Update July 7, 2015 There is a lot of fear these days about a world-wide financial crisis
and some say the solution is a return to a strict gold standard for our money. Some argue that having our money backed by
gold would mean that we can trust our money and prevent having the economic ills of inflation and debt and reckless spending
and irresponsible taxation and so forth. But is a gold standard really an answer for a good economic system? Do we need to
follow the Golden Rule that links gold and money? I think not, and I think a strict gold standard will hurt.
Some say the Golden Rule really is really this: he who has the gold rules. And if that's the case, the real "golden
rulers" are consumers because consumers have the gold.
I just checked some of the statistics
about gold -- who owns it and how much do the Central Banks of the world governments have? It's actually been decades since
we're been off a "gold standard" and our currency isn't really backed by gold anymore. What makes our U.S. dollar
worth a dollar is our belief and trust that it is worth a dollar. There really isn't much gold backing our currency even though
the U. S. government has the biggest reserve of gold among all the nations on earth.
is when it comes to who is the Golden Ruler it isn't the U.S. or China or France or Russia or any combination of countries.
The Golden Rulers are consumers because, according to statistics, consumers own in the form of jewelry nearly half of the
gold in the world. Consumers own ten times more gold than the U.S. government alone, and the U.S. government has more gold
than the other central banks.
This is really good news. Because if consumers control the world's
gold then really consumers have the golden rule, and if consumers have the golden rule they will determine what is right.
So what is right?
What is right is that the central governments should stop screwing
things up and they should fix things quickly. Remember this, central governments: we've got the gold and we make the rules.
Do we want to return to a gold standard where a one-dollar bill equals one-dollar of gold? No because that would
be inflationary. If we had a true gold standard there wouldn't be enough dollars to create new business and to lend to create
new demand. We need a money supply that can grow and the only way to have a money supply that can grow is to have a money
supply that is independent of an actual gold supply.
Having a money supply that is independent
of an actual gold supply will shock some people who think our currency must be secured by gold. But it is my firm belief that
a money supply strictly linked to a gold supply would be a mistake because it would deter growth.
me discuss the idea of a gold standard or linking our money supply to a gold supply.
go back to the issue of belief -- we believe our U.S. dollar is worth a dollar. Well, we also believe that gold is valuable.
But is gold really valuable? We can't eat it. Sure, gold can be used to create TV sets and electronics and cell phones but
a $200 cell phone doesn't have $200 worth of gold in it. We believe the cell phone is worth $200 because we value it as such
even though it might have only twenty-cents of gold in it. If we didn't believe the cell phone was worth $200, Best Buy and
T-Mobile and Verizon couldn't sell it for $200. It is only because we, as consumers, value the cell phone at $200 even though
it has maybe 20-cents of gold in it, that cell phones are bought and sold with a $200 price tag.
so it is with our money. We know there isn't a dollar's worth of gold backing each one-dollar bill but we believe the piece
of paper with George Washington's picture is worth a dollar and we spend it like it's worth a dollar and stores and doctors
and the babysitter accept it like it's worth a dollar.
So what does that mean? That means that
our belief is worth more than actual gold. Our belief in our paper money means more than any gold supply or value attached
to that gold supply.
Our beliefs are also a reflection of our desires. Basically we all want stability.
If we didn't want stability we would demand that our paper dollars be revalued every day or several times each day based on
the value of gold on world markets or the money supply or some other statistic. But we don't do that, do we? We don't because
we like to go to bed at night trusting and believing that in the morning the one-dollar bill in our wallet will be one-dollar
again in the morning. And that's good.
If there are any government leaders or politicians or political
pundits who demand that our governments return to a gold standard, let me ask them why is it needed when consumers already
control the world's biggest supply of gold? And if we control the biggest supply of gold shouldn't our wishes and desires
and beliefs already be enough to send a clear message that things should be done right?
is that a gold standard and a "gold supply" is antiquated thinking. Money should be created to help stimulate growth,
and the money supply should be controlled as a means to keep our economies growing.
must be moderate because if growth is too robust it leads to inflation and too much inflation can choke off demand and future
growth. And this is where central banks must be vigilent. It is good to create money but only where it supports both supply
and demand. If created money only creates demand and there is not enough supply, inflation results. And inflation hurts everyone.
And this brings us back to the original argument for a gold supply and a gold standard: a fixed gold standard prevents
the printing of too much money that can create too much demand and inflation. But again -- that strict gold standard may not
be able to create money in a responsible manner to create responsible growth.
Since consumer have
the gold, and the gold rules, it's our wishes and our beliefs which should be followed, and we want a money supply that allows
responsible growth. The Golden Rule is to do the right thing, and not have the gold rule. But if you want the gold to rule,
remember the consumers have the gold.