Building A Big Foundation For The Next World Monetary System
August 29, 2013
(This item originally appeared in Forbes.com on August 29, 2013.)
My new book is now available. I wrote this item for Forbes.com to kick it off.
Those of you who frequent this site will find a lot of familiar material. Indeed, a lot of it is covered in even more detail elsewhere on this site. Despite what you may expect, writing a book is mostly a process of concentration and editing, not expansion. One of my weekly pieces here could have a dozen large-size graphs, while the same topic might have to be dealt with in a book with two small black-and-white graphs.
Nevertheless, there’s a lot of benefit to be gained by putting everything together in one coherent package. Only a small percentage of people will follow a website like this, and put together all the details from the weekly pieces. It takes a certain kind of commitment to see the connections between it all — a commitment which is too rare, among the populace, to build sufficient consensus. Also, a book is our way of saying: “This is what we save for posterity.” It serves that role, culturally. A website is much too ephemeral, even if you can use the archives to access material back several years.
Even those who are close readers of this website will find quite a lot of benefit from the new book, I think.
The book is mostly about specific operating mechanisms. It is a bit nuts-and-bolts-y in character. This will disappoint those who prefer soaring libertarian rhetoric. However, I became increasingly aware that there needed to be a one-stop resource for the details on how to actually do all this stuff. If nobody knows how to do it, then you can’t do it, even if you would like to, and even if people did in the past.
October 4, 2012: A Return to Stable Money Requires More Intellectual Gasoline
January 29, 2012: Gold Standard Technical Operating Discussions 3: Automaticity Vs. Discretion
January 15, 2012: Gold Standard Technical Operating Discussions 2: More Variations
January 8, 2012: Some Gold Standand Technical Operating Discussions
As you probably guessed, the book is the reason why I haven’t been very active here in the last couple months. Like pregnancy, you can multi-task through most of the nine-month gestation, but that last bit requires a bit of focus to get it all out the door.
Yes, I think the cover is a bit playful for such a “serious” topic. However, I decided that it also made the book seem a little more accessible — like a mass-market book for a general audience (which it is), rather than some incomprehensible garble for the high priests of monetary confusion. It is actually quite easy to read, and enjoyable (I hope).
My new book, Gold: the Monetary Polaris, is now available at Amazon.com. I call it a sequel to Gold: the Once and Future Money, which was published in 2007 and is now available in five languages worldwide.
I want to talk a little about what the new book is about, and what I want to achieve with it.
Steve Forbes generously wrote the introduction to the book. He said: “Getting money right is the most important thing in economics, and if anyone can dispel the anxiety and mystery surrounding this crucial subject it is Nathan Lewis. He knows money inside and out. … Readers will come away from reading this, scratching their heads and saying, ‘My goodness, this is really not that complicated. I understand it now.”
John Tamny, editor of the Forbes.com opinion section and proprietor of RealClearMarkets.com, said of the book: “Nathan Lewis has written a masterpiece. … It’s the best book on money yet.”
Yes, I know I wrote it, but seriously: this is the good stuff. I wouldn’t waste my time, or yours, with anything else.
Even Subaverage Joe is probably becoming aware that the present world monetary system – the system that emerged out of the breakdown of Bretton Woods in 1971 – is becoming less and less tenable by the week.
The next world monetary system should be a “stable money” system, which in practical terms means: a gold-based monetary system. This is not just my opinion. It is a continuation of a very long historical pattern: After floating fiat currencies crumble, people want something that is not a floating fiat currency.
However, the process of building a world monetary system doesn’t happen just by wishing. Some real work needs to be done.
If you have ever seen a high-rise building being built, you know that a big building requires a big foundation. For months and months, workmen putter around a big hole in the ground. It seems like nothing is happening.
Finally, the foundation is done. The building itself can rise surprisingly quickly, and is soon finished and open for business.
You can build a little shack on a little foundation. But something big – like a world monetary system – requires a big foundation. It has to be strong and stable, to last for a hundred years or more.
The “foundation” that is required for a world monetary system is not made of concrete and steel. It is made of ideas – the principles and practical operating procedures that allow stable currency systems to be created, and maintained indefinitely.
This “foundation” of ideas has been sorely lacking in recent decades. I would even say it has been lacking since about 1900. The crumbling of the Bretton Woods world gold standard system in 1971 was the aftereffect of the crumbling of the intellectual “foundation” that occurred over several decades previous. The principles upon which the pre-1914 world gold standard was founded were clearly expressed by writers such as David Ricardo and John Stuart Mill – even Karl Marx. However, by the 1920s, people had already started to forget what the system was for, and how it worked. By the 1960s, the world gold standard (the Bretton Woods system) seemed like little more than an antiquarian superstition. The basic principles were forgotten. The foundation was breaking apart. Soon after, the building fell down.
With this new book, I want to build the new foundation – to do today what Ricardo and Mill did in 1817 and 1848. Their ideas were made manifest by the pre-1914 world gold standard, which I called “the greatest monetary system ever created.”
The book is all about Why and How. Why would we want a gold standard system, instead of the present fiat money system, or indeed any other system? This is not hypothetical. We did this for hundreds of years. We just have to look at the results – results that have never been bettered.
Second, we have to know How to do it. Obviously, you can wish and hope all you want, but unless somebody knows How to do it, it will never happen. Not everybody needs to know How. But, somebody does.
You can wish and hope to be able to fly in an airplane. You can even describe, in great detail, Why flying in an airplane is convenient and beneficial.
But, unless some aeronautical engineer somewhere actually knows How to build a working airplane, with all the specialized technical details involved, your wishes and hopes will never be fulfilled.
Fortunately, making a gold standard monetary system – that can be maintained indefinitely, even in the midst of crisis – is a lot easier than making an airplane. The book outlines the day-to-day operating mechanisms of How to do so, with many potential variations. It says exactly what a central banker (or other currency manager) should do between arriving in the office at 9 a.m. and leaving a 5 p.m. every day – including crisis situations.
The book describes options such as “free banking” (multiple currency issuers), “parallel currencies” (having both gold-based and fiat currencies simultaneously), “End the Fed” (what could replace today’s monopoly central banks), “warehouse receipt” systems (100% bullion reserves), “no gold” systems (0% bullion reserves), and many other options – with specific instructions on how to implement each of them, and how one system might be better than another in certain situations.
Descriptions are given for various ways that a country can transition from a floating fiat system to a gold standard system, allowing each government to choose the method that is most appropriate for their specific situation.
The book also talks about the best ways to deal with banking system insolvency, liquidity-shortage crises, and sovereign insolvency. These events can often precipitate currency mismanagement and crisis, which certainly does not need to occur.
It might take months – or years – for this “intellectual foundation” to be properly completed. A critical mass of people must understand, thoroughly, both Why a gold standard system is the superior option, and also How to implement one, in all the specific details. During this time, it might not seem as if much is going on.
Once that intellectual foundation is in place, the actual creation of a new world monetary system – based on gold – can happen surprisingly quickly.
Read the book. Take part in the process. It’s going to be so much fun.
I promise.
