Historical Error #30: Gold's Price Rose in the Nineteenth Century.

Gary North

Ellen Brown says that advocates of a gold coin standard argue that it would keep prices stable. But only government-issued fiat money will do this, she says.

Goldbugs maintain that a gold currency is necessary to keep the value of money stable. [Web of Debt, p. 359]

Goldbugs do not argue that a gold coin standard will keep prices stable. This all depends on whether the society is productive or not. If it is, prices will not remain stable. They will slowly fall as output increases. Or, as we might say, "The same amount of money is chasing more goods." Or, better yet, "Sellers of ever-larger quantities of goods are chasing the same amount of money."

Murray Rothbard was the major spokesman for a gold standard among academic economists. Here is what he wrote in his book, The Case Against the Fed.

Suppose that a precious metal such as gold becomes a society's money, and a certain weight of gold becomes the currency unit in which all prices and assets are reckoned. Then, so long as the society remains on this pure gold or silver "standard," there will probably be only gradual annual increases in the supply of money, from the output of gold mines. The supply of gold is severely limited, and it is costly to mine further gold; and the great durability of gold means that any annual output will constitute a small portion of the total gold stock accumulated over the centuries. The currency will remain of roughly stable value; in a progressing economy, the increased annual production of goods will more than offset the gradual increase in the money stock. The result will be a gradual fall in the price level, an increase in the purchasing power of the currency unit or gold ounce, year after year. The gently falling price level will mean a steady annual rise in the purchasing power of the dollar or franc, encouraging the saving of money and investment in future production. A rising output and falling price level signifies a steady increase in the standard of living for each person in society. Typically, the cost of living falls steadily, while money wage rates remain the same, meaning that "real" wage rates, or the living standards of every worker, increase steadily year by year. We are now so conditioned by permanent price inflation that the idea of prices falling every year is difficult to grasp. And yet, prices generally fell every year from the beginning of the Industrial Revolution in the latter part of the eighteenth century until 1940, with the exception of periods of major war, when the governments inflated the money supply radically and drove up prices, after which they would gradually fall once more. We have to realize that falling prices did not mean depression, since costs were falling due to increased productivity, so that profits were not sinking.

Second, she says this:

Greenbackers agree on the need for stability but question whether the price of gold is stable enough to act as such a peg. In the nineteenth century, farmers knew the problem first-hand, having seen their profits shrink as the gold price went up. [Web of Debt, p. 359]

Problem: gold's price did not rise. It remained just under $19 from 1834 to 1900. You can find the year-by-year information on the site of the National Mining Association.

Here is a chart of the dollar price of gold in the USA.

So, she does not know what gold standard advocates teach about gold and consumer prices. She does not know anything about the price of gold in the United States in the nineteenth century.

Ellen Brown is an utterly incompetent researcher, or else she is just trying to put the shuck on the rubes: her readers.

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

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