Wednesday, August 29, 2012

Ambrose has it Almost Right on the Nutty Gold Standard

The Monetary Maginot of the Gold Standard, by Ambrose Evans-Pritchard

As with most AEP columns, I approached this one with the view that he will have a sensible diagnosis but prescribe a horrendous cure.   Where would he go with this idea of gold-backed currency?  With what argument would he demonstrate what a kooky idea it is?

Some gold bugs – though not ones with historical memory – seem to have greeted Republican talk of a renewed Gold Standard with near ecstatic delight.

So here goes – gold never worked, it couldn’t support a growing economy, it brought on deflation….which argument would AEP lean on in order to do his part in the pooh-poohing of gold?

They need their heads examined. Gold must be free if it is to police the political class.

Well, hush my mouth!  Is Ambrose saying what I think he is?  I shan’t get my hopes up too high, as he has let me down before.  Gold!  Free!  Both words in the same sentence.  Is he headed toward a free-market in money?

The beauty of gold is that it is a store of value beyond political or state control, or largely so.

I am really getting giddy….

It is a coldly disassociated asset based on atavistic attachment dating back thousands of years. It is common to mankind, and therefore nigh impossible to suppress. It is, to boot, a safe haven from tyranny, the portable wealth of persecuted peoples over the ages.

Whoo-hoo!!!  Ambrose, can I buy you a drink?

Once governments link their policies and fortunes to gold through a fixed system, the metal – or its owner – becomes prisoner of abuse.

Well, now Ambrose makes clear he is speaking of a government enforced and controlled gold standard – he hinted at this earlier, but now he eliminates doubt.  Bartender, close my tab.

He goes on to point out some of the many numerous events when government has abused and otherwise violated the then-in-place government enforced gold standard.  Thus, to his earlier suggestion that gold must remain free if it is to serve the purpose of restraining the political class. 

His point, which is quite correct, is that governments have found ways to abuse or otherwise circumvent a government enforced gold standard whenever it was felt necessary or convenient.  He is suggesting that there should be no wish for a gold standard, because government will just abuse it anyway.

He demonstrates his perception of the U.S. political scene:

Needless to say, the Republican gold demarche is unlikely to get off the ground. It is a sop to the Tea Party.

The sop isn’t fooling many, I believe.

True Tea Party men and women are not taken in by such flummery. Gold needs no party endorsement. It shines alone.

Ambrose is once again precisely correct on the diagnosis – to pray for gold to play its role when the standard is a government standard is a false hope; this will result in heartbreak.

However, he fails on the prescription for a cure – his prescription is that gold should therefore not be used to back the currency.  Instead of going where I hoped against hope he would be going – the production of money and credit should be left solely to the market – he concludes that, since government will mess it up anyway, there is no reason to consider gold.

As far as he goes, he is correct.  However, it is a false choice that he is working within.  The gold choice is not limited to government gold.  Eliminate the monopoly.  Leave money and credit to the market: this is what will help to keep governments in check.

No comments:

Post a Comment