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

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(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
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