Detractors from the gold standard often erroneously espouse that being tied to gold, or gold in vaults, keeps economies from growing (using and needing more currency) and therefore stifles economic development. However, a learned person such as Nathan Lewis, who wrote the article which is entitled “When Even the Fed is Confused About Gold, We Still Have Some Work To Do” for Forbes.com. can look back at the hundreds of gold backed economies that have existed in the past centuries and surmise that over time these economies and the people and the nations they represented grew into the world and the economies that we see around us today.
Historic economies have not been stifled by the use of gold and gold coins as currency, they have been strengthened and enriched.Perhaps what solely inspired Lewis to write his article is this following quote from the Fed which Lewis printed in his article:
“With the gold standard, the value of a country’s money is tied to its stock of gold reserves. That is, each unit of currency (e.g., a dollar) is tied to a specific amount of gold and is redeemable for that specific amount of gold. The government’s ability to increase the money supply is then restrained by its gold reserves. And since gold is naturally limited and the global gold supply grows relatively slowly, this system seemingly protects against high rates of inflation.”
Does A Gold Standard Stifle Economic Growth?
If you take what the Fed says without a grain of salt, it seems to make sense and stand true. However if you apply a little critical thinking and a little history, and this is just what Lewis does, the Fed’s argument falls to a level just as low as their current interest rates. Lewis points out that between 1775 and 1900 the U.S. total currency supply grew by 163 times. During the same time the global gold supply only grew by about 3.4 times due to mining production.
Lewis then points out that 163 is nowhere near 3.4 in terms of equality. Lewis goes on to correctly state that though there was a small adjustment to the value of the dollar made in 1834, the value of the dollar and its purchasing power was basically stable during this time, and of course the United States continued to grow.
Not only was there substantial growth in the United States during this span of time, but other nations around the world which utilized the gold standard also prospered and grew. One should realize that in the span of 125 years most everything that could happen to an economy and to a country, did happen, yet none of it mattered and gold was still worth $20.67 an ounce in he U.S. until 1933, when the value of 1 ounce of gold was reset by presidential decree.
To further back his position and stance, Lewis also cites the fact that between 1775 and 1900 Britain had and utilized a completely different set of policies than the U.S. regarding gold bullion imports, exports, mining production, changes in monetary base, and reserve holdings, yet the British pound nevertheless held its own fixed value gold parity which was 3 pounds 17 shillings and 10 pence per ounce.
One Would Think Central Bankers Despise The Gold Standard.
This is another powerful truth that goes to disprove the current sayings and beliefs of central bank policy makers around the globe. Lewis continues to throw history and fact in the direction of gold standard misconceptions in order to bring them down. For instance, Lewis points out the last 20 years of the American gold standard era, the 1950s and the 1960s, were the most prosperous of the last century.
Ultimately the gold standard was not abandoned because it did not work, I believe it was abandoned in favor of a fiat currency system that would not be restrained by the checks and balances inherent to a gold backed economy and a gold backed currency and would allow politicians and bankers to manipulate the system for their whims and profits.
If you don’t agree that throughout history gold coins, gold reserves, and gold backed economies have not only grown but prospered, then perhaps you see the need to deal in and own paper and digital currencies that are completely devoid of any physical value backing and are empowered solely by the politicians and bureaucrats that decreed their existence.
If however, you agree with the points that Mr. Lewis made and that I was able to put into context for you, then perhaps you feel that you should either begin to diversify into physical gold and silver coins, or increase the percentage that you already diversify into physical precious metals.
If so, please call ITM Trading at 1.888.OWN.GOLD and speak with an ITM Trading representative about protecting your wealth from fiat currencies and worthless paper money.