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Economic Error #2: There Is Not Enough Gold to Facilitate Trade in a Growing Economy.

Gary North
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Ellen Brown cites one of the most ancient errors of modern inflationism: the shortage of gold.

Money reform advocates today tend to argue that the solution to the country's financial woes is to return to the "gold standard," which required that paper money be backed by a certain weight of gold bullion. But to the farmers and laborers who were suffering under its yoke in the 1890s, the gold standard was the problem. They had been there and done it and knew it didn't work. William Jennings Bryan called the bankers' private gold-based money a "cross of gold." There was simply not enough gold available to finance the needs of an expanding economy. The bankers made loans in notes backed by gold and required repayment in notes backed by gold; but the bankers controlled the gold, and its price was subject to manipulation by speculators. Gold's price had increased over the course of the century, while the prices laborers got for their wares had dropped. People short of gold had to borrow from the bankers, who periodically contracted the money supply by calling in loans and raising interest rates. The result was "tight" money -- insufficient money to go around. Like in a game of musical chairs, the people who came up short wound up losing their homes to the banks. [Web of Debt, p. 13]

http://www.webofdebt.com/excerpts/chapter-1.php

She assumes, as did John Maynard Keynes, who taught the same doctrine, that prices and wages cannot adjust downward. So, there will be gluts of goods and unemployed workers.

But why? When you can't sell something, you lower the price.

Henry Ford dropped the price of Ford cars after 1912, year after year, and became very rich. He paid his workers more than any other industrialist. He put 15 million Americans into cars. He did this under the gold standard. The story is here:

http://en.wikipedia.org/wiki/Ford_Model_T#Mass_production

What's wrong with that strategy? Nothing. It works for computers. It works for electronic gear. It works for everything.

Do you want higher prices next year? No? Gee, I wonder why not.

If you earned less money, but you could buy even more because of mass production and lower prices, you would be richer. You might even drop into a lower income tax bracket. Would that be nice?

I have refuted this ancient cliché against gold in chapter 12 of my book, The War on Gold. It's free. Download it here:

http://www.garynorth.com/GoldWars.pdf

For a detailed critique of Ellen Brown's economics, go here:

http://www.garynorth.com/public/department141.cfm
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