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Chapter 6 in The Gold Standard: Retrospect and Prospect is a paper by Lawrence White, “Arguments Against the Gold Standard.” This too is a worthy topic. I will try not to go too long with commentary here, since White lists 14 claims, each of which would make the good topic of a website item (and in most cases I have written about them). Plus, we have not only the claims themselves, but also White’s responses, which deserve comment. Perhaps we will return to this paper sometime, whenever I feel like I need something to talk about. Credible arguments against the gold standard really boil down to two: First, that gold did not serve its role as an adequately stable Standard of Value. There isn’t much evidence of this. It seems to have worked pretty well. Second, that having a Stable Standard of Value, in other words the Hard Money or Classical Paradigm, is not a desirable goal. In other words, arguments in favor of a Soft Money or Mercantilist money-manipulation inflationist doctrine. There isn’t much evidence anywhere that this produces any lasting advantages, but that doesn’t stop people from arguing on its behalf. That is pretty much the whole conversation that you need to have. Have I left anything out? When we look at the history of all of the world economy using the gold standard, it looks pretty good. The United States embraced the principle of the gold standard for nearly 200 years, from 1789 to 1971, and became the wealthiest and most prosperous country in the world. Britain used the gold standard for longer than that, and ended up not only being the birthplace of the Industrial Revolution, but also, master of the world’s largest empire. The last decade of the gold standard, the 1960s, was perhaps the

We continue with The Gold Standard: Retrospect and Prospect. Chapter 5 is a paper entitled “How Good Was the Gold Standard?” by Thomas Hogan. January 23, 2022: The Gold Standard: Retrospect and ProspectJanuary 30, 2022: The Gold Standard, Retrospect and Prospect #2: The Price-Specie Flow Mechanism This is certainly a worthy topic. We have hundreds of years of experience using gold standard systems, so we should be able to get a pretty good idea of how well they worked. Apparently it worked pretty well, because people used these systems for hundreds of years, which is not what happens when something doesn’t work. When something doesn’t work, there are problems, and finally, new solutions. Somebody who uses some new and better system gets better results, and rises above their peers. But, that didn’t happen. The most successful countries were always those with the best gold standard discipline, including Britain, Germany, France and the United States (excepting the Civil War years). The least successful were those with floating or unreliable currencies, including Spain, Greece, and Portugal. Also, the people who used these systems all their lives were generally very happy with the results. Here, at the outset, let’s put down some ideas of what I would consider, if I was writing a paper like this. How good was the gold standard at what? What is the ideal? The answer, of course, is that we want gold to be Stable In Value. If the value of gold (as the standard of value) went up a lot, or it went down a lot, there would be problems. This is no different than the many countries today who use some type of “euro standard.” If the floating euro went up a lot, or went down a lot, there would be some kind of problem, generally

Now we move on to the third paper in The Gold Standard, Retrospect and Prospect, which is called: “Price-Specie-Flow Mechanism and the Monetary Approach to the Balance of Payments As Theories of International Adjustment.” It is by Kwabena Boateng and Joshua Hendrickson. January 23, 2022: The Gold Standard: Retrospect and Prospect There is hardly anything dumber in all of economics than the claimed “price-specie flow mechanism,” so any paper that kicks sand in the face of this stupidity gets a thumbs up from me. March 19, 2016: The “Price-Specie Flow Mechanism”July 18, 2016: The “Price-Specie Flow Mechanism” #2: Let’s Kill It For GoodJanuary 16, 2016: David Hume, “On the Balance of Trade,” 1752 In the first paper of the book, George Selgin gives a nice short explanation of how things really worked: In truth, the world’s most successful international monetary arrangement appears to have worked automatically, with deliberate planning playing an even more minor part in its operation than it had played in its emergence. The institutional setup consisted, first of all, of nothing other than the sum of national gold standard arrangements: there was nothing in it akin to the International Monetary Fund or Special Drawing Rights or other such centralized and bureaucratic facilities. Indeed, as T. E. Gregory (1935: 7-8) observes, “The only intelligible meaning to be assigned to the phrase ‘the international gold standard’ is the simultaneous presence, in a group of countries, of arrangements by which, in each of them, gold is convertible at a fixed rate into the local currency and the local currency into gold, and by which gold movements from any one of these areas to any of the others are freely permitted by all of them.” The most notable achievements of the classical gold standard — including its tendency to keep international

In 2021, a substantial new book on the gold standard was released: The Gold Standard: Retrospect and Prospect. This is a collection of papers from a variety of authors, edited by Peter Earle and William Luther, and published by the American Institute of Economic Research, which has long been an advocate of the gold standard going back even to its earliest days in the 1930s. The book actually begins with an essay from AIER commenting on the August 15, 1971 “closing of the gold window” by Richard Nixon, which is pretty good although it has some flaws common to that day. Back in 2012, I said that we needed a “shelf of books”: In the little world of gold standard advocacy in the English language, most of the books date from the 1960s and 1970s. Despite their merits, they are also, in my opinion, filled with error. This isn’t going to do the job. That’s why I took several years myself and wrote a book, Gold: the Once and Future Money. There was no other book out there that I could point to and say: “Here, read this.” There’s a lot of material in that book – it has about twice as many words as publishers recommend – but there is a lot more still to say, on many topics. That’s why I also have a website, with hundreds of thousands of words of additional text and hundreds of charts and graphs. But one book – and one author – is not enough. This is politics, and politics requires consensus. We will need a core group of intellectuals, who agree on enough points that a consensus forms that will serve as part of a political “platform.” And, these intellectuals need to write books, so that other people can see what

Recently, we took a look at the Central Bank of Turkey’s balance sheet, to get an idea of what has been going on, and what to do about the sudden decline in the foreign exchange value of the Turkish lira. January 9, 2022: What’s Wrong With Turkey? In that item, we looked at the history of the Turkish lira since 1950, which was none too impressive. Turkey had twenty years of hyperinflation, in the 1980s and 1990s. I didn’t talk too much about recent developments, mostly because … it’s complicated … and I can’t say that I properly understand what the central bank has been doing. But, it doesn’t matter much anyway. In the end, there is just the base money supply, and [complicated stuff]. The basic solution is the same — reduce the monetary base, by whatever amount is necessary to support the currency. In practice, it rarely takes more than about a 20% reduction in the monetary base to achieve this goal, even in a crisis situation. Commonly, this reduction is soon reversed, since — after this display of effective currency management by the central bank — demand for the currency bounces back, and this rebound in demand has to be met with an increase in supply, just to keep the currency from rising too much! Steve Hanke sometimes mentions the example of a currency board operated by the White faction in Russia’s civil war that soon followed the Bolshevik Revolution in 1917. The currency board functioned fine, even in the middle of a civil war, in which the White faction lost. These currency-board-type mechanisms work even in the most difficult situations imaginable. The basic process is to reduce the base money supply when the currency is weak (below the target value), and increase it when it is

Turkey has been in the news recently due to the collapsing exchange value of the Turkish lira. We have had the usual clownshow of central banks doing this, that and the other — typically, “foreign exchange intervention” and “raising interest rates,” which never works. (Nor does “lowering interest rates,” which the central bank tried earlier.) But, the situation is easy to understand, and also easy to fix, if you know how to do these things properly. I wrote about these topics extensively in Gold: The Monetary Polaris. Also, in the past, I wrote shorter items regarding Russia, and, actually, Turkey. There is quite a lot about this topic in Gold: The Once and Future Money, a book that was inspired by the spectacle of Asian central banks making the same stupid mistakes, in the late 1990s. First, let’s take a look at the history of the Turkish lira. Not very encouraging, I am sure you will agree. (Note the logarithmic scale.) We see that the lira was pegged to the USD, in the context of the Bretton Woods gold standard system, in the 1950s. Since the USD was also pegged to gold, at $35/oz. in those days, the lira was effectively also pegged to gold. There was a rather large devaluation in 1960, and another 1970, indicating that currency discipline was already rather poor in Turkey during those days. But, Britain and France also devalued in the 1960s, so it was in the air, you could say. (The lira appears to have a super-high value vs. the USD because six zeros were taken off in 2005. Today’s lira is worth a million old lira.) It’s worth noting that the lira during the Ottoman period (1844-1914) was worth 6.61 grams of gold, or about 90% of a British pound. In the

During 2021, I continued with the Harvard Classics and a survey of major European novels. Last year, I completed a number of ambitions. This included a survey of poetry in English, contained in HC#40-42. I read one volume a year for three years, at a pace of about two pages a day. Also, I completed a survey of ballet and opera, finishing with the four-opera Ring series, which was very good. I recommend shorter, easier operas (basically, any opera not written by Wagner) before trying the Ring. For one thing, these are mammoth operas just in terms of time: 4.5 hours of continuous music, plus two intermissions. If you are considering the Ring, I recommend the 2012 Metropolitan Opera production. Many — maybe, most — productions of the Ring are very bad, actually antithetical to the content of the opera. So, try this one first, and if you want to try others later, then go ahead. I got tired of audiobooks during 2021, beginning with Tristram Shandy whose language was too difficult to follow on audiobook while running. (It might be OK while driving.) So, I read it in print, and continued in this manner afterwards, with The Brothers Karamazov. This leaves only one book in my original list of novels, so that project is also mostly complete although I will continue in a more casual way with classic fiction afterwards. I should also finish the Harvard Classics in 2022, after six years at about an eight-books-a-year pace. Martin Amis and Julian Barnes, two heavyweight contemporary British novelists, have called Middlemarch the “greatest novel in the English language.” It is generally regarded as the best of the nineteenth-century British novels, notably because it breaks from the unfortunate pattern of British novels being almost children’s literature, with all the major characters

(This item originally appeared at Forbes.com on December 20, 2021.) The historical record is clear: countries that have currencies based on gold tend to do very well. Those that don’t, usually run into difficulties. The United States had a dollar based on gold (with some lapses) from 1789 to 1971, and became the wealthiest and most successful country in the world. Soon after the US gold standard era ended on August 15, 1971, someone asked the 31-year-old economist Arthur Laffer what he thought the outcome would be. “It won’t be as much fun to be an American anymore,” he reportedly said. Some people today still ask: “WTF happened in 1971?” Laffer had it all figured out. If you want to understand why things work out this way — why Arthur Laffer could make a prediction like that, and be right — you have to understand the principle of Stable Money. It’s very simple: money is best when it is stable in value. It doesn’t go up or down in value, as might be expressed in the foreign exchange market. Today, Turkey’s currency, the lira, has been falling in value, and we generally look at this as a bad thing. Why is that? But, we don’t want currencies to go up in value either. That would make debts harder and harder to repay, until eventually there was a wave of defaults. No fun. On a more subtle note, a stable currency is like a measuring-rod that doesn’t change length. A stable “measuring rod of value” allows us to interact in the market economy effectively. The “information” contained in prices, which guide all aspects of the monetary economy, is not corrupted by changes in the currency itself. This idea was expertly elucidated by George Gilder in The Scandal of Money (2016). Or, as

(This item originally appeared at AIER.org on November 23, 2021.) As a member of the “supply side” branch of modern classical economics, I might be labeled a “neoliberal economist” by some. But, there are important points at which common “neoliberal” economics fails badly, and which give rise to much-deserved criticism. It is mostly Keynesianism  “Keynesianism,” in a broad sense, is a doctrine of macroeconomic manipulation, via two main channels: monetary distortion through changes in the value and quantity of currency, typically combined with manipulation of interest rates; and, government spending as a means of “stimulus.” This has been the overwhelming focus of economists since 1930 and continues today, among those economists without more overtly Marxist tendencies. This has been true even of the supposedly arch-neoliberals such as Milton Friedman, who steadfastly advocated a system of macroeconomic manipulation via monetary distortion and floating currencies — “monetarism.” It was Friedman who said “we’re all Keynesians now,” including himself in that categorization. Conservatives are often hesitant to back the big-spending “stimulus” plans favored by the Keynesian left, but they usually end up voting for them in the end anyway. Then, appalled by the big deficits that result, they often follow up with tax increases. It creates currency disasters One country after another has discovered that, when they invite the “neoliberal” advisors from the IMF, US Treasury, Harvard and elsewhere to their countries, disasters ensue. It promotes “austerity.” Governments everywhere are rife with terrible waste. A lot of them could cut spending by 30% or more with no meaningful decline in services. Governments really shouldn’t run chronic budget deficits. However, the outcome of “austerity” is typically not a more efficient government, which accomplishes its important tasks while spending less money, but higher taxes and bigger government. The higher taxes lead to a weaker economy. A friend of