Economists Are The Only Barrier To A Return To The Gold Standard

Forbes

2 days ago

SEOUL, REPUBLIC OF KOREA: Gold bars are displayed at Shinhan Bank in Seoul on 09 January 2004. Gold ... More prices hit 544.60 dollars per ounce on January 09, 2006, the highest level since January 1981, owing to geopolitical tensions in the Middle East and reports that China may increase its reserves of the metal. "Geopolitical tensions continue to provide reasons to be positive on gold, with deteriorating situations in both Iran and Iraq, while the possibility of Israels Prime Minister Ariel Sharon not returning to office causes concerns over the Middle East peace progress," said Barclays Capital analyst Yingxi Yu. AFP PHOTO/JUNG YEON-JE (Photo credit should read JUNG YEON-JE/AFP via Getty Images) AFP via Getty Images
At least 66 countries peg their currencies to the dollar. The previous number undercounts the actual number.
Figure that the growth of cryptocurrencies is largely a dollar peg story (think stablecoins), which means even more of the world is pegged to the U.S. dollar. Which is the point.
As Nathan Lewis has long observed, the 'yes, but' arguments against a gold standard are completely bogus. To see why, contemplate the dollar once again.
From 1944 to 1971, the dollar was pegged to gold at 1/35th of a gold ounce and the world's currencies were largely pegged to the dollar. Assuming Treasury secretary Scott Bessent were to announce a plan for substantial currency-price stability by tying the dollar's value to a fixed amount of the constant that is gold, it's no reach to speculate that much of the world would follow such a move by pegging their currencies to gold through their existing dollar pegs.
This rates mention in the aftermath of a recent Monetarium event put on by Confusion Capital in Washington, D.C. The event was titled 'The Debt, the Dollar, and Our Options From Here.' Participants included a few former senators, a billionaire, CEOs, think tank types, etc.
While conversation centered around what to do if and when the national debt leads to a dollar crack-up (my upcoming book, The Deficit Delusion , argues that the crisis narrative is backwards, that the real problem is way too much tax revenue now and in the future), the gold standard only rated mention (with some frequency) insofar as it was described as the one fix that would never happen. This didn't, nor does it ring true.
Economists in particular dismiss the gold notion for obvious, easy-to-discredit reasons. For one, they claim a dollar tied to gold would limit so-called 'money supply.' No, not true. The only limit to money in circulation is production. Money is an effect of production (that's why there's so much in Palo Alto, CA, and so relatively little in El Monte, CA), and it's always where production is.
This would be even truer with a dollar pegged to gold. If anything, dollars circulating would skyrocket to reflect the happy fact that savers would no longer need to hedge their currency exposure in wealth that already exists (think hard assets like land, rare art, housing, and – yes – gold), and would instead feel freer to invest in equities representing wealth that doesn't yet exist . Under such a scenario, production would rapidly increase as would dollars facilitating same. Markets at work.
Still others claim all the debt would make a gold standard a non-starter, that the debt itself has only been possible without a gold standard. Quite the opposite. The national debt is just income streams in dollars months, years and decades in the future. If the dollar were more credible thanks to a gold definition, interest in Treasury income streams would be much greater.
Which brings us to economists. They don't want a gold standard precisely because money with a strict definition via gold would render their raison d'etre anything but. Even allegedly 'free market' economists (see the laughable 'market monetarist' religion within the PhD crowd) see a center planner when they look in the mirror, thus the alleged 'impossibility' of a gold standard. Call the presumed impossibility of a gold standard a full employment act for economists.
The world is pegged to the dollar either implicitly or explicitly. This would only become more viable and growth-oriented if the dollar had a more trusted definition. The barrier to a gold standard is economists rendered even more irrelevant by one, nothing else.