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HOW GOLD, INFLATION AND
GOVERNMENT
1
~
by
John Curry
It
is t ime we understood the relationship between gold, inflation
and government. And how they affect you!
O
N AUGUST
15, 1971,
President Nixon
dropped a bombshell
that rocked the entire world
financia} system to its foun–
dations. By executive de–
cree, he cut the dollar loose
from . gold. He invited for–
eign banks, governments
and private markets to
"float" the dollar's value.
No longer would the dollar
be redeemable in gold by
foreign governments as pre–
viously, nor would gold be
t ied to its former price of
U.S. $35 per ounce.
Look at what has happened
since.
The price of the precious metal
skyrocketed, especially during the
invasion of Afghanistan in Janu–
ary and February of 1980. Infla–
tion has jumped to double figures
in most industrial countries. The
average working man has been
caught in a vicious wage-price
spiral. A serious sickness in this
world's financia! systems has set
m.
Why
Gold?
What does uncertainty in the
world's financia! system portend
for the future? How will it affect
April 1981
you? And wbat about the value of
gold?
Gold has been the most sought
after form of money for thou–
sands of years. By universally
accepted definition , money is
anything that serves as a store of
value and as a medíum of
exchange. Historically, gold has
fit that description better than
anything else. Because it is rela–
tívely scarce, virtually indestruc–
tible and possesses a wide range
of artistic and functional uses,
gold became the standard in most
economies.
It
was easily coined,
highly portable and universally
recognized for its value. Even
though the supply of gold is lim–
ited, demand for the metal seems
to be infinite.
Commodities such as food
crops or industrial output can
have price swings based on
demand, weather, poor economic
policies or disasters. None of
these affects the total supply of
gold. It maintains its value in
relation to other commodities
regardless. Thus it has acted as a
financia! constraint and stabiliz–
ing factor. People trust gold
because it has been an instrument
of monetary discipline and a stan–
dard of measure by which to mea–
sure other commodities.
Gold acts as a check on govern–
ments and politicians. Paper mon-
ey carne into use because it was
more convenient to use than gold.
However, historically the amount
of paper money in circulation was
tied to the amount of gold a nation
possessed. When people knew that
gold backed up their currency,
they trusted their money. But even
though people may trust gold, they
don't necessarily trust their lead–
ers. In the words of George Ber–
nard Shaw: "The most important
thing about money is to maintain
its stability.... With paper mon–
ey this stability has to be main–
tained by the government. With a
gold currency, it tends to maintain
itself.... You have to choose as a
voter between trusting the natural
stability of gold and the natural
stability of the honesty and intelli–
gence of the members of the gov–
ernment. And, with due respect
for these gentlemen,
T
advise you,
as long as the capitalist system
lasts, to vote for gold. "
The goal of every political lead–
er is to remain in power. In a
democracy, he must retain his
popularity to be reelected. Ex–
travagant social welfare schemes
and public works help to perpetu–
ate the government's power, even
though the country may not be
able to afford the expense.
If
a
political leader can get rid of the
gold standard, then there is no
restraint on the amount of paper
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