Blogs & Comment

Bring back the gold standard?

Im with Warren Buffett and John Maynard Keynes when it comes to gold. Anyone watching from Mars would be scratching their heads at how we dig it up inone place and and put it back intothe ground at another[Fort Knox, bank vaults, etc.], as Buffett remarked many years ago. Worse than having no utility, its a barbarous anachronism, said Keynes (see Appendix for their exact quotes).
Some people predict a return to the gold standard with gold priced at $5,000 an ounce or some other elevated price. It seems the people who make theseforecasts are not familiar with the history of gold standards.
Take a look at a book like John Kenneth Galbraiths elegantly written Money: Whence it came, where it went, and youll see that the history of gold is full of crushing deflations and depressions. And protest movements that culminate with impassioned pleas of the kind in William Jennings Byrans 1896 Cross of Goldspeech.
True gold standards are rare. Nor do they last long. They are invariably watered down as greater and greater quantities of paper currency are issued for a given stock of gold. As Keynes says, A regulated nonmetallic standard slips in unnoticed.
Besides, there is a better way: an elastic currency anchored to a modified price-stability rule. Ive talked about this before.
Anyway, what got me going on this little rant was a great video clipfrom David Nicholsons Wednesday Night Salon,held in the wood-paneled dining room of his Westmount home in Montreal. It shows a debate on the return of the gold standard between Ron Meisels (editor of the Phases and Cyclesinvestment advisory) and Martin Barnes (Managing Editor of The Bank Credit Analyst).
Its a short piece,just 3 minutes long. But right at the end, Mr. Barnes in his Scottish brogue nails it on the headas to why a return the gold standard makes no sense.
Appendix: Buffett and Keynes on gold
Warren Buffet: It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.
John Maynard Keynes: “In truth, the gold standard is already a barbarous relic. All of us, from the Governor of the Bank of England downwards, are now primarily interested in preserving the stability of business, prices, and employment, and are not likely, when the choice is forced on us, deliberately to sacrifice these to outworn dogma .