Is the Gold Standard Is Antiquated?

Is the Gold Standard Is Antiquated?

Thomas Allen

    Opponents of the gold standard use the events of the 1920s when the leading countries of the world returned to a pseudo gold standard. They use these events to prove that the gold standard is antiquated, a barbaric relic, and unworkable and needs to be abandoned for a managed currency, i.e., fiat money.
    Like most major wars, World War I was fought with credit money. Withdrawal of this credit money led to the depression of 1920-21. Again, banks expanded credit money during the 1920s, which caused the Roaring Twenties. When they withdrew the credit money, the Great Depression followed. However, the gold standard received the blame.
    By 1928 most countries had returned to the gold standard or more correctly, a bastardized gold-exchange standard. (The United States had maintained their gold-coin gold standard except about two years at the end of World War I when exportation of gold was prohibited. Domestically, paper money remained redeemable in gold until 1933.) Beginning in 1931, countries began abandoning the gold standard. By the end of the year, most countries were off the gold standard. In 1933, the United Stats finally left it.
    Many things contributed to the failure to maintain the gold standard after World War I. They include:
    1.    interference with or not facilitating the movement of gold;
    2.    war debts and reparations and how they were paid (large payments had to be paid at specified times to specific countries despite exchange rates among other problems);
    3.    interference with the natural movement of goods, such as tariffs;
    4.    imprudent foreign lending, which allowed foreign countries, especially Germany, to buy goods on credit and enable Germany to pay its reparations;
    5,    inflexibility in prices caused by international cartels and governmental price fixing and inflexibility in the system of wages (strong resistance by workers to a reduction in pay);
    6.    abandonment of the real bills doctrine so that international trade could be controlled; and
    7.    a lack of confidence that caused large sums of money to be transferred from place to place based on emotions rather than economic factors.
The problems that lead to the fall of the gold standard had nothing to do with the gold standard itself. Defects in the gold standard did not cause it to fall. Defects in the political situation did.
    The gold standard only functions under proper conditions. As the above list illustrates, the belligerent powers refused to allow the conditions under which the gold standard flourishes that exist before the War to return. About the demise of the gold standard, Frederick Bradford comments, “The gold standard itself is no more a failure than an automobile which refuses to run smoothly because there is dirt in the carburetor and the front wheels have been detached from the steering gear. The really surprising thing is that the gold standard was able to function at all under the circumstances.”
    A real problem with the gold standard is that paper money and other credit money promising to pay in specie soon accompanies it. Before long the government becomes involved in the name of protecting the people from counterfeiting and failure to redeem notes. Such protection is a legitimate function. However, the government does not stop here unless the people remain vigilant. The next step is to require bank notes to be secured by government debt — thus, ending their issuance for economic needs. At this point, if the government has not usurped the authority to issue notes or granted a bank such a monopoly, it soon will. Fiat money adherents like this attribute because they can now get the government to end convertibility and change the paper money into a fiat currency.
    After governments, i.e., the elite who really controls the governments, had tasted the power and wealth that fiat paper money brought them, they were reluctant to relinquish such a monetary system. Being unable to bend the gold standard to their will, they abandoned it. To them it was an antiquated system.

Copyright © 2015 by Thomas Coley Allen.

Two Views of History ‒ Part 3

Two Views of History ‒ Part 3

Thomas Allen

[Editor’s note: Footnotes in original are omitted.]

Beginning with the French Revolution, all revolutions involving Europeans have had common features that strongly suggest conspiracy. No matter the grievances of the people, which have varied with time, the program of the social revolution has always been the same. Even the same slogans and catchwords have been used. Nearly every program and philosophy that the Illuminists offered during the French Revolution have appeared in every revolution that has followed. The revolutionary leaders are not men of the people. They come from the upper or middle classes, who are not victims of oppression. Weishaupt, Marx, Lenin, and most other revolutionary leaders were bourgeois.[1] The people who back and promote these revolutionary leaders were the super rich, like the Rothschilds and Rockefellers. With rare exception they are indifferent about the suffering of the people and even human life. Not only do they have no pity or sympathy for the common man, they frequently disdain him. Furthermore, these revolutions have occurred when the ruling authority was beginning a program of reform for the benefit of the people. The only adequate explanation of this series of “coincidences” is a conspiracy that has maintained itself for at least 250 years. As accidental historians cannot adequately explain these “coincidences” away, they ignore them.

The people never wanted to abolish private property. They wanted to obtain more property and pass it onto their children. A goal of the revolutions over the last 250 years has been to abolish private property and inheritance. (The beauty of fascism is that it abolishes private property without abolishing it. People are allowed to own property, to pay taxes on it, and to be responsible for it. The government has total control over all property. Thus, the government enjoys the privilege of ownership without the responsibility.)

The people have always been nationalistic. They have no real thought, desire, or interest in internationalism. They distrust foreigners and oppose placing the welfare of other countries above their own. Yet internationalism and the destruction of national borders have been key parts of the program of the revolutionists over the last 250 years.

For the most part, the people place great value on their family and their religion. A goal of every revolution over the last 250 years has been to break up family life and to destroy the religion of the people, especially Christianity.

Accidental historians cannot adequately explain this commonalty of every revolution of the last 250 years. They cannot adequately explain why the leaders of these revolutions always act not only contrary to the wishes and goals of the people, but to the detriment of their wishes and goals. Only by resorting to a conspiratorial explanation of these revolutions, can an adequate explanation be given.

Accidental historians who do write about secret societies and conspiracies emphasize the absurdity of secret societies having much impact on the major events of history. They emphasize the divisions and disagreements among secret societies and among members within the same society. If a conspiracy writer confuses facts about an event, conspiracy, secret society, or a person, such confusion is used to pooh-pooh conspiracy and the importance of secret societies. Some conspiracy historians are prone to exaggeration; such exaggerations are, likewise, used to disregard, if not disdain, works of all conspiracy historians. Accidental historians attempt to present secret societies and their presumed schemes as inept comedies of errors. Their members are misguided idealists, knaves, charlatans, buffoons, and the like — none has the intelligence or resources to cause a successful revolution or overthrow a government. They may not deny that primary actors in a coup or revolution are members of a secret society; however, they argue that such membership and society are irrelevant. Such membership is coincidental. Any evidence connecting the secret society with an event or suggesting that a conspiracy was involved is inconclusive and based on circumstantial evidence. (Are not the accidental historians’ explanations also inconclusive and based on circumstantial evidence? If they were not, historians and political analysts would not continue to come up with new explanations.) Accidental historians present believers in conspiratorial aspects of history and the involvement of secret societies as ignoramuses who look for simple answers to complex problems. They are intellectually on the same level as the Flat-Earthers. They are irrational, lack sophistication, and seek oversimplified answers. (Over simplification is reducing everything down to economics and class warfare or to poverty, ignorance, and disease, which is what accidental historians typically do. No explanation of history is more simplistic than the accidental theory of history for the major world events.) McCarthy’s exposure of Communists is reduced to the same level as Stalin’s purges — overreaction to superstitious belief in secret societies and their conspiracies and powers. When writing about the influence of secret societies and their conspiracies on major historical events, accidental historians denounce the whole notion that a secret society could successfully execute a conspiracy of any importance. Any book that describes secret societies and conspiracies as significant and important actors in the great events of history is a “farrago of nonsense.” This is the opinion of accidental historians on secret societies and their conspiracies.

What the anti-conspiratorialists ignore is the clear and overwhelming evidence that in the “democracies” of the West, two governments exist: the visible and the invisible. Lady Queenborough describes this relationship as follows:

The game of politics is the pursuit of power. In all democracies, there are two separate organizations playing the political game. The open and visible one, the members of which hold office as members of a government, and the invisible one composed of individuals who control this visible organization and in whom is vested the real power, the essence of which is finance, controlling the publicity which makes or unmakes its tools.[2]

Such relationship between these two organizations is by its very nature conspiratorial.

Accidental historians see historical events as discrete and independent events. They fail to “connect the dots.” Conspiratorial historians “connect the dots.” They see the interconnections of historical events. To accidental historians, most adverse events happen by accident or incompetence. Conspiratorial historians agree with Franklin Roosevelt: they are planned.

Cochran’s Law Lexicon defines conspiracy as “an unlawful combination or agreement between two or more persons to carry into effect a purpose hurtful to some individual, or class, or the public at large.”[3] When two or more people collaborate to carry out an act that harms an individual, class of people, or the public, a conspiracy exists.

To decide if a conspiracy exists, Dr. Sterling Lacy has asked:

Is it evil to maneuver America from deifying God to deifying man? Does it take more than one person? . . .

Is it evil to socialize America? Does it take more than one person working in harmony to set up this system of legal plunder? . . .

Is it evil to fill school children’s minds with amoral sex education in our government schools? Does it take more than one person to design the programs, print the textbooks, and force our local teachers to teach our innocent children that homosexuality is simply an alternate lifestyle and that sex before marriage is their own business as long it’s “safe” (by “safe” they mean you don’t get a disease or get pregnant)?[4]

If any one of these events is evil and harms an individual, class, or the public and if more than one person is involved, then a conspiracy exists.

The conspiratorial view of history is Biblical. The random accidental view of history is Marxist.[5]

The conspiracy of Illuminism is not one of evil men meeting in secret and plotting to overthrow governments, although such conspiracies do occur. It is one of like-minded people coming together and working toward a common goal without necessarily having centralized autocratic direction. It is as Chaitkin describes:

. . . a conspiracy of this sort, spun out over successive generations, does not operate in the fashion most persons today would assume a conspiracy to work. One must not imagine that the essence of such conspiracies are secret meetings in obscure places, and so forth. The covert features of conspiracies are merely the necessary (usually) auxiliary means to the end in view. The essential thing about the great conspiracies which have, in fact, shaped most of human history, is not the dark plottings, and the begattings. The essential feature of any great conspiracy of this sort is the motivation which causes the leaders of a conspiracy to conspire together.[6]

The conspiracy operates like the Rhodes scholarship system, which serves to recruit and train Illuminists. Frank Aydelotte, American secretary to the Rhodes trustees, described this system:

If he [the Rhodes scholar] has the capacity for assimilation, if he can become part of what he meets, he may return from Oxford to the United States a citizen of the world. . . . Older [Rhodes scholar] men were often able to assist their young protégées, just back from Oxford, in finding suitable posts in the United States.[7]

Skull and Bones and other illuministic societies operate similarity.

The impact of secret societies on history can best be understood in the terms of Hegelian dialectic process: conflict creates history. Thus, controlled conflict can create a predetermined history. Managed use of conflict leads to predetermined ends.[8]

In Hegelian terminology, a thesis, problem, or existing force generates an antithesis, reaction, or countering force. The result of this conflict is a synthesis or solution, which becomes the new thesis.

Using the Hegelian dialectic process, Illuminists create a problem (thesis). Then other Illuminists stir up a reaction, such as fear or panic, in the people (antithesis). Next another group of Illuminists come forth to offer the solution to the problem (synthesis). The solution is always one that advances the cause of Illuminism. It is one that the people would not tolerate if they had not been conditioned to accept it.[9]

An example of the application of the Hegelian dialectic process is the Great Depression. Illuminists in control of the Federal Reserve System inflated the money supply and then greatly contracted it. This action led to an economic depression (thesis). Then Illuminists in the Hoover administration and businesses went to work to exasperate the depression with programs to keep prices and wages from falling — thus, creating massive unemployment (antithesis). Next illuminist Franklin Roosevelt came forth with the solution, a fascist welfare state where people would be dependent on the government (synthesis), a solution that the people would not have tolerated except for the crisis.

Another example is the international financiers financing the Bolshevik Revolution and communist rule of the Soviet Union that followed. “Western capitalists created Communism on one side (thesis) as a perceived enemy to the democratic nations (antithesis) on the other side. The ensuring conflict produced huge markets for finance and armaments and eventually a leveling of both sides (synthesis).”[10]

Illuminists use controlled conflict to bring about their illuministic New World Order, which is their synthesis. Because their New World Order is artificial, it has to be created. Random, spontaneous events would not bring about their New World Order. Moreover, managed conflicts create enormous profits for Illuminists. While they manage conflicts to bring about their New World Order, they also use these conflicts to make themselves richer.[11]

Rather than create movements, Illuminists often capture existing minor movements and turn them to their own evil purposes. They elevate them into major programs. They are notorious for taking important concerns of people, like the quality of the environment, and subverting them into a cause for the advancement of Illuminism. Without illuministic control, many of these movements would be harmless, and perhaps even laudable.[12]

Whether created or captured, Illuminists seek to turn discontent into chaos. Out of chaos, they will bring order. (According to Texe Marrs, “order out of chaos” is a “secret doctrine of the Illuminati.”) They seek “to bring an order of knowledge to the chaos of the various human beliefs and philosophies in the world.”[13] Illuminists will build their New World Order by whatever means possible; “the end justifies the means.”

Does this mean that Illuminists operating through secret societies have caused all, or even most, major events? No. However, they have used and manipulated most of them, especially in modern times, to their benefit. They have been heavily involved to varying degrees in the various revolutions and upheavals over the last 500 years. Often they have caused wars where issues could have, and without their influence probably would have, been resolved without war. Frequently, they exasperate minor problems into major problems. Illuminists do not necessarily create or foment all revolutions and great events of history. However, they have used most of them for their own ends.

Although Illuminists appear to be in control of much of the world’s manmade catastrophes, they often start events into motion only to loss control. Adolf Hitler and Napoleon appear to be two examples where the Illuminists lost control of those whom they brought to power. Furthermore, the Illuminists do not always win. Two examples of illuministic failures are the failure to turn Spain into a communist country in the 1930s and maintaining Communism in Chile in the 1970s. Francisco Franco foiled their attempt in Spain. Augusto Pinochet’s overthrow of Salvador Allende reversed their advancements in Chile. When the efforts of President G. H. Bush, on behalf of the Trilateral Commission, to prevent the collapse of the Soviet Union are consider, its collapse appears to have been a setback for the Illuminists — at least the collapse may not be part of their plan for controlling the world.

Two views of history exist: accidental and conspiratorial. Of these two views, the conspiratorial view is superior to the accidental view in explaining the history of the world over the last 500 years.

Endnotes
1. Nesta H. Webster, World Revolution: The Plot Against Civilization (Editor Anthony Gittens. Seventh edition. Palmdale, California: Omni Publications, 1994), p. 59.

2. Lady Queenborough (Edith Starr Miller), Occult Theocracy (Two Volumes. Hawthorne, California: The Christian Book Club of America, 1933), p. 241.

3. Robert A. Mace, ed., Cochran’s Law Lexicon (Pronouncing edition, 4th ed. Cincinnati, Ohio: The W.H. Anderson Co., 1956), p. 81.

4. Sterling E. Lacy, Valley of Decision (Texarkana, Texas: Dayspring Products, Inc., 1992), p. 11.

5. Lacy, p. 18.

6. Anton Chaitkin, Treason in America From Aaron Burr to Averell Harriman (New York, New York: New Benjamin Franklin House, 1984.), pp. 144-145.

7. Dennis L. Cuddy, The Globalists: The Power Elite Exposed (Oklahoma City, Oklahoma: Hearthstone Publishing, 2001), p. 45.

8. Antony C. Sutton, How the Order Creates War and Revolution (Phoenix, Arizona: Research Publications, Inc., 1984), p. I.

9. Des Griffin, Anti-Semitism and the Babylonian Connection (Clackamas, Oregon: Emissary Publications, 1992), p, 69.

10. Jim Marrs, Rule by Secrecy: The Hidden History That Connects the Trilateral Commission, the Freemasons, and the Great Pyramids (New York, New York: Harper Collins Publishers, 2000), pp. 194-195.

11. Sutton, p. i.

12. Nesta H. Webster, Secret Societies and Subversive Movements (Palmdale, California: Omni Publication, 1924), p. 345.

13. Marrs, p. 255.

Copyright © 2010 by Thomas Coley Allen.

Part 2 

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Is Gold Too Easy to Manipulate?

Is Gold Too Easy to Manipulate?Thomas Allen

Many people who claim to favor the gold standard fear returning to the true classical gold standard because they believe that gold is easily manipulated—as though fiat money is difficult to manipulate. Contrary to what these people claim to believe, a major reason that governments abandon the gold standard and adopt fiat money is that fiat money is easy to manipulate and gold is difficult to manipulate.

They advocate replacing the current fiat monetary system with another fiat monetary system. Some would make gold a part of their fiat money. Others would not. Nearly all would have the U.S. government issue the new money.

If a cabal set out to manipulate gold under the true gold standard, with what would it buy the gold? Would it buy gold with gold? If so, it accomplishes nothing.

If silver were also money in its own right, as it should be,[1] but without any legal exchange rate, the cabal could buy gold with silver. If it buys gold with silver, an equivalent unit of purchasing power of silver replaces each unit of purchasing power of gold removed from the economy. The primary economic affect is that fewer things are bought with and sold for gold and more things bought with and sold for silver.

It could possibly buy gold with paper money. However, under the true gold standard, all paper money is immediately redeemable in gold on demand. Any holder of paper money could convert it instantly to gold. The cabal could not corner the gold market using paper money unless the government suspended redemption. This action is not a problem with the gold standard; it is a problem with the legal system failing to require contracts to be honored.

As the cabal buys more gold, the remaining gold becomes more valuable. Thus, its attempt to manipulate gold can affect its value, purchasing power. This increase in value brings more scrap onto the market for the cabal to buy.

When the cabal owns most of the world’s gold, what has it accomplished? Other than replacing most monetary gold with silver, it has not accomplished much. It has imposed an enormous cost on itself by foregoing the income that it could have earned from the money that it has used to corner the world’s market in gold. (Under the true gold standard, it could not corner the gold in one country. Part of the true gold standard is the free importation and exportation of gold. Thus, as it bought the gold within the country and drove up its value, gold from across the planet would flow into this artificially high-price market. Consequently, it would have to corner the world’s market in gold.)

Once the cabal has acquired all this gold, what will it do with the gold? Will it hoard the gold and lose the income that it could have earned? It could lend the gold, which will put it back into the economy in an orderly manner. If lending were its objective, it could have earned more by lending the money that it used to buy the gold instead of foregoing this income while cornering the world’s gold.

Is it going to try to disrupt the economy by quickly dumping its gold? If so, it will have to absorb enormous losses. Furthermore, if it dumps its gold as coins, all coins beyond that needed by the markets will be melted for other uses. If it dumps it as bullion, enough of this bullion will be converted to coins to satisfy the demand for gold coins. Dumping will drive down the value of gold to about the level it was before the cabal began its hoarding. Besides greatly reducing its estate, what does the cabal gain from driving down the value of gold and disturbing the gold markets? It certainly will not increase its wealth by such action. Nor will it increase its power.

The manipulation of gold under the gold standard should not be confused with the manipulation of its price under the current fiat-federal-reserve-dollar standard. Under the gold standard, the price of gold cannot be manipulated as gold is priced in terms of itself. The price of a pennyweight of gold is a pennyweight of gold. Its purchasing power can be manipulated, but not its price. (Its price could be manipulated in terms of silver. However, this manipulation accomplishes little as the purchasing power of one metal is being replaced by the purchasing power of another metal. People who held large quantities of one metal may lose or gain purchasing power in terms of the other metal.)

Gold under the true gold standard is like the dollar under the federal-reserve-dollar standard. Under the federal-reserve-dollar standard, the price of the dollar is a dollar. Its value can change relative to other things, but its price does not change.

Under the federal-reserve-dollar standard, the price of gold can be manipulated in terms of federal reserve dollars by changing the supply of gold or dollars. Gold is being bought and sold with and in terms of federal reserve dollars.

If people oppose the true classical gold standard because gold is manipulable, why do they want to use a fiat currency, which is infinitely more manipulable? Why do they prefer letting politics instead of economics determine the issuance and quantity of the money? With fiat money, politics regulates its issuance and quantity. With the true gold standard, economics controls the issuance and quantity of money. Thus, these people in effect are saying that they trust politicians and distrust the people with the control of the country’s money. Politicians or their bureaucrats and "experts" regulate the issuance and quantity of fiat money. Under the true gold standard, the people directly control the issuance and quantity of money.

Fiat money is much easier to manipulate than gold under the true gold standard. This ease of manipulation is why governments, international financiers, statists, and other controllers prefer fiat money to gold money.

Countries do not abandon the gold standard because it is easily manipulated. They abandon it because it is extremely difficult to manipulate. On the other hand, the government, that is, the cabal that controls the government, can easily manipulate fiat money. It can change the quantity of money on a whim and at will. Under the gold standard, the quantity of money is a dependent, not an independent, variable. It depends on the demand for money and is not subject to governmental manipulation. With fiat money, the quantity of money is an independent variable. The government maintains control of the money and can change the money supply to suit political considerations. Thus, any cabal inside or outside of the government prefers fait money to the gold standard, for fiat money is much easier to manipulate.

People who claim to oppose the gold standard because gold is easily manipulable are using this argument as a ruse to conceal their desire for a currency that is highly manipulable. They know that the gold standard greatly limits the power of the government and its control of the economy and the people. Gold stands in the way of unlimited credit expansion. It prevents the government from attempting to create wealth by printing numbers and words on paper. Gold forces the government to abide by the discipline of the markets. It makes the purchasing power of money independent of politics and arbitrary manipulation. The gold standard places external and automatic restraints on the government.

Mises remarks, "The eminence of the gold standard is . . . that the gold standard alone makes the determination of the monetary unit’s purchasing power independent of the ambitions and activities of dictators, political parties and pressure groups."[2]

Because gold is difficult to manipulate, statists and their kindred oppose it. The irony is that they argue that gold can be easily manipulated, and, therefore, the gold standard cannot be used. Fiat money, which becomes nearly impossible to manipulate under their system, so they assert, must be used instead. Amazingly, statists can actually use this absurd claim to get their opponents, people who want small, limited government, to abandon the gold standard in favor of fiat money.

Joseph Schumpeter explains why statists hate gold:

An "automatic" gold currency is part and parcel of a laissez-faire and free-trade economy. It links every nation's money rates and price levels with the money rates and price levels of all other nations that are on gold. It is extremely sensitive to government expenditure and even to attitudes or policies that do not involve expenditure directly, for example, to foreign policy, to certain policies of taxation, and, in general, to precisely all those policies that violate the principles of economic liberalism. This is the reason why gold is so unpopular now and also why it was so popular in a bourgeois era. It imposes restrictions upon governments and bureaucracies that are much more powerful than is parliamentary criticism. It is both the badge and the guarantee of bourgeois freedom—of freedom not simply of the bourgeois interest, but of freedom in the bourgeois sense. From this standpoint a man might quite rationally fight for it, even if fully convinced of the validity of all that has ever been urged against it on economic grounds. From the standpoint of statism and planning, a man may not less rationally condemn it, even if fully convinced of the validity of all that has ever been urged for it on economic grounds.[3]

Thus, people who claim that they are convinced of the gold standard’s virtues but cannot support it because it is so easily manipulable are statists at heart. If a person who truly believes in freedom and limited government, he would support the gold standard even if he were convinced that it was easily manipulable.


As Hans Sennholz remarks:

The gold-coin standard means sound money; it makes the value of money independent of government . . . [and] protects the monetary system from the influence of government. . . . As the quantity of gold in existence is utterly independent of the wishes and manipulations of government officials, parties, and pressure groups . . ., it is a social institution that is controlled by inexorable economic law.[4]

He also notes, "The gold-coin standard cannot be manipulated by government and, therefore, presents an insurmountable obstacle to all attempts at credit expansion and regulation through monetary policy. . . ."[5]

For a more detailed discussion of fiat money and the true gold and silver standard, see the author’s book Reconstruction of America’s Monetary and Banking System: A Return to Constitutional Money.

Appendix

The following is part of the discussion on the myth of gold being easily manipulable from Reconstruction of America’s Monetary and Banking System: A Return to Constitutional Money.[6]

The fourth major argument against the gold standard is that gold is too easy for bankers to manipulate—as though fiat money is difficult to manipulate. Bankers can cause all sorts of havoc by withholding and hoarding gold or transporting gold into or out of the country. True bankers, and others for that matter, can withhold vast quantities of gold from the markets. But they do so at an enormous cost. For them to withhold enough gold to influence the markets means a significant loss in profit. For most, it probably means not making less profit, but losing significant income.

Even if a cabal could control vast quantities of gold, that control would have only minimal impact on general prices. Most of the impact would appear in the discount rate.

Furthermore, as the conspirators removed gold from the markets, the value of the remaining gold would rise to compensate for the removal. They in effect would increase the value of gold domestically. This increase in value would cause gold to be imported. Thus, to corner the market in gold, they would have to buy vast quantities of gold globally. Even then, the remaining gold would rise in value to compensate for the removal.

On the other hand, the government or its central bank can depress the purchasing power of gold by undertaking credit expansion. The government can carry out policies to induce people to hold less cash and thereby lower the purchasing power of gold. Such policies contributed to the rise in general prices between 1896 and 1914. Nevertheless, unlike fiat money, gold does limit governmental action to lower its purchasing power.

Some claim that exporting gold caused the Great Depression in the United States. Not only did the country lose monetary gold, which had a deflationary effect; more important, the credit based on that gold contracted. This contraction of credit greatly magnified the deflation.

From 1920 through 1933 the gold stocks of the United States rose in most years, and overall a net increase occurred.[7] Fremling remarks, "Gold flows generally do not equal changes in gold reserves, because gold flows measure movements of gold between countries not only of reserves, but also of private gold stocks."[8]

If exporting gold exacerbated the Great Depression, then the importation should have ameliorated the deflation. Great Britain was the primary recipient of the gold exported from the United States, but it seems not to have benefitted from the importation of gold. A global credit contraction caused the Great Depression, and not exporting gold. Credit contracted in countries that imported gold as it did in exporting countries. Furthermore, the quantity of gold increased during this era.

Under the classical gold-coin standard, the export of gold would not have caused general prices to fall. It would cause the discount rate for bills of exchange to rise. . . .

Another form of manipulation occurs when international banks export gold from their banking system and thereby contract their gold reserves. When bank reserves are contracted, banks must cease lending and call in loans to increase reserves. This action contracts the money supply and leads to a recession or depression. (The same thing occurs if the public unexpectedly starts removing their money from banks in gold coins.)

This problem has more to do with improper lending than with the gold standard. If banks do not borrow short and lend long, i.e., do not use demand deposits for loans (or allow two people to have access to the same money simultaneously), and if the government does not require a minimum reserve, much of this problem would cease. Then the effect of international bankers exporting gold from the banking system would be the same as any other manipulator removing gold from the markets.

When the government decrees an arbitrary minimum gold reserve, banks are compelled to contract lending and call in loans to maintain their reserves. Legal reserves increase the demand for gold, which increases its value, which intensifies deflationary effects.[9] (Deflation occurs when gold’s purchasing power increases.) . . .

As the above remarks show, the gold standard is incompatible with centralized banking. Central banks (or governments if they are the monetary authority) accumulate most of the world’s monetary gold stock. With such a large hoard, they can manipulate the value of gold and cause sharp fluctuations. This manipulation can be deliberate or inadvertent. Nevertheless, the gold standard does limit such manipulation. To affect the prices of internationally traded commodities domestically requires changing their prices globally, which requires changing the value of gold globally.

The purpose of a fiat monetary system is to have money that is easily manipulated. Gold is much more easily manipulated under a fiat monetary system where gold is consolidated under the ownership of the government or its central bank. Gold is difficult to manipulate when paper money is redeemable in gold on demand.

Some opponents of the gold standard argue that international financiers profit by artificially shipping gold between countries to drive their currencies up and down. Gold naturally moves from countries where it is over valued to countries where it is under valued. International financiers could ship large quantities of gold from one country to another to manipulate the value of their money. When the physical difficulties and cost are considered along with the quick disappearance of any advantages that they created, they could make more money in other ventures. With fiat money, they can easily manipulate the value of money of various countries through their control of political leaders and central banks and make enormous profits just by moving electrons through computer circuits. International financiers could easily accomplish this goal even if all central banks were abolished and money issuance became a governmental function. They could still control (own) the political leaders, most of whom are among the easiest people in the world to corrupt.

The gold standard was not abandoned because it is easy to manipulate. It was abandoned because it is nearly impossible to manipulate. The government can increase the supply of fiat money at will and without limits, but it cannot increase the supply of gold at will. Increasing the supply of gold depends on the profitability of mining gold.

As Spahr notes, "Only a currency of unsound quality lends itself to manipulation."[10] Gold and silver are the highest quality money and, therefore, difficult to manipulate. Fiat paper money is low quality money, and is, therefore, easy to manipulate—especially if the government spends it into circulation.

Endnotes

1. Thomas Coley Allen, Reconstruction of America’s Monetary Banking System: A Return to Constitutional Money, pp. 136-138.

2. Percy L. Greaves, Jr., On Current Monetary Problems: An Interview with Professor Ludwig von Mises, p. 30.

3. Richard M. Salsman, Gold and Liberty, p. 58.

4. Martin A. Larson, The Federal Reserve and Our Manipulated Dollar, p. 237.

5. Ibid., p. 238.

6. Allen, pp. 124-128.

7. Board of Governors of the Federal Reserve System, Banking and Monetary Statistics, 1914-1941, p. 536.

8. Gertrud M. Fremling, "Did the United States Transmit the Great Depression to the Rest of the World?", The American Economic Review, LXXV (December 1985), 1181.

9. David Glasner, Free Banking and Monetary Reform, p. 105.

10. James Washington Bell and Walter Earl Spahr, ed., A Proper Monetary and Banking System for the United States, p. 32.


Copyright © 2009 by Thomas Coley Allen.

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