Returning to The Gold Standard

J. B Shurk has an useful think piece at the American Thinker that proposes to End Fiat Money, End Forever Wars. It is an interesting theory, one worth pondering.  Forever wars have occurred in history before.  The 100 years war and the 30 years war come to mind.  Still, anything that would stop our so-called leaders from starting yet more wars is worth considering.

What is termed "fiat money" is paper currency backed up by nothing. In the case of the United States, our fiat currency is backed up by the "full faith and credit of the U.S. But what happens when politicians abandon their duty to maintain that full faith anc credit? That is what has happened as the Congress keeps spending money like drunken sailors. At the same time, the Congress has given up its constitutional duty to determine the value of our money, instead allowing the Federal Reserve Bank, a private for profit institution, to float our currency against other fiat currencies.

The United States was on the gold standard until 1933, when Franklin Roosevelt took us off of it for internal transactions, but we remained on it for international transactions until 1971. Since then, our dollar has been a fiat currency. Various economists have recommended going back on the gold standard for as long as I can remember. Lew Rockwell is one such "gold bug."

Mark Jeftovic wrote a wonderful essay arguing that WWIII has been in the works ever since industrialized nations jettisoned the classical gold standard at the outbreak of WWI. Drawing from Ferdinand Lips’s insightful book, Gold Wars, Jeftovik recounts how everything changed once governments abandoned sound money in order to finance long wars. From the mid-1600s all the way to 1914, the gold-linked British pound remained remarkably stable — even increasing its value relative to gold over those two and a half centuries (no doubt because of its proven resilience through myriad crises).

Quoting Lips, Jeftovic soberly notes:

In 1914, at the beginning of World War 1, the gold standard was thrown overboard within a few weekends. In order to finance wars, the world resorted to deficit spending and paper money. Had the gold standard not been given up, the war would not have lasted more than a few months. Instead, it lasted more than four years and ruined most of the major economies in the world and left millions dead in its wake.

Furthermore, had WWI “lasted only six months, currencies would not have been destroyed. There would have been no Versailles Treaty and no German hyperinflation.” Neither Hitler nor Lenin nor Stalin would have ever come to power. “There would never have been a WWII” or a half-century Cold War that left the prospect of nuclear Armageddon hanging over an anxious world like an atomic-tipped sword of Damocles.

Instead of viewing today’s chaotic global events as the depressing prologue to WWIII, Jeftovic argues that the world has been in a constant state of war since 1914 — a war over who can legally possess gold, made possible only by the intentional destruction of sound money. “[N]one of it would be possible without the ability to print value ex nihilo. Fiat currency is a monumental fiction, one that can asset strip the productive segments of the economy, hollow out the middle class, while enriching the Cantillionaire class, the military-industrial complex and the Deep State.”

...snip...

Lips’s and Jeftovic’s thesis is remarkably convincing. If correct, then today’s looming financial crisis, drumbeat for new wars, and resurgence of Western totalitarianism can all be linked to that fateful moment in history when governments and private central banks adopted policies that all but guaranteed a necessary transition from gold-backed currencies to worthless paper alternatives.

Oh, those inherently worthless fiat currencies might have the full-faith backing of powerful nation states and their militaries, but when has a politician’s (or government’s) word stood for much of anything? After all, when basic accounting meant that governments did not have the money to finance last century’s wars, pork barrel largesse, and expanded welfare State, they simply decoupled from the gold standard and started madly printing paper bills! A century of IOUs now sit atop bank vaults filled with next to nothing. At some point, the cost of funny money becomes deadly serious.

Gentle readers are encouraged to think about Shurk's thesis. I read somewhere, this was in the late 1990s, that a suit could be bought for a $10 gold piece in 1900, and the same suit could be bought then for the same amount of gold. Looking at suit prices for middle class men, in 1900 the price was around $16, which amounts to half an ounce of gold. Today, that half ounce would be $990.  The point is that gold has not suffered from "inflation," or rather devaluation of your buying power.  You do hear a lot of  ads on the radio suggesting you buy gold.  The only problem with this is that you are unlikely to be able to use gold to trade with, and you will suffer a loss if you attempt to turn it into cash.  Frankly, I am at a loss how you can protect yourself and your hard earned money.