Originally posted Friday, June 22, 2012
One senses that the discourse has changed, dramatically, when the Wall Street Journal states, in its account of the upcoming meeting of the G-20 “The gold standard …. (stopped) politicians succumbing to the inevitable pressure to respond to crises by debauching the currency, resulting in long-term harm to the livelihoods and living standards of their citizens.”
WSJ reporter Simon Nixon’s astute What Will New World Order Look Like? references the false start of a “new world order” from predecessor G-20 meetings and the … golden … foundation of the current (and precursor) world order:
The world is now a different place to 2009 when, at summits in London and Pittsburgh, the leaders of the world’s largest economies believed they had “saved the world”—as then-U.K. Prime Minister Gordon Brown put it—with a massive fiscal and monetary stimulus and a comprehensive agenda to reform the financial system. At the time, the G-20’s response was hailed as the start of a new world order. It may turn out to have been the last gasp of an old world order.
That old world order began in 1944 at Bretton Woods in response to the Great Depression and the horrors that followed. One of its main architects was John Maynard Keynes, and his ideas have guided much of the current crisis response. The central challenge in the post-Bretton Woods era has been how to manage economies in the absence of the gold standard. The gold standard had many flaws, but the chief virtue of fixing the exchange rate and constraining the supply of credit was to stop politicians succumbing to the inevitable pressure to respond to crises by debauching the currency, resulting in long-term harm to the livelihoods and living standards of their citizens.
Previous experiments in paper money had ended in disaster, most spectacularly in France in 1720.
Regardless of what happens in Los Cabos or in post-election Greece, the world is now at a crossroads. The old order ended with the London and Pittsburgh G-20 summits. All that stimulus has provided a bridge to nowhere.
Last December the Bank of England published, to wide notice, a thorough assessment of the critical fail of the fiduciary paper standard compared to either the classical gold, or even gold-exchange, standards. It is titled Reform of the International Monetary and Financial System. The Old Lady of Threadneedle Street balked, however, as does Mr. Nixon, at drawing the obvious conclusion. If the current system does not work, take the opportunity to assess the record presented by the laboratory of history.
As Henry C. Wallich stated in The Monetary Crisis of 1971–The Lessons to be Learned, “Experience is the name we give to our past mistakes, reform that which we give to future ones.” Rather than speculate using plausible-sounding but untested mechanisms, and thereby speculating with the welfare of humanity, better to restore that which is proven to have worked. The blueprint for doing just that is set forth both rigorously and meticulously in The True Gold Standard, by Lewis e. Lehrman, founder and chairman of the Lehrman Institute.
It provides, as set forth in its subtitle, a monetary reform plan without official reserve currencies: How we get from Here to There.