Bring Back the Gold Standard

This is one of the most difficult and challenging times our country and the world have ever faced. I think these times offer just one potential win-win solution both as an investment for individuals and as the essential underpinning of a new world order: gold.

One thing I have noticed about the war in Ukraine is how clearly it has shown that powerful economies, especially democracies, must anchor their growth to the limits imposed by its material foundations. As natural resources grow scarcer, any economy that tries to grow without increasing output from fixed amounts of natural resources will run into trouble.

The U.S. experienced its greatest times in the half century after the Civil War and the 30 years after World War II. It’s no coincidence that in these periods, the dollar was anchored to a gold standard, ensuring that economic growth was tied to productivity. Growth was aligned with deriving output from units of human labor and units of natural resources.

Dependent on Others for Critical Resources

Once we left the gold standard, we took natural resources for granted. Other than for brief oil scares in 1973, 1980, and more recently in 2008 and now today, we simply haven’t paid attention. Each year since 1996, the Department of Interior has published an annual review of important commodities and minerals.

In 1996, of the 47 commodities it then followed, there were 23 in which the U.S. supplied over 50% or its needs and 24 for which we imported more than 50%. In other words, there was a close to a 50/50 ratio between relative self-sufficiency and relative dependency.

In the 2022 report, in our more complex society, 64 commodities were reviewed. In only 15 of them – less than 25% – were we relatively self-sufficient. Many of the ones for which we depend on other countries are critical to our technologies, perhaps not to the extent that energy is but still enough so that without them, our computers would be slower and much of our sophisticated weaponry would be far less advanced.

Our nonchalance about commodities over the past 50 years reflects that we’ve been able to deal with any problem simply by throwing money at it. Why worry about a commodity whose name you can’t even pronounce when you just can print the money to buy it? With the dollar as the reserve currency, we had carte blanche to print all the money required.

At least, that’s been the case since we left the gold standard in 1971. The wars we have fought this century have cost close to $10 trillion dollars and have used massive amounts of natural resources. It should come as no surprise that the developed world, led by the U.S., uses more than three times as much resources as the rest of the world on a per-capita basis.

But we are starting to pay a price for our indifference to resource scarcity. The Ukraine war and our sanctions, which have backfired on us and even more so on Europe, are revealing the costs to us of so blithely relying on unchecked money creation as the driver of economic growth.

Spending in the Wrong Places

Massive government spending, including on consumer protections, the environment, regulations, you name it, was largely responsible for creating an enormous financial-legal colossus on a par with the military-industrial complex. One result was that money that in the past went to wage earners as a result of increased productivity now went to the layer of society in charge of managing all the newly imposed regulations.

The holy grail of a successful economy became the stock market. It is interesting that for the postwar period through the early 1970s, the country’s richest man was J. Paul Getty, who made his money in resources – in particular, oil. Today the wealth of the country’s richest comes from the value of their stock holdings. And in this extremely elite group there are no resource titans.

Corporate heads became incentivized to the extreme to make shareholders as rich as possible. Rather than being motivated to support critical research in areas such as material science, corporations went after the low-hanging fruit of consumer spending. Most of the major winners of modern technology in the U.S. have been companies dedicated to incentivizing consumers to spend either on goods or by exchanging information with one another.

Caught Up In Bureaucracies

Although massive amounts of money also have been spent on both health care and education. But most of this spending has gone to support enormous bureaucracies, while health and education levels for most Americans declined. Today in terms of life expectancy and educational achievement, the U.S. is ranked near the bottom of the developed world.

Not surprisingly, although the U.S. spends tremendous amounts of money on research and development, that spending is by corporations looking for immediate paybacks. That stands in contrast to the pre-1970s era, when most R&D was supported by the government, for example, subsidies for Bell Labs, spending that led to virtually all the technology we enjoy today.

The end result is that in today’s society, the elite depend on continued spending by those Americans who have to go ever more in debt to keep that spending up. Our once-great country is becoming one in which growth comes only from ever more money.

If the war serves as an eye-opener, a vehicle for getting us back to a path we never should have abandoned, then in the end it may have served some purpose. As I said at the start, the potential is there for a win-win resolution, one that revolves squarely around gold. Let’s hope we grab it.

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