee, “Gold still represents the ultimate form of payment in the world.”

Today the decades-old antagonism toward a gold standard is diminishing. With the challenges abounding in the economy, from a weakening dollar to massive debt on every level to unemployment, people are looking for a remedy. And, since the truth comes around once in a while even in a fiat world, a new committee is being assigned the task of researching the viability of a gold standard. As the chairman of the American Principles Project, Sean Fieler, recently stated, “There is a growing recognition within the Republican Party and in America more generally that we’re not going to be able to print our way to prosperity.”

However, as Greenspan also pointed out, the aggressive nature of statists cannot abide a gold standard.

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense — perhaps more clearly and subtly than many consistent defenders of laissez-faire — that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.

Therefore, there is a war on any effort toward a gold standard. The virility with which anyone who dared to promote such an idea has been attacked tends to be both massive and absurd. And the disinformation, misinformation, confusion and outright lies fomented against the promotion of a gold standard are mounted in such unyielding array as to cow many would be advocates.

I’ll offer one quote for illustration of how confused gold standard detractors really are:

“There has been no significant inflation in the advanced economies for the last 25 years, so the need for gold to defeat inflation seems unnecessary,” says [Professor Charles] Wyplosz.

Let’s consider this for a moment. First, since gold is generally priced in dollars, we have to consider whether it’s the dollar’s instability to results in gold prices moving so much or gold’s value. In light of the fact that gold’s value was suppressed so drastically throughout the ’90s, the action of the last decade could be viewed as a correction. However, during that same time frame the dollar continued to lose value.

Using Wyplosz’s 25-year time frame, consider that on September 8th, 1987, the London fix was $456.95. Today the dollar is worth about 50% less, meaning that gold in 1987 prices would cost around $921ozt today.

Another way to look at it is that you had two choices in 1987. You could either put $457 or buy an ounce of gold and put it under your mattress. If you’d opted to put the empty promises of the U.S. Treasury under your mattress, your buying power would be the equivalent of $227 in 1987 dollars; not a very good return. However, your gold would now be worth $843 in 1987 dollars (based on $1,700 gold).

Just like the emperor, the trappings of the anti-gold standard crowd are empty and transparent. Fifty percent confiscation through inflation is considered insignificant to these modern-day experts? Perhaps the 90% gain in value those who held gold enjoyed is insignificant as well.

J. Keith Johnson’s Austrian and libertarian perspectives on current socioeconomic and geopolitical affairs are fueled by his insatiable desire to both discover and share the truth. A Goldco Direct affiliate, you’ll find his commentary on The Gold Informant website, as well as various Internet financial and news sites.