When you are the go-to “authority”, but disinformation is your modus operandi, there is no doubt why why so many people are so clueless about real money…
The World Gold Council is promoting their revisionist history The Classical Gold Starndard:
— World Gold Council (@GOLDCOUNCIL) October 3, 2017
Let’s take a dive into what the WGC says about it:
The Gold Standard was a system under which nearly all countries fixed the value of their currencies in terms of a specified amount of gold, or linked their currency to that of a country which did so. Domestic currencies were freely convertible into gold at the fixed price and there was no restriction on the import or export of gold. Gold coins circulated as domestic currency alongside coins of other metals and notes, with the composition varying by country. As each currency was fixed in terms of gold, exchange rates between participating currencies were also fixed.
Central banks had two overriding monetary policy functions under the classical Gold Standard:
Maintaining convertibility of fiat currency into gold at the fixed price and defending the exchange rate.
Speeding up the adjustment process to a balance of payments imbalance, although this was often violated.
We can go ahead and stop there for a moment. First of all, it is not fair to say they fixed the value in terms of a specified amount of gold. It is more than that. In fact, it’s what the U.S. Constitution in Article 1 section 8 refers to as “weights and balances”:
To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;
You see, it is not just to say that $10 is convertible to about a half ounce of gold. Actually, the $10 is gold, and a very specific amount (Coinage Act of 1792):
Eagles—each to be of the value of ten dollars or units, and to contain two hundred fort-seven grains and four eighths of a grain of pure, or two hundred and seventy grains of standard gold. Half eagles—each to be of the value of five dollars, and to contain one hundred and twenty three grains and six eights of a grain of pure, or one hundred and thirty five grains of standard gold.
Furthermore, willfully omitted is the silver standard that existed along side and circulated within the citizenry, but the point here is that the U.S. Constitution calls for both gold and silver as money. Rightfully slow.
Back to the WGC, when they say that currency notes circulated, that is a disinformation tactic as well. The $10 note below was from the U.S. Treasury in 1907, and it was payable immediately “upon demand” with a $10 Gold Eagle:
As for the central banks having “over-riding authority”, well, that is kind of hard to do. There was not even a central bank in the United States for all of the years mentioned they by the WGC except for one year – 1914.
The WGC Continues:
The classical Gold Standard existed from the 1870s to the outbreak of the First World War in 1914. In the first part of the 19th century, once the turbulence caused by the Napoleonic Wars had subsided, money consisted of either specie (gold, silver or copper coins) or of specie-backed bank issue notes. However, originally only the UK and some of its colonies were on a Gold Standard, joined by Portugal in 1854. Other countries were usually on a silver or, in some cases, a bimetallic standard.
No way to say the second bolded section of that paragraph other than a bold-faced lie.
Under the Gold Standard, a country’s money supply was linked to gold. The necessity of being able to convert fiat money into gold on demand strictly limited the amount of fiat money in circulation to a multiple of the central banks’ gold reserves. Most countries had legal minimum ratios of gold to notes/currency issued or other similar limits.
Wrong. The money was gold. And silver. Legal minimum ratios? How about exact weights and measures.
In theory, international settlement in gold meant that the international monetary system based on the Gold Standard was self-correcting.
Not fair. It is self correcting. You cannot pay for something with money you do not have. If there is debt involved, that is another story, but most people get the concept of “cash and carry”, Governments too.
First, it would make borrowing more expensive, reducing investment spending and domestic demand, which in turn would put downward pressure on domestic prices, enhancing competitiveness and stimulating exports.
Right. There’s a reason why it is called “precious”. People aren’t just willing to part with it for free. You can’t print gold out of thin air.
In practice, a number of researchers have subsequently shown that central banks did not always follow the ‘rules of the game’ and that gold flows were sometimes ‘sterilised’ by offsetting their impact on domestic money supply by buying or selling domestic assets. Central banks could also affect gold flows by influencing the ‘gold points’. The gold points were the difference between the price at which gold could be purchased from a local mint or central bank and the cost of exporting it. They largely reflected the costs of financing, insuring and transporting the gold overseas. If the cost of exporting gold was lower than the exchange rate (i.e. the price that gold could be sold abroad) then it was profitable to export gold and vice versa.
Well, hold on. The United States required that gold (and silver) be source-mined domestically from within the United States. So not exactly true there. Additionally, with a fixed weight an purity, say for simplification (close enough) $20 was one ounce of .999 fine gold. Prices were stable because gold was the measuring stick, not the thing being measured. In other worlds, price inflation was not a factor as there was naturally price stability. The rate of gold coming out of mines (and is) approximately the same rate of population growth, so no problems about flooding the market with gold. Finally, if the world was on a “classical gold standard”, what motive would a person have in goint through all the effort to move the gold across the globe in 1910 to sell it for the same price it was had he not done anything? This is a ridiculous argument from the WGC.
Bordo argues that the Gold Standard was above all a ‘commitment’ system which effectively ensured that policy makers were kept honest and maintained a commitment to price stability.
It was a commitment system? Uh no, it was an exact system with defined weights and measure that held everybody, from citizen to government, accountable.
Promoting disinformation and anchoring a page of deception and bold-faced lies is one of the reasons that the world is so confused about gold (and silver).