What in the heck has happened to the editors of Forbes? It’s one thing to position oneself to be a defender of the gold standard. But it is apparently entirely another matter to do it in a respectable way. Judging by an article by Nathan Lewis defending the gold standard that was published by Forbes, I am not sure that the editors there really know the difference between the two.
In the article, it appears the intention was to criticize a comment made by Matt O’Brien in the Washington Post:
When it comes to crackpot economic ideas, the gold standard is, well, the gold standard.
It’s a barbarous relic that has nothing to recommend it today. Pegging the dollar to the price of gold, you see, is just a doomsday device for turning recessions into depressions.
I followed the link to the Matt O’Brien piece to see what seems to have gotten Mr. Lewis tied up in knots. And O’Brien justifies his characterization of the gold standard in the Keynesian interest-rate gibberish, which isn’t particularly correct. But at least he’s got the point that the gold standard basically leaves the stance of monetary policy up to the market demand for gold.
Of course I can think of some reasons that this property of commodity standards makes them a bad idea that O’Brien never mentions. One of them is a national security matter that popped up as I was reading about ISIS adopting a metallic standard for their monetary system, with my first thought being that it’s too bad they aren’t just a little more established as a state so we could screw with the value of gold using their own righty-tighty-ness against them to destabilize their Islam-o-fascist utopia. Oh yes, we could cause a whole lot of deflation in their system which is probably the economic equivalent of shock-and-awe military action at a fraction of the cost to us. Wouldn’t that be fun? (Sorry I just couldn’t help myself).
But I suppose that to someone like Mr. Lewis, who hasn’t really thought about the things the opposition says about the gold standard, such a vulnerability has probably never entered his mind. Apparently, nor has he spent much time contemplating his own points, and here are a few of them:
At the Washington Post’s “Wonkblog,” Matt O’Brien wrote a typical sort of hysterical screed about the gold standard system – the system that the United States used for nearly two centuries, until 1971. During that time, the country went from a handful of rebellious subsistence farmers, worn down by over a decade of war, hyperinflation and unstable government, to the most successful and wealthiest country in the world.
Think about that.
By the description of what I am assuming is the US, it really isn’t very clear as to which country he is referring. And after that rather inaccurate description he admonishes readers to “Think about that.” You know what I thought? When did we have hyperinflation? Perhaps there is another planet somewhere with a country called the United States?
And the next little bit is a real masterpiece:
To me, even without getting into any details, this [O’Brein’s comment] smacks of a certain lack of connection with any fact of reality or history. You just don’t become the most successful country of the last two centuries with a “crackpot” monetary system that is a “doomsday device.”
The last twenty years of the U.S.’s gold standard era – the Bretton Woods years when the dollar was worth 1/35th of an ounce of gold – were times of prosperity and abundance, especially for the U.S. middle class. The gold standard era didn’t end in 1971 because it was producing bad results, and people decided it was time to find something better. It ended because those responsible for maintaining it were idiots.
I would even say that those years, the 1950s and 1960s, were the best of the last century, 1914-2014.
If today’s funny-money arrangement is so wonderful, how did that happen?
Oh, God. I’ve said many times that you just can’t make this stuff up… But I apparently stand corrected by someone who appears to believe we had a real gold standard in the 1950’s-60s. And they were the best years ever. I guess nothing in particular happened to the gold standard in 1933.
Getting to the best part about the bureaucrats making stuff up…:
A gold standard system is a fixed-value system. The value of the currency, such as the dollar, is fixed at $20.67/ounce (before 1933) or $35/oz. (after 1933). Once you have a fixed-value system, you no longer have a panel of bureaucrats making stuff up as they go along, to deal with unemployment, interest rates, exchange rates, asset markets, government financing, or whatever the problems of the day may be. Money is neutral and definite.
I suppose what you have is the fixed value changing and capital controls, and a lot of the other government-bureaucrat funny-business in the balance of payments associated with the gold standard that we just no longer have.
But really, given the quality of this article, I am surprised Mr. Lewis has a day job with a platform; and in the very near future he might be at least a little more worried about unemployment than he appears to be now. If I didn’t already know better before reading this, I’d say it would have lowered my IQ by at least 50 points.
PS: And the title of the article demonstrates either just how much Mr. Lewis didn’t read or understand the O’Brien piece, or is just so much of an ideologue as to be completely out of touch with reality (the funny-money isn’t going anywhere):