Gold (The Once and Future Money)

by Nathan Lewis

Gold (The Once and Future Money) represents one of the best books on how to view Gold in the context of the global financial markets. Gold has been used as coinage for almost 3,000 years and has been traded for far longer than that. Nathan Lewis articulates how many currencies which were once pegged to the gold standard may be better if they return to this gold standard.

Did Nathan Lewis predict the US financial sub-prime crisis?

Nathan Lewis makes some very insightful comments about the benefits of pegging currencies to the gold standard. Lewis explains the volatility of currencies once they are unpegged. It is interesting to consider if the current sub-prime credit crunch crisis would have been as severe if the dollar had remained pegged to the gold standard.

Themes from Gold (The Once and Future Money)

“Gold” covers the following themes:

Gold: A Brief History of Money and the Gold Standard
Gold:The Yankee Dollar
Gold: The Demise of the Gold Standard
Gold: Monetary Management
Gold: Can Gold come back?

Each of these is covered below.

Gold: A Brief History of Money and the Gold Standard

Lewis explains how gold has been used as coinage for 2,700 years and as decoration for 7,000 years. JP Morgan once said that “Money is Gold”, today it is argued that “Money is Information”. People and investors want data to be “reliable and steady” which are both characteristics of gold. Many currencies became linked to the gold via the gold standard. For example recently the dollar was “pegged” to gold until 1971 when President Richard Nixon cut the link. This allowed the currency of the US dollar to “float”.

Gold: The Yankee Dollar

The Yankee Dollar history begins in 1776 when the colonists broke with England. The continentals then had to issue fiat money, which was a weak “guaranteed” paper IOU (I Owe You) in order to conduct the war. The US Constitution then went on to stop the creation of a central bank (which had been a success in England). After a period in which the early fiat money became worthless the first Treasury Secretary made the Continental (worth about 4 cents) exchangeable for gold. Thus the currency became pegged to gold. The US continued to follow Britain in pegging its currency to gold for a significant period of time.

Gold: The Demise of the Gold Standard

Nixon in 1971 pushed the Fed into creating easy money by de-coupling the tie with the gold standard. This has been perceived to be desperation at stopping the economy moving into further recession. Unfortunately the effects on the value of the dollar were terrible.

Gold: Monetary Management

This is a classic supply and demand economics discussion. The Gold book covers many aspects of monetary management. For example it covers the money theorist Arthur Laffer’s work which quoted the following causes of country economic declines:

Unstable monetary conditions
High or rising tax rates
Excessive or crushing regulation of prices and salaries or other types of wages.

Gold: Can Gold come back?
Lewis hypothesises that a lead back to the gold standard may come from one of the strong developing countries, such as Russia or China. The affect of such a move on global currencies could be significant. In fact in light of the recent backlash against the banking system in Wall Street and the London Stock Exchange the population may be seeking a safer more secure currency.