Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
How To Time Market Tops and Bottoms - 24th June 19
5 basic tips to help mitigate the vulnerability inherent in email communications - 24th June 19
Will Google AI Kill Us? Man vs Machine Intelligence - 24th June 19
Why are Central Banks Buying Gold and Dumping Dollars? - 23rd June 19
Financial Sector Paints A Clear Picture For Stock Market Trading Profits - 23rd June 19
What You Should Look While Choosing Online Casino - 23rd June 19
INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - 22nd June 19
Here’s Why You Should Drive a Piece of Crap Car - 22nd June 19
How Do Stock Prices React to Fed Interest Rate Cuts? - 22nd June 19
Gold Bull Market Breaking Out! - 21st June 19
Post-FOMC Commentary: Delusions of Grandeur - 21st June 19
Gold Scores Gains as Draghi and Powel Grow Concerned - 21st June 19
Potential Upside Targets for Gold Stocks - 21st June 19
Gold Price Trend Forcast to End September 2019 - 21st June 19
The Gold (and Silver) Volcano Is Ready to Erupt - 21st June 19
Fed Leaves Rates Unchanged – Gold & Stocks Rally/Dollar Falls - 21st June 19
Silver Medium-Term Trend Analysis - 20th June 19
Gold Mining Stocks Waiting on This Chart - 20th June 19
A Key Gold Bull Market Signal - 20th June 19
Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - 20th June 19
Investing in APPLE (AAPL) to Profit From AI Machine Learning Stocks - 20th June 19
Small Cap Stocks May Lead A Market Rally - 20th June 19 -
Interest Rates Square Minus Zero - 20th June 19
Advice for Financing a Luxury Vehicle - 20th June 19
Stock Market Final Blow Off Top Just Hit… Next Week Comes the FIREWORKS - 20th June 19
US Dollar Rallies Off Support But Is This A Top Or Bottom? - 19th June 19
Most Income Investors Are Picking Up Nickels in Front of a Steamroller - 19th June 19
Is the Stock Market’s Volatility About to Spike? - 19th June 19
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

Gold Standard or the Nixon Standard

Commodities / Gold and Silver 2011 Aug 15, 2011 - 07:15 AM GMT

By: Gary_North

Commodities

Best Financial Markets Analysis ArticleOn Sunday, August 15, 1971, Richard Nixon unilaterally brought to an end the last trace of an experiment in international monetary affairs that stretched back over a century. He announced that the United States government would no longer abide by the 1944 Bretton Woods agreement to deliver gold at $35 per ounce to any government or central bank.


What he abolished was not a gold standard. It was a government promise standard. There was never a gold standard in the nineteenth century or early twentieth century. It was always a government promise standard. It was as reliable as government promises.

Governments always announce and defend by monopolistic violence their legal sovereignty over money. They say that they will control the terms of exchange. All monetary standards are based on government promises and IOUs called government bonds. These contracts are always broken by governments. The only major exception in history was Byzantium for about 800 years, beginning in the early fourth century under the emperor Constantine.

What Nixon destroyed was called the gold-exchange standard. It was first adopted by governments at the Genoa Conference of 1922. It was an agreement to avoid returning to the pre-World War I gold coin standard, which had been independently but almost simultaneously revoked by European governments when war broke out in August. They all then resorted to monetary inflation. This was a way to conceal from the public the true costs of the war. They imposed an inflation tax, and could then blame any price hikes on unpatriotic price gouging. This rested on widespread ignorance regarding economic cause and effects regarding monetary inflation and price inflation. They could not have done this if citizens had possessed the pre-war right to demand payment in gold coins at a fixed rate. They would have made a run on the banks. Governments could not have inflated without reneging on their promises to redeem their currencies for gold coins. So, they reneged while they still had the gold. Better early contract-breaking than late, they concluded.

The central banks collected the gold held by commercial banks for their depositors. Then the governments legalized this breaking of the contracts by commercial banks with depositors. It was a sweet deal for commercial banks, central banks, and governments. A country music song seven decades later summarized the economics of the arrangement from the depositors' point of view: "She got the gold mine. I got the shaft."

What was the gold exchange standard? It was a post-war attempt by governments to retain central bank autonomy, but still keep monetary inflation under control. Germany, Austria, and Hungary had all adopted policies of hyperinflation which would go on until the end of 1923. The governments adopted a pseudo gold standard. It allowed central banks to buy the IOUs of Great Britain and the United States and be paid interest. These IOUs functioned as if they were as good as gold. Great Britain and the United States guaranteed to deliver gold bullion at fixed rates. They maintained convertibility to central banks. The other central banks did not promise convertibility with their citizens. So, they could issue IOUs to their own domestic investors without fear of a gold run by citizens. Only central banks were allowed to make a run on banks, namely, the Bank of England and the Federal Reserve.

The reduced the chance of gold runs. Only Americans could make bank runs on gold in the form of demanding gold coins at a fixed price of $20. England re-established convertibility in gold bullion only in 1925. This kept citizens from demanding gold coins. It reneged on this in 1931. Then Roosevelt in 1933 reneged. He forbade gold ownership by American citizens and residents of the United States. Then in 1934 he hiked gold's price from $20 to $35. He let central banks and governments make runs on gold bullion held by the U.S. government. Nixon ended the arrangement in 1971.

BROKEN PROMISES

From 1914 until 1971, we see a trail of broken contracts by governments with their citizens and then with each other. Each step expanded the ability of central governments to impose the inflation tax on its citizens and on any foreign investors holding government IOUs. No government or central bank deliberately shrank the money supply after 1914. Bank failures, 1930-33, shrank domestic money supplies, but this was not central bank policy anywhere.

The gold standard was always a government promise standard. Governments broke their promises as a matter of policy after August 1914.

The governments want autonomy. This means autonomy from their citizens. Citizens exercised control in two ways before 1914: voting (limited franchise) and gold coin ownership (wide franchise). They were allowed by law to turn in domestic money and receive gold coins at a fixed price per ounce. This was tolerated by governments until World War I broke out. Then, invoking patriotism, they reneged. Having removed the power of monetary redemption from the broad mass of residents – not always eligible for the franchise – politicians never restored this power to the public. Governments enforce autonomy over money because they want autonomy from the public.

The voting public never has figured this out. Voters do not demand that governments cease exercising monetary sovereignty. Neither do political theorists. Neither do most economists. Only Austrian School economists demand this. They are a tiny minority.

Voters ever since World War I have tolerated a series of broken promises by governments regarding convertibility into gold coins at a fixed, government-guaranteed price. The governments have steadily removed any power of citizens to impose limits on the central banks' ability to increase the money supply. Today, the only people who have prevented Federal Reserve inflation in 2008 and 2011 from becoming hyperinflation are commercial bankers, who have increased their holdings of excess reserves at the Federal Reserve. The public has no voice in this matter.

A FREE MARKET GOLD STANDARD

A free market gold standard should be the result of two legal arrangements: (1) open entry into the money business, (2) the enforcement of contracts. Gold would become one common currency. So would silver, if history is a guide. The government would get out of the money business altogether. It would claim no unique authority over money. It would decide the monetary unit in which to collect taxes – nothing more. It would enforce contracts, meaning lawful voluntary exchanges in which no fraud is involved.

This would decentralize and privatize money creation. It would also privatize and decentralize the fraud of counterfeiting. It would pit bankers against bankers, who would participate in bank runs against suspected banks. It would decentralize the enforcement against fraud.

By removing monetary sovereignty from governments, this arrangement would permanently keep fraud from becoming centralized and a matter of law. It would keep the fox of government away from the chicken coop of money creation. It would make impossible any replay of the string of broken contracts, 1914 to 1971, which marked the government promises standard which masqueraded as a gold coin standard, then a gold exchange standard, then a Tricky Dick Nixon standard.

CONCLUSION

Whenever anyone proposes a monetary reform that involves government control over money, keep this picture in mind:

Gary North [send him mail ] is the author of Mises on Money . Visit http://www.garynorth.com . He is also the author of a free 20-volume series, An Economic Commentary on the Bible .

http://www.lewrockwell.com

© 2011 Copyright Gary North / LewRockwell.com - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules