“You shall not crucify mankind upon a cross of gold.”
– William Jennings Bryan, 1896
Talk of the US returning to a gold standard, at least according to the anointed wise men of our time, is the province of weirdoes, wackadoos and wingnuts and ought never to be mentioned in polite company by any serious presidential candidate. At least that’s the sense one gets when reading Matt O’Brien’s Washington Post article “Dear Jeb: Gold won’t make America great again.” O’Brien is upset that, when given the opportunity to squash any notion that he might support a gold standard, Jeb Bush waffled in his comments, implying that he may in fact be prepared to crucify mankind upon that dreadful cross of gold. The horrors. According to O’Brien, “The right answer would have been that the gold standard was a “barbarous relic” even 80 years ago, and might be the world’s worst idea today.”
O’Brien goes on to chide both Ben Carson and Bush, the former for his positive support of the gold standard, the latter for his failure to live up to his duty as “the candidate of serious policy,” which in O’Brien’s mind means taking a stance of uncompromising devotion to the central bank driven, fiat money status quo. The reason O’Brien gives for this is simple, “We tried it [the gold standard], and it failed.”
But did the gold standard fail as O’Brien thinks it did? O’Brien’s chief beef with the gold standard is that the price of gold is controlled by the Federal Reserve’s [the central bank of the United States] interest rate policy.
[T]he gold standard says that the dollar will always be worth a certain amount of gold. But that alone isn’t enough to make it true. The Federal Reserve has to do that. So, for example, think about what would happen when the price of gold “wanted” to go up. That is, when supply and demand would make its price go up if it were allowed to do so – which it wouldn’t be under the gold standard. In that case, the Fed would have to make the dollar go up instead to keep the relationship between the two the same. And making the dollar go up is just another way of saying that it makes interest rates go higher, since more people will want to hold a currency that pays more interest.
There are at least two fallacies with this argument. First, the gold standard does not require that the Federal Reserve (the Fed) do anything. In fact, the gold standard does not even require the existence of the Fed, as can be seen from the fact that the US was on the gold standard long before the it came into being in 1913. In truth, it was the Fed’s activism that caused both the stock market and real estate boom during the 1920’s and the subsequent 1929 bust that contributed to the depression of the 1930’s. It is the Fed, not gold, that failed during the depression. But as a good statist, O’Brien puts the blame exactly where it does not belong, on gold, while exonerating the Fed which did so much to create the mess. This is an example of calling good evil and evil good.
“Centralization of credit in the hands of the state, by means of a national bank with State capital and an exclusive monopoly” – Karl Marx and Frederich Engels – The Communist Manifesto
Worth noting too, is that central banking of the sort practiced by the Fed, and so admired by O’Brien and his counterparts in the media, academia and government, was actually advanced by Marx and Engles as one of the planks in their Communist Manifesto. It is unsurprising that the communists, favoring as they did government ownership of the means of production, would also insist on government control the monetary system. What is worth noting, however, is that so many in the West seem to be of the opinion that a modern economy cannot function in the absence of a central bank. But far from being a necessity, the central banks of the world are a positive hindrance to economic development. In the 100 years of its existence, the Fed has managed to destroy 96 percent of the dollar’s value, robbed savers with artificially low interest rates to bail out its billionaire banker buddies, and created unprecedented economic distortions, the worst of which have yet to play out. It is the Fed and its unseemly support of Wall Street investment banks that is to blame for the record income inequality in the US. Not, as is commonly assumed, laissez faire capitalism. It is the Fed that helped to bring on the depression of the 1930’s and caused the tech bubble of the 90’s, the real estate bubble of the 00’s and the current stock and bond market bubbles, both of which are set to pop and threaten to send the US and world economies into an economic tailspin such that the Great Depression will seem like a golden age of prosperity by comparison. When it comes to central banks, the best thing to do is to bury them in the same pit as the rubble from the Berlin Wall.
A second problem with O’Brien’s analysis is that he assumes that a gold standard requires the government fix the price of gold at a certain level. According to the Bible, governments have only two legitimate functions: to punish evil doers and praise those who do what is right. Nothing more. Though many people assume that they should, governments have no right to manufacture money. This means that for a gold standard – or any monetary standard – to work properly, it should be the free market, and not the government, that determines what is, and what is not money as well as the market price of money, that is, the free market should set interest rates, not some monetary politburo at the Fed as is currently the case.
Although the Bible does not require a gold standard or a silver standard, it does require that money, in whatever form it takes, be honest. Historically, gold and silver have done the best job in this role. Our current system, in which central banks conjure up capital out of thin air, crediting billions of dollars to the accounts of favored financial institutions with the click of a mouse, is about as far from honest as it can get. In any other context, the normal activities of the Fed would be called counterfeiting. Or to put in another way, lying at the heart of our current financial system is a consistent violation of the Eighth Commandment, Thou shalt not steal.
Contrary to O’Brien, there is nothing serious about advocating the continuance of the current broken, immoral, central bank dominated, debt based, fiat monetary system. But statists look for every excuse under the sun to defend the central banks and their fiat money ponzi schemes, one example of which is O’Brien’s claim that a gold standard cannot be trusted to regulate interest rates. This is simply false. Since the interest rate is simply the price of money, it is regulated in the free market by the laws of supply and demand, just like any other good or service. A gold standard set by the free market is honest money enabling honest commerce conducted apart from the interference of government. It is Biblical. And it works. Seriously.