Since 1971 the irredeemable monetary system has been in a constant state of paralysis. Over the last decade this state has only further deteriorated bringing global trade into unchartered and dangerous territory, crippling the global economy and desolating entire cities (Detroit is only one such tragedy). For the astute readers of this journal, the ills of the irredeemable monetary system are of no mystery, thanks in part to this publication which has relentlessly crusaded to intellectually illuminate this shadowy field. Yet it would be intellectually dishonest to make the claim that this publication is the only one. There are in fact many groups which advocate a gold standard; the Rothbard “100% backers” are just one example of the diverse array of gold standard advocates.
It is no secret that the Gold Standard Institute (GSI) advocates a particular type of gold standard, specifically an unadulterated gold standard which rests on the principle of the separation of state and economics. Yet unfortunately there is much confusion amongst our contemporaries concerning the kind of gold standard which will alleviate our monetary troubles.
One such group have been those commentators calling for an “international gold standard” to settle trade between countries and corporations as a relief to the dollar standard. The idea is a neo-Bretton Woods Agreement where countries would tie their currencies to gold and simply balance each account quarterly in gold bullion. This is a peculiar proposition in the realm of monetary history based upon unsound and impractical economics.
The first obvious flaw is the expression “international gold standard”. Money as a concept is universal to man irrespective to his geographical location. As pointed out in previous articles in this publication, gold is money. Prior to the dismantlement of the classical gold standard, if one held US Dollars and exchanged them for British Pounds, the “exchange rate” was merely the ratio of US Dollars to gold relative to Pounds to gold. There were no political trade agreements in place sanctioning such a trade except the laws of nature (in this case the ratio of currency to a weighting of gold). Since gold is money, by its very nature it has to be the most marketable good meaning it must be “international”- or universally accepted. Hence the advocates of an “international gold standard” are merely advocating a monetary cartel of sorts. The term “international” should be interchanged with “exclusive” as all are not are allowed to freely participate. This means that an international gold standard is just an exclusive arrangement between various entities for purposes more attune to political favour than economic virtue.
Such a monetary system contradicts the entire philosophical case for a gold standard; the defence of individual rights a la laissez faire capitalism. An international gold standard which is currently being advocated ignores the principles of a free market by its exclusive nature. Money is a tool strictly developed by the free action of man. Advocating a gold standard outside and apart from a free market is an entirely pointless affair. It reduces the status of gold to any other commodity, whether it is coal, oil or pork-bellies.
Nevertheless, setting the philosophical aspect aside, such a monetary arrangement will not work as it flies in the face of elementary economics. An international gold standard is an ill-conceived and highly problematic proposition for the same fundamental reason as the current monetary arrangement: One central planner’s policy for another. Bretton Woods collapsed as a result of the arbitraging forces between the fixed currency ratios, or price, to a weight of gold. To advocate a neo-Bretton Woods agreement would be akin to advocating just another type of disaster. Keeping in mind that Bretton Woods collapsed before high speed trading algorithms were off the ground, if a neo-Bretton Woods agreement were to be formalised and introduced, its greatest achievement would be for the agreement to survive longer than a month.
The practical virtue of an unadulterated gold standard is not the control of the quantity of money but rather stability of interest rates – a point almost entirely lost in economic academia. The quantity of money is almost immaterial to the stability of an economy or currency. An “international gold standard” has no answer to the issue of interest rate stability which has brought the global economy to financial ruin. Conceivably such a monetary arrangement would require assiduous interest rate fluctuation to balance out the excessive arbitrage and overcome speculation between gold, the currency in question and every other currency – something which no man or superman would be able to do leading to the systems eventual cannibalism. Governments would be forced to devalue their currencies to gold, most likely at an ever increasing pace, in order to preserve their own gold reserves. The entire affair would alleviate none of the present problems and only advance the case of those adversaries of gold and a free market.
An unadulterated gold standard is the ideal, one which the GSI strives to champion. Yet the process of realising and implementing an unadulterated gold standard is not a Sunday night presidential broadcast. It requires meticulous attention and transparency – not in managing it, but in introducing it. That is no small task.
President – the Gold Standard Institute Australia