The price of gold has been falling. Between April 2011 and April 2013, gold-based mutual funds lost 50% of their value. Gold bullion lost 17% during that period, even though the Dow Jones Industrial Average has been setting new records. Meanwhile, the Republicans have been advocating a return to the gold standard. In the 2012 party platform called for a “ a commission to consider the feasibility of a metallic basis for US currency.” David Stockman, President Reagan’s budget director, has been going the rounds of the talk shows, selling his latest book The Great Deformation in which he offers a list of people who have destroyed the United States economy. From the book description: “Franklin Roosevelt, who fathered crony capitalism; Richard Nixon, who destroyed national financial discipline and the Bretton Woods gold-backed dollar; Fed chairmen Greenspan and Bernanke, who fostered our present scourge of bubble finance and addiction to debt and speculation; George W. Bush, who repudiated fiscal rectitude and ballooned the warfare state via senseless wars; and Barack Obama, who revived failed Keynesian ‘borrow and spend’ policies that have driven the national debt to perilous heights.” Mr. Stockman speaks well of Presidents Truman and Eisenhower.
Others who have been advocating a return to the gold standard are former US Rep. Ron Paul (R), who speaks for many libertarians. On Oct. 1, 2012, he wrote this on his web site: “Gold rose to nearly $1,800 an ounce after the Fed’s most recent round of quantitative easing because the people know that gold is money when fiat money fails.”
There is a strong temptation to say that Fiat money is the money used to buy Chrysler Corporation, which means it’s doing quite well in the current economy, but never mind.
The reality is that gold is just another fiat currency, but one that has been around so long that we’ve been conned into thinking it’s something with intrinsic value. The truth is, gold is practically worthless for anything except as currency. Admittedly, Paul Krugman notes, it can be used to fill teeth, but gold crowns were used as headgear long before they found a use in dentistry. It’s also an excellent conductor of heat and electricity, but again, it was in use as currency long before it was used to plate electronics. The United States Dispensatory (1955) notes, “In one form or another, gold has been used empirically since the time of Paracelsus. It has been employed in many chronic diseases, usually with indifferent and controversial results.” Trivial amounts of gold are used in treatment of rheumatoid arthritis and skin ulcers, but hardly enough to justify its price.
The benefits of gold were that it’s rare, but not too rare; soft, but not too soft; and doesn’t tarnish so that it’s low maintenance. A currency that’s too common wouldn’t be much use. In theory, just about anything can be used as a medium of exchange, but if it’s too common, you would need too much of it to make a purchase.
You could use oak leaves as currency, but since anybody could go pick some off the tree, you would need bushels full to make any sort of purchase.
Gold was too soft to be made into swords or plows, but convenient for forming into coins and jewelry. In the event of an apocalypse, hold out for something more useful – canned sardines or brass knuckles.
From “So Long It’s Been Good To Know You” (Weavers recording): “I asked the man how his butter was sold / He said ‘one pound of butter for two pounds of gold,’” which is probably a fair value.
Still, gold does have an historical basis for use as currency, and has been considered a hedge against inflation. As long as people were expecting Keynesian stimulus — injecting money into the economy — to cause rampant inflation, it made sense for the price of gold to reach new highs. At this point, investors may have noticed that in spite of the stimulus program and the Federal Reserve Board’s program of quantitative easing, inflation is still below the 2% goal set by the Fed. The sequester may be slowing economic growth, further retarding inflation and possibly leading to deflation. Meanwhile, a return to the gold standard would limit the amount of money available, making a Keynesian stimulation impossible – although stimulation is the only economic approach that has been successful in dealing with the Great Recession.
As bad as conditions have been in the United States, compare them with the unemployment rates in Europe, where under EEC-demanded austerity programs, Greece and Spain are running about 25% unemployment.
William Jennings Bryan may have been wrong about evolution, but he was spot on regarding gold. A return to the gold standard, or any other metallic base for the currency, would undo all the progress made in economics since the 1920s and dump us into a depression with no escape.
Sam Uretsky is a writer and pharmacist living on Long Island, N.Y. Email firstname.lastname@example.org.
From The Progressive Populist, May 15, 2013
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