Open letter to Steve Forbes about his wanting to return to a gold standard

An open letter to Steve Forbes about gold

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Steve Forbes is the Editor in Chief of Forbes magazine and a big advocate for the United States to return to the gold standard. He wrote an editorial about it in the April/May 2023 issue.

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Hello again, Steve

We have met a number of times at FreedomFest where I spoke for about ten years. I also sent you a copy of the first edition of my book How to Protect Your Life Savings From Hyperinflation & Depression in 2010. The second edition of that book came out in 2012.

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I am writing about your editorial in your latest issue.

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You describe the gold standard as “taboo,” “cancelled,” and forbidden in both English and German. I feel your pain. My use of the word “hyperinflation” gets the same response. And the German word that you mentioned is ironic given that they were arguably the salient sufferers from hyperinflation.

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‘Inflation never occurs with a gold standard’

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That subhead from your editorial is arguably incorrect.

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1. There actually was gold inflation from a massive expansion of the gold supply in Europe due to an influx from the newly-discoveredwestern hemisphere. True, that is a one-off event not likely to reoccur.
2. Macrotrends offers an adjusted-for-inflation graph of the price of gold going back to 1915 https://www.macrotrends.net/1333/historical-gold-prices-100-year-chart If there is no inflation with gold, that graph would be a flat line. In fact, it looks like an EKG of a heart attack in progress.

I agree that no current government is about to return to a gold standard. And that goes back to the 1970s—over 50 years. Point taken. But, that being the case, why are we still discussing it? Much, maybe most, of the writing or electronic pontificating about government policy can be described as arguably good advice for Congress and the president that has no chance of being implemented. So again, why are we bothering to discuss it? What readers need is information on how to deal with the world as it is, not how it ought to be but never will be.

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What about an optional gold standard?

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Enact a Constitutional Amendment saying that parties to a contract can specify any type of national currency or tangible good as the required consideration, including gold. U.S. courts would be required to enforce such contracts. The United States dollar would no longer have a monopoly of being legal tender.

If you want to specify USD in a contract, you may. But if you want to specify ounces of gold, you may do that, too.

During World War I, the United States government tried to sell war bonds. But Americans had been screwed by that trick once before after the Civil War. In 1917, the Civil War was only 52 years in the past. The U.S. government printed too many US dollars—“Greenback Dollars”—there’s a song about them—after the War. That destroyed the Civil War-bonds’ purchasing power.

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So during World War I, in order to sell war bonds, the U.S. government had to make them gold certificates. Gold certificates are pieces of paper money that you can convert to gold coins at any bank. It worked. People bought the World War I bonds.

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But on April 5, 1933, president Franklin Roosevelt issued Executive Order 6102 (https://en.wikipedia.org/wiki/Executive_Order_6102). It flat reneged on the gold certificates. You could not demand gold. You had to accept inflated U.S. dollars. And there was big inflation in the US after World War I also.

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Fool me twice.

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That is why we need a Constitutional Amendment outlawing a new Executive Order 6102 or any other federal statute that forbids “gold clauses” or any similar attempt to protect oneself by insisting on getting paid back in gold.

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The public would likely welcome a gold-is-okay Constitutional Amendment. Economists and others would recognize that it would, in effect, outlaw BS in fiscal and monetary policy. Roughly speaking it would likely indirectly eliminate deficit spending, which would be a good thing.

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I think that would, sort of, give us the gold standard that Steve Forbes wants—and that we are not going to get the old fashioned way by Congress and the President enacting it.

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Here is my inarguable article about the disadvantages of gold as a inflation hedge. Inarguable because they are simple statements of fact,
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John T. Reed