How business, doctors and journalists prey on your food anxieties I

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N K Z w vwiO Z w O ~ SO 1 Q W W w ^/ ~ uv ~QO ~ ~ Z ~ M N CN r a N N 2046673411 BUSINESS REPLY MAIL FIRST CLASS MAIL PERMIT NO . 131 N .Y., N.Y. POSTAGE WILL BE PAID BY ADDRESSEE Forbes Reader Service Center 650 South Clark Chicago, Illinois 60605-9912 NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES - 11 1111111111 1111111 1111 1111111 1 I 1 I 11111 II 11 I 1 I 11 I 1 II http://legacy.library.ucsf.edu/tid/agf97d00/pdf
∎ (canrir.nrd frou: p . 23) dav. Before ab<strong>and</strong>oning the dollar's link to gold, the US . government could routineh borrow long-term monev at 4% or less <strong>and</strong> short-term funds at around 1% . Similar rates today would save the federal gocernment over 5100 billion a year in interest on the national debt . In other words, we could more than halve the budget deficit without cutting one penny from existing federal programs . Americans could once again (as thec could until the late 1960s) buy houses with 30-y'ear, fixed-rate mortgages under 5% . Such low, stable rates would be a powerful stimulus to the economy . Why, then, is gold the unmentionable, four-letter word of economics? Why does serious mention of gold br<strong>and</strong> the advocate in many circles as an ignoramus, as a crank? The answer is threefold : a misunderst<strong>and</strong>ing of the role of money, a misreading of history, <strong>and</strong>, finally, a visceral revulsion to the notion that a metal can do a better job of guiding j monetary policy than can a gaggle of finance ministers, central bankers <strong>and</strong> well-degreed economists . Let s take a look at the misunderst<strong>and</strong>ing of money . Money is a st<strong>and</strong>ard of ineasurement, like a ruler or a clock . Monev is meant to convev information about values of products <strong>and</strong> services <strong>and</strong> to facilitate trade bettveen willing parties . No one n°ould seriously entertain the notion of a ruler that constantly changed in length, say, from 12 inches to 14 inches to 10 inches . No one would have much faith in timepieces where the number of minutes in an hour tluctuated dailv. When monev as a measurement becomes unstable, it creates huge inefficiencies, anxieties <strong>and</strong> diversions of energy from productive tasks to speculam e or proteaive ones . Fluctuating money also undermines people's faith in a moral order . John Mavnard Keynes put well the devastating impact of inflation in a 1920s essay : "There is no subtler, no surer means of overturning the existing basis of socierv than to debauch the currency ." To underst<strong>and</strong> the importance of stable money, think of a home buyer . The carpenter agrees to build the buyer a 2,000-square-foot house for a certain price . But instead of a foot's being 12 inches, it turns out to average 14 inches during construction . The home buyer gets a windfall gain of a house 36% bigger than the contract specified . Conversely, the carpenter has suffered an unexpected loss . If the ruler were to average 10 inches, the reverse would happen : The carpenter would gain ; the home buyer would lose . Or take a~rorker who receives a wage of S 12 per hour . If the number of minutes in an hour fluctuated the way the dollar does now, an hour could be 90 minutes instead of 60 minutes . The emplover would come out ahead, having obtained $18 wordt of work for S12, If the "value" of an hour should drop to 45 minutes, then the worker would receive $12 for $9 worth of work . Changes in the value of money are just as disruptive as changes in the number of inchcs in a foot or minutes in Today you wouldn't need to hold gold to operate gold st<strong>and</strong>ard . an hour would be . Once you underst<strong>and</strong> this, you can readily grasp the need for stable money . The basic questions then are : Miat is the most reliable compass or guide for central banks, particularly for the Federal Reserve? And how does the Fed know ahether it is printing too many, too fe v or just the right number of dollars? The best, time-tested compass for stability is that disreputable commodit v, gold, Why? It is rare enough to have intrinsic value . It cannot be consumed as wheat can be ; virtuallv all of the gold that has ever been mined is with us todav. Annual production is but a small fraction of the outst<strong>and</strong>ing supply; thus, gold is not subject to the supply shocks that afflict other commoeuties such as oil or corn: A drought can send the price of corn soaring . Apart from a h<strong>and</strong>ful of industrial <strong>and</strong> dental uses, gold has no economic purpose other than being decorative or as a store of value . Therefore, gold's price is unaffected by the normal ebb <strong>and</strong> flow of economic activin' . Under a modern gold st<strong>and</strong>ard, a boost in the price of the yellow metal would tell the Fed to tighten . To do so, our central bank rould sell bonds from its portfolio . The sale would remove money from the banking system because the Fed would simply, sit on it <strong>and</strong> not deposit it . In other words, those dollars would disappear, <strong>and</strong> the supply of dollars in the economv would L thereby be reduced . The relative value of the dollar to gold would go up, <strong>and</strong>, ipso facto, gold's dollar price would go down . Economists too often see money as a "flexible" tool for "guiding" the economyc They don't underst<strong>and</strong> how destructive <strong>and</strong> pernicious such flexibilim is to socien° . The second reason serious people pooh-pooh what Keynes called die "barbarous relic" is that gold has had bad press for over a centurv . Many historians have associated gold with favoring flinty-eyed bankers, ruthless industrialists <strong>and</strong> pitiless men of property, not with favoring struggling farmers <strong>and</strong> workers . s:fany historians <strong>and</strong> economists believe that if gold were not in some way the cause of past economic distress, it at least deepened the contractions . After the Ci vil War, our return to the gold st<strong>and</strong>ard was blamed for the ruin of thous<strong>and</strong>s of farmers by raising the real costs of their debts <strong>and</strong> by depressing commodity prices . Critics have a point in that, afrer war-created inflation set in, the U .S . shotild have pegged the dollar-gold ratio to reflect that rise rather than going through a painful deflation to return to the prewar parity. But there was another cause of the farmers' distresstechnology . Advances in shipping <strong>and</strong> railroads made it possible to cultivate wheat fields in Ukraine, :~u'gentina, Australia <strong>and</strong> elsewhere for world markets, {'The introduction of winter u heat in the U .S . greatlv enhanced our own yields, <strong>and</strong> to this day fewer farmers are needed to produce more <strong>and</strong> more food .) Rural America's antigold sentiments reached fever pitch during the depression of the 1.890s <strong>and</strong> were articulated bv 6tlilliam Jennings Bryan . Although Bryan was Forbes . :lugust 14, 1995 204667,3412 ._ 153 http://legacy.library.ucsf.edu/tid/agf97d00/pdf
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