The Gold Standard And The 100% Gold Reserve Myth by Nathan Lewis
The following rebuttal to the above was provided by Thomas Allen, an adviser to The Gold Standard Institute. It was published by Forbes…
Mr. Lewis promotes a pseudo gold standard. He promotes a fiat monetary system that uses the price of gold as the index for monetary authorities to use to guide them in issuing money. This may be an improvement over using unemployment, the CPI, or the alignment of the planets, but it is still an arbitrary system. Like all other fiat money adherents, Mr. Lewis does not trust the markets to regulate the monetary system.
He seems to confuse the independent monetary component, gold, with the dependent component, paper money. Under his system, the monetary unit is an undefinable abstraction. (If it is not, then he needs to define the dollar in concrete tangible terms and without defining it in terms of itself.) Under the true gold-coin standard, the monetary unit is a tangible, definable weight of gold. For example, under the Gold Standard Act of 1900, the dollar was defined as 25.8 grains, 0.9 fine, i.e., 23.22 grains fine gold.
Mr. Lewis asks, “How is the paper bills’ value managed?” He prefaces his question with “some quantity of gold in a vault somewhere.” The answer to his question is obvious. Holders of paper money redeem their paper money for the gold coin. Holders of the gold who issued the paper money convert all paper money to gold coin on demand.
The U.S. note always traded at a discount to gold when it was not convertible into gold. A $1 U.S. note was always worth less than $1 in gold until it became redeemable in gold coin on demand. Even when Congress froze the quantity of U.S. note, it traded at a discount. However, when it became redeemable in gold coin, its value became the same as that of gold without any change in its quantity.
Under the true gold-coin standard, no currency board decides how much money to issue. The people acting in their individual capacity decide the quantity of money.