Nat, good friend and now a blog reader, asks two questions:
BTW, Preston, I am about halfway through you book. It’s a good read, especially considering the recent economic catastrophe. I am curious why you think gold should be the standard of monetary policy as opposed to some other commodity. Though problem: If gold were still the standard and in the future we discovered gold on another planet…how would that affect the economy? Supply and demand would dictate that gold would immediately see a reduction in value because of increased supply. I am curious as to your opinion on owning land.
I just read an article that suggested that due to the U.S. making a deal with OPEC to only accept the dollar back in the day that technically, the U.S. dollar is backed by oil…i.e. the OIL STANDARD. What’s your take on that theory?
Let’s take gold first. A lot of what I’m going to say was already well argued by Dr. Murray Rothbard in What Has Government Done to Our Money. As Rothbard argues, the advantages regarding gold is that it has intrinsic value. To argue otherwise is to go against at least 4000 years of human history. Human’s like gold. Always have, always will. Now they also value a lot of other things (real estate, diamonds, art, oil) but the advantages of using gold as money is that it is reasonably easy to transport (unlike real estate), is a dense way to store wealth (unlike oil), can be stored for long periods of time without loss, and can be broken down into fundamental units of accounting to make exchange easy (unlike diamonds). There are few other forms of wealth that meet all of these requirements.
Now how much people value gold changes over time. Some estimate put the “gold to dollar” exchange ration at about $3000 in the Middle Ages. The entire European What happened next should help to answer Nat’s next question about what if we suddenly found a source of gold that would drop gold’s value relative to everything else, because that’s exactly what happened. The New World was discovered and with it the vast golden wealth of the Incas and Aztecs. The value of gold suddenly dropped to roughly $800 or so. This caused inflation as the cost of goods and services went up in comparison to gold because of this sudden increase in supply, but after this happened the economy went right on about it’s business. There was no calamity.
Now in regards to your other question, yes I do feel that the US government has made deal with Middle Eastern governments. In fact, John Perkins discusses exactly how the United States got third world governments to play along with our economic wishes in his two books, Confessions of an Economic Hitman and his followup book The Secret History of the American Empire. Perkins books are fascinating because they are basically an inside account of how the American empire was build coming from someone who was involved from the inside. I believe that the CIA engineered the Shah’s rise to power. Similarly, it is common knowledge that we the US government has long been an ally of the Saudi Royal family. That is why the so many of the 9/11 hijackers were Saudis: the Saudi citizens hate the ruling family but feel that they can not get rid of them unless the United States allows it.