How business, doctors and journalists prey on your food anxieties I
How business, doctors and journalists prey on your food anxieties I
How business, doctors and journalists prey on your food anxieties I
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(canrir.nrd frou: p . 23)<br />
dav. Before ab<str<strong>on</strong>g>and</str<strong>on</strong>g><strong>on</strong>ing the dollar's link to gold, the<br />
US . government could routineh borrow l<strong>on</strong>g-term<br />
m<strong>on</strong>ev at 4% or less <str<strong>on</strong>g>and</str<strong>on</strong>g> short-term funds at around 1% .<br />
Similar rates today would save the federal gocernment<br />
over 5100 billi<strong>on</strong> a year in interest <strong>on</strong> the nati<strong>on</strong>al debt .<br />
In other words, we could more than halve the budget<br />
deficit without cutting <strong>on</strong>e penny from existing federal<br />
programs . Americans could <strong>on</strong>ce again (as thec could<br />
until the late 1960s) buy houses with 30-y'ear, fixed-rate<br />
mortgages under 5% . Such low, stable rates would be a<br />
powerful stimulus to the ec<strong>on</strong>omy .<br />
Why, then, is gold the unmenti<strong>on</strong>able, four-letter<br />
word of ec<strong>on</strong>omics? Why does serious menti<strong>on</strong> of gold<br />
br<str<strong>on</strong>g>and</str<strong>on</strong>g> the advocate in many circles as an ignoramus, as a<br />
crank? The answer is threefold : a misunderst<str<strong>on</strong>g>and</str<strong>on</strong>g>ing of<br />
the role of m<strong>on</strong>ey, a misreading of history, <str<strong>on</strong>g>and</str<strong>on</strong>g>, finally, a<br />
visceral revulsi<strong>on</strong> to the noti<strong>on</strong> that a<br />
metal can do a better job of guiding j<br />
m<strong>on</strong>etary policy than can a gaggle of<br />
finance ministers, central bankers <str<strong>on</strong>g>and</str<strong>on</strong>g><br />
well-degreed ec<strong>on</strong>omists .<br />
Let s take a look at the misunderst<str<strong>on</strong>g>and</str<strong>on</strong>g>ing<br />
of m<strong>on</strong>ey . M<strong>on</strong>ey is a st<str<strong>on</strong>g>and</str<strong>on</strong>g>ard<br />
of ineasurement, like a ruler or a<br />
clock . M<strong>on</strong>ev is meant to c<strong>on</strong>vev informati<strong>on</strong><br />
about values of products <str<strong>on</strong>g>and</str<strong>on</strong>g><br />
services <str<strong>on</strong>g>and</str<strong>on</strong>g> to facilitate trade bettveen<br />
willing parties . No <strong>on</strong>e n°ould seriously<br />
entertain the noti<strong>on</strong> of a ruler that c<strong>on</strong>stantly<br />
changed in length, say, from 12<br />
inches to 14 inches to 10 inches . No<br />
<strong>on</strong>e would have much faith in timepieces<br />
where the number of minutes in<br />
an hour tluctuated dailv. When m<strong>on</strong>ev<br />
as a measurement becomes unstable, it creates huge inefficiencies,<br />
<strong>anxieties</strong> <str<strong>on</strong>g>and</str<strong>on</strong>g> diversi<strong>on</strong>s of energy from productive<br />
tasks to speculam e or proteaive <strong>on</strong>es . Fluctuating<br />
m<strong>on</strong>ey also undermines people's faith in a moral<br />
order . John Mavnard Keynes put well the devastating<br />
impact of inflati<strong>on</strong> in a 1920s essay : "There is no subtler,<br />
no surer means of overturning the existing basis of socierv<br />
than to debauch the currency ."<br />
To underst<str<strong>on</strong>g>and</str<strong>on</strong>g> the importance of stable m<strong>on</strong>ey, think<br />
of a home buyer . The carpenter agrees to build the buyer<br />
a 2,000-square-foot house for a certain price . But instead<br />
of a foot's being 12 inches, it turns out to average<br />
14 inches during c<strong>on</strong>structi<strong>on</strong> . The home buyer gets a<br />
windfall gain of a house 36% bigger than the c<strong>on</strong>tract<br />
specified . C<strong>on</strong>versely, the carpenter has suffered an<br />
unexpected loss . If the ruler were to average 10 inches,<br />
the reverse would happen : The carpenter would gain ; the<br />
home buyer would lose .<br />
Or take a~rorker who receives a wage of S 12 per hour .<br />
If the number of minutes in an hour fluctuated the way<br />
the dollar does now, an hour could be 90 minutes<br />
instead of 60 minutes . The emplover would come out<br />
ahead, having obtained $18 wordt of work for S12, If<br />
the "value" of an hour should drop to 45 minutes, then<br />
the worker would receive $12 for $9 worth of work .<br />
Changes in the value of m<strong>on</strong>ey are just as disruptive as<br />
changes in the number of inchcs in a foot or minutes in<br />
Today you wouldn't need to hold gold<br />
to operate gold st<str<strong>on</strong>g>and</str<strong>on</strong>g>ard .<br />
an hour would be . Once you underst<str<strong>on</strong>g>and</str<strong>on</strong>g> this, you can<br />
readily grasp the need for stable m<strong>on</strong>ey . The basic questi<strong>on</strong>s<br />
then are : Miat is the most reliable compass or guide<br />
for central banks, particularly for the Federal Reserve?<br />
And how does the Fed know ahether it is printing too<br />
many, too fe v or just the right number of dollars?<br />
The best, time-tested compass for stability is that disreputable<br />
commodit v, gold, Why? It is rare enough to<br />
have intrinsic value . It cannot be c<strong>on</strong>sumed as wheat can<br />
be ; virtuallv all of the gold that has ever been mined is<br />
with us todav. Annual producti<strong>on</strong> is but a small fracti<strong>on</strong><br />
of the outst<str<strong>on</strong>g>and</str<strong>on</strong>g>ing supply; thus, gold is not subject to<br />
the supply shocks that afflict other commoeuties such as<br />
oil or corn: A drought can send the price of corn soaring<br />
. Apart from a h<str<strong>on</strong>g>and</str<strong>on</strong>g>ful of industrial <str<strong>on</strong>g>and</str<strong>on</strong>g> dental uses,<br />
gold has no ec<strong>on</strong>omic purpose other than being decorative<br />
or as a store of value . Therefore,<br />
gold's price is unaffected by the normal<br />
ebb <str<strong>on</strong>g>and</str<strong>on</strong>g> flow of ec<strong>on</strong>omic activin' .<br />
Under a modern gold st<str<strong>on</strong>g>and</str<strong>on</strong>g>ard, a<br />
boost in the price of the yellow metal<br />
would tell the Fed to tighten . To do so,<br />
our central bank rould sell b<strong>on</strong>ds from<br />
its portfolio . The sale would remove<br />
m<strong>on</strong>ey from the banking system because<br />
the Fed would simply, sit <strong>on</strong> it<br />
<str<strong>on</strong>g>and</str<strong>on</strong>g> not deposit it . In other words,<br />
those dollars would disappear, <str<strong>on</strong>g>and</str<strong>on</strong>g> the<br />
supply of dollars in the ec<strong>on</strong>omv would<br />
L<br />
thereby be reduced . The relative value<br />
of the dollar to gold would go up, <str<strong>on</strong>g>and</str<strong>on</strong>g>,<br />
ipso facto, gold's dollar price would<br />
go down . Ec<strong>on</strong>omists too often see<br />
m<strong>on</strong>ey as a "flexible" tool for "guiding"<br />
the ec<strong>on</strong>omyc They d<strong>on</strong>'t underst<str<strong>on</strong>g>and</str<strong>on</strong>g> how destructive<br />
<str<strong>on</strong>g>and</str<strong>on</strong>g> pernicious such flexibilim is to socien° .<br />
The sec<strong>on</strong>d reas<strong>on</strong> serious people pooh-pooh what<br />
Keynes called die "barbarous relic" is that gold has had bad<br />
press for over a centurv . Many historians have associated<br />
gold with favoring flinty-eyed bankers, ruthless industrialists<br />
<str<strong>on</strong>g>and</str<strong>on</strong>g> pitiless men of property, not with favoring struggling<br />
farmers <str<strong>on</strong>g>and</str<strong>on</strong>g> workers . s:fany historians <str<strong>on</strong>g>and</str<strong>on</strong>g> ec<strong>on</strong>omists<br />
believe that if gold were not in some way the cause of past<br />
ec<strong>on</strong>omic distress, it at least deepened the c<strong>on</strong>tracti<strong>on</strong>s .<br />
After the Ci vil War, our return to the gold st<str<strong>on</strong>g>and</str<strong>on</strong>g>ard<br />
was blamed for the ruin of thous<str<strong>on</strong>g>and</str<strong>on</strong>g>s of farmers by raising<br />
the real costs of their debts <str<strong>on</strong>g>and</str<strong>on</strong>g> by depressing commodity<br />
prices . Critics have a point in that, afrer war-created<br />
inflati<strong>on</strong> set in, the U .S . shotild have pegged the<br />
dollar-gold ratio to reflect that rise rather than going<br />
through a painful deflati<strong>on</strong> to return to the prewar parity.<br />
But there was another cause of the farmers' distresstechnology<br />
. Advances in shipping <str<strong>on</strong>g>and</str<strong>on</strong>g> railroads made it<br />
possible to cultivate wheat fields in Ukraine, :~u'gentina,<br />
Australia <str<strong>on</strong>g>and</str<strong>on</strong>g> elsewhere for world markets, {'The introducti<strong>on</strong><br />
of winter u heat in the U .S . greatlv enhanced our<br />
own yields, <str<strong>on</strong>g>and</str<strong>on</strong>g> to this day fewer farmers are needed to<br />
produce more <str<strong>on</strong>g>and</str<strong>on</strong>g> more <strong>food</strong> .)<br />
Rural America's antigold sentiments reached fever<br />
pitch during the depressi<strong>on</strong> of the 1.890s <str<strong>on</strong>g>and</str<strong>on</strong>g> were articulated<br />
bv 6tlilliam Jennings Bryan . Although Bryan was<br />
Forbes . :lugust 14, 1995<br />
204667,3412<br />
._ 153<br />
http://legacy.library.ucsf.edu/tid/agf97d00/pdf