The New Gold Standard

The guide to returning to a gold standard

All that glitters is gold and gold has never glittered so much as it has in the last decade, reaching staggering new prices in recent years. The definitive modern argument to returning to a gold standard, The New Gold Standard succinctly and clearly explains the nature of sound money, the causes and cures of inflation and deflation, the importance of fiscal responsibility within a sound monetary system, and the reasons for recessions and depressions.

• Little has been written beyond academic histories of the gold standard, but gold standard expert Paul Nathan fills that void for the first time
• Written for beginning and professional investors, the book provides guidance on how a gold standard will strengthen the dollar, reduce debt, and help stabilize the economy, offering easily applied strategies for investing in gold now and in the future
• The degree of depressions and recessions and the boom bust cycle can be avoided with a sustainable, stable monetary policy
• The international return to gold is not a fad but a sign of a world in monetary transition

As long as governments continue to print money and deficits continue to rise, gold will be a hot commodity. As inflation creeps up, more and more talk will turn to returning to some version of the gold standard, and The New Gold Standard is the first major work to explicitly address the challenges and benefits of such a move.

Foreword xiii

Preface xvii

Part I: Gold and the Domestic Economy

Chapter 1 Why Gold? 3

Gold: The King of Metals 4

Gold Becomes the Standard of the World 5

Too Little Gold—Or Too Much Paper? 6

The “Gold Prevents Prosperity” Myth 8

In Gold We Trust 10

Chapter 2 The Gold Standard: A Standard for Freedom 13

What Money Is 15

.AndWhat Money Is Not 18

The Nature of Inflation 20

The Fiat Standard at Work 22

The Illusion of Prosperity 23

The Meaning of the Gold Standard 25

Chapter 3 Why Prices Have Not Skyrocketed 27

On Human Action 28

Quantity versus Values 31

The Quantity of Money and the Gold Standard 32

Too Little Fiscal Responsibility Chasing Too Many Politicians 33

Chapter 4 The Inflation/Deflation Conundrum 35

The Cause of the Recent Spike in Commodities 38

Chapter 5 Central Banking in the Twenty-First Century 41

The Rise of Populism 42

A World in Transition 45

The Fed of the Twenty-First Century 48

Part II: The International Gold Standard

Chapter 6 The Making of an International Monetary Crisis 55

Monetary Theory: Past 57

No Curb on Governments 58

The Policy Makers 59

The Process of Confusion 60

Condemnation of Gold 61

Evolution of the Theory 62

Fractional Reserve Banking 63

The Great Depression 65

Devaluation in 1934 66

Bretton Woods 67

The Theory Projected 67

“If at First You Don’t Succeed .” 69

The SDR: As Good as Gold Again! 70

Debt Amortization or Default: The False Alternative 71

The Frightening Prospect of an International Debt 72

Toward an International Fiat Reserve System 74

Simply Repetitious 75

The Real Meaning of Monetary Reform 75

Chapter 7 The Death of Bretton Woods: A History Lesson 79

Fixed Exchange Rates, Flexible Rules 80

Export or Devalue: Institutionalizing the Devaluation Bias 82

“Hot Money” Blues 84

The Role of the Dollar under Bretton Woods 85

Limited Gold—Unlimited Dollars: A Formula for Disaster 86

Confidence versus Liquidity—A Two-Tier Tale 87

Gold’s Limitations: A Blessing in Disguise 87

U.S. Balance of Payments Problems 89

The First Straw 89

On Selling One’s Cake and Wanting It Too 89

The Illusion of the Last Straw 90

The High Price of Gifts 91

On Domestic Dreams and International Nightmares 92

Chapter 8 Who’s Protected by Protectionism? 95

A Few Principles 97

Enter Protectionism 98

Trade between Nations 99

To Protect the Balance of Trade 100

To Protect Domestic Markets 102

To Protect Domestic Wages 102

Protectionism: The Greatest Threat to Prosperity 104

The U.S. Balance of Payments Problem in Perspective 106

The Protection Racket 106

Part III: Returning to a Gold Standard

Chapter 9 Are the Fiat and the Gold Standards Converging? 111

A Monetary System Needs to Know Its Limitations 113

Reduced Leverage Equals Reduced Speculation 115

The Process of Convergence 116

A New Day 118

Chapter 10 Gold: The New Money 121

Rediscovering Gold 123

The International “Walk” on Gold 124

Competing Monies 125

Chapter 11 How Not to Advocate a Gold Standard 129

The Intrinsic Worth Argument 130

The Store of Value Argument 131

Gold Price Predictions 132

The Legal Tender Argument 133

The Official Price of Gold Fetish 134

The Devaluation Syndrome 137

The Stop Printing Money Argument 139

The Demonetization Threat 140

On Context, Cause, and Effect 142

Part IV: Investing in Gold

Chapter 12 Lessons of a Life-Long Gold Investor 147

On Trading 151

The Rules of the Game 152

When to Be Flexible 154

And When to Stick to Your Guns 156

On Investing 157

Shakeouts 160

Turning a Disadvantage into an Advantage 163

On Leverage 164

When to Sell a Stock 167

“Be Afraid. Be Very, Very, Afraid ” 168

How to Own Gold 170

Chapter 13 My Final Word on Gold 173

On Bretton Woods II 173

The New SDR Threat 175

On QE 2 178

The Banking System of a Free Society 181

In Conclusion 183

Recommended Reading 185

Bibliography 189

About the Author 191

Index 197

PAUL NATHAN is an exclusive contributor of articles on gold for kitco.com. With more than one million hits a day, kitco.com is the leading site for gold bugs worldwide. He wrote articles in the ’70s for the Freeman and today writes a weekly commentary and market update for hard money enthusiasts and investors at paulnathan.biz. Nathan was there at the birth of the Libertarian Party, and his mother was the first national candidate to run on the Libertarian Party ticket in 1972. Nathan began writing on monetary and economic matters in 1968 while studying under Ayn Rand and Alan Greenspan at the Foundation for the New Intellectual.

AS CONFIDENCE in the U. S. dollar approaches an all-time low, the price of gold continues to soar with no end in sight. For the first time in nearly a century, the question of whether to return to the gold standard is being hotly debated in both the press and academic circles. It isn’t hard to see why: in the wake of the global credit crisis and successive rounds of quantitative easing, nervous investors have begun seeing the specter of Weimar-era hyperinflation looming around every corner.

But can restoring the gold standard really bring sustained stability to the global economy as its advocates contend, or will it, as its detractors insist, only serve to put the brakes on economic growth?

As author Paul Nathan sees it, the question of whether or not governments decide to make the move to a gold standard has been made irrelevant by the new international gold rush. The market has spoken, and, like it or not, we are already on our way to a de facto gold standard.

The New Gold Standard is the definitive guide to establishing a gold standard designed for the realities of the 21^st century. Offered here, is a scrupulously researched, deeply thoughtful consideration of the core issues along with thought-provoking solutions, elements of which will appeal to even the most left-progressive of readers.

Under the gold standard, as first devised by no less a genius than Sir Isaac Newton and refined by Thomas Jefferson and the Founding Fathers, the U. S. dollar had the same buying power at the end of the 19^th century as it did in the beginning. During the 20^th century, after having moved entirely off the gold standard, the dollar was worth 97% less. But, according to Paul Nathan, that doesn’t mean we can simply set the clocks back to 1913. Ever mindful of the realities of a technologically integrated world financial system, he explains the nature of sound money, the causes and cures of inflation and deflation, the roots of recessions and depressions, and the meaning of fiscal responsibility within a sound monetary system. He then describes steps governments can take to gradually reintroduce a gold standard that will strengthen the dollar, reduce debt, and help stabilize the economy. Finally, he offers investors sound strategies for investing in gold now and in the future.

Informative, thought-provoking, and controversial, The New Gold Standard is must-reading for policymakers, finance professionals, and individual investors, as well as thoughtful readers searching for answers amidst the chaos of a global economy at the precipice.