In an
interview today with Russia Today's Sophie Shevardnadze, Sir Howard Davis,
former deputy governor of the Bank of England and former director of the
London School of Economics, makes the most elementary mistake in his
objection to restoration of a gold standard for currencies. That is, Davis
says a gold standard "would radically reduce the amount of credit and
would cause a worldwide depression that would make the 1920s look like a
holiday."
But of
course the amount of credit supported by a gold standard would depend
entirely on the price established for currency convertibility into gold, a
price that could be revised from time to time. While Britain's return to a
gold standard for the pound in 1925 is now widely regarded as a deflationary
mistake, it is because the pound's value in gold was set too high, at the
parity in force prior to the First World War and the inflation caused by the
war. If the gold price for convertibility was set high enough, a gold
standard could support infinite
money and infinite credit.
That
was established by the famous trillion-dollar platinum coin idea in the
United States a few years ago:
http://en.wikipedia.org/wiki/Trillion_dollar_coin
Of course gold revaluation allowing an increase in money creation and credit
would be instantly recognized as currency devaluation, while, at present,
central banks can create infinite money and credit and, with surreptitious
intervention in the gold and commodity markets to suppress prices and thereby
destroy markets, can prevent
most people from figuring out how their money is being devalued. Is that really why a gold standard is so
objectionable to Davis -- that it would make central banking a lot more
transparent?
At
least Davis acknowledges the occasional flaws of central banking and fiat
money in regard to credit creation. "At times," he sais,
"given the paper money basis of our economy, maybe we allow credit to
expand too rapidly, and essentially the story of the last financial crisis
was that. We allowed credit to grow too quickly. But there are ways of
dealing with that, through interest rates, bank capital ratios, etc., which
can constrain credit growth, and you don't need the really freezing shower of
a gold standard to do that, which would destroy much of the world's
economy."
But can
central banks be relied upon to undertake in time the cautionary measures
Davis cites, and to do it consistently?
Well,
maybe someday, in a more virtuous era, they will, and allowing the money
supply to be determined by the amount of a particular metal or two that can
be dug out of the ground does seem awfully primitive.
But
were the ancients so primitive in establishing such a metallic money system
because they realized that anything more sophisticated requires perfectly
mechanical virtue in administration and that, administered by mere mortals, a
sophisticated system inevitably goes haywire as a result of human
corruptibility?
And if
today's central bankers have achieved the supreme expertise and
disinterestedness required to administer a sophisticated system, why do they
do nearly everything in secret, and why is the world's wealth constantly
being siphoned upward away from the many and into the accounts of the very
few?
Maybe
Russia Today could interview Davis again and put such questions to him. In
the meantime his interview is posted here:
http://rt.com/shows/sophieco/212343-great-dep...global-economy/
