Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Gold vs. Keynesian Fallacies

  by    0   0

At its recent summit, the BRICS economic bloc announced it will add six new members, including Saudi Arabia. Many people believe the growing influence of BRICS could ultimately dent Western economic power and undermine the dollar’s role as the world’s reserve currency.

Many people frame the rise of BRICS as a battle between East and West, but economist Patrick Barron said it’s more fundamental than that. It’s actually a war between diametrically opposed economic ideas.

Barron argues that the real conflict is between Keynesian economic theory and gold.

And he says gold will win.

The following was originally published at the Mises Wire. The opinions expressed are the author’s and do not necessarily reflect those of Peter Schiff or Schiff Gold.Leaders of the Western democracies are unprepared to deal with the forces that will end the fiat dollar’s dominance as the preferred medium of international trade settlement, in place since the end of the Bretton Woods Agreement in 1971.

The recent BRICS summit was expected to include an agreement on a first step toward establishing an alternative international trade settlement system based on commodities, which would certainly include gold. Dozens of non-Western and even some Western-affiliated nations are attending and watching with great interest. Six new members have been invited to join Brazil, Russia, India, China, and South Africa—Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates.

Although the coming change may be characterized as one between the Western democracies and the BRICS nations, the real battle is one of ideas—between Keynesian economic theory and gold. The winner will be gold.

As Murray N. Rothbard explained in What Has Government Done to Our Money? gold was never proven to be inferior to fiat money. The gold standard was not replaced by a better monetary system. It was suppressed in stages to satisfy the state’s insatiable need for money—first to make war and then to corrupt the people via welfare. The result, of course, has been never-ending wars, a creeping expansion of the welfare state, unsustainable public deficits, and the accelerating debasement of the currency.

The challenge to the fiat dollar began with its debasement, which has lowered its purchasing power to gold by 98 percent since 1971, and this challenge accelerated with the introduction of the so-called Russian sanctions—freezing Russian-owned assets in the West and denying Russia access to the international dollar trade settlement messaging system known as SWIFT. Russian monetary expert Sergey Glazyev has led the movement toward an alternative system.

Putting “Paid” to Keynesian Fallacies

Introducing gold into the trading system will expose the main fallacy of Keynesian economics: the elevation of aggregate demand to prominence in a nation’s economy rather than production—the only means of satisfying the demand in the first place. Jean-Baptiste Say showed that production is required in order to enjoy the benefits of consumption. Instead, Keynes shunned Say’s law in his General Theory of Employment, Interest and Money in order to hide his theory’s internal contradictions. Keynes elevated the concept of “aggregate demand” overproduction, while Jean-Baptiste Say shows that production is required in order to enjoy the benefits of consumption.

On the face of it, it is hard to believe that anyone would believe that production either isn’t required for consumption or that it magically appears. Yet, this rather upside-down theory appealed to politicians for obvious reasons—it gave them carte blanche to spend, all with money created out of thin air by the central bank. Rather than economize and prioritize spending that was absolutely necessary for the benefit of the entire nation, politicians were told by Keynes that it was their duty to spend, even if it was only to pay people to dig holes and others to fill those holes back up.

Basics of a Gold Settlement System

The new international trade settlement system will require settlement in gold. A possible mechanism has been outlined by Alasdair Macleod of Goldmoney. The benefits of the new system will become obvious to every nation, not just the current BRICS members. The political benefit is that no one nation can control or manipulate the system for its unearned benefit. The economic benefit is that government spending will be minimized so that resources can be allocated to production rather than state aggrandizement. A member can expand imports only by expanding exports. This puts market pressure on member governments to reform their internal economies in order to increase production.

Artificially increasing demand, per Keynesian orthodoxy, would be counterproductive because gold would drain from the nation’s gold settlement account, and imports would be suspended. Therefore, the system encourages sound economic practices within its members’ individual economies. Printing money, excessive and unnecessary regulations, excessive taxation, and excessive government spending do nothing to aid a member’s ability to engage in trade. Nations like the United States, who have huge welfare obligations and who have politically connected industries that do not add to the nation’s capital base, will struggle. Having lots of nuclear weapons will be irrelevant, and having bases around the world will be liabilities rather than assets.

An important point made by Macleod is that, over time, the gold settlement system for international trade will expand into the members’ internal monetary systems. In other words, fiat currencies—which can be inflated or debased by governments—will be thrown on the ash heap of history. Instead of Keynes’s predictions in 1924 of the gold standard, the fiat currencies will instead become the “barbarous relics” themselves.

Download SchiffGold's Why Buy Gold Free Report

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

Why and How US Debt Will End in Catastrophe

article cover imageAs fiscal imbalances persist, driven by coercive measures and artificial currency creation, the middle class faces erosion and purchasing power dwindles. But as the world hurtles towards a potential reckoning, the lingering question remains: can this precarious balance last, or are we teetering on the brink of a cataclysmic economic shift?

READ MORE →

The Economy Is Reaching a Tipping Point

article titleBeneath the veneer of headline job gains, the American economy teeters on the brink: native employment dwindles as part-time and immigrant jobs surge. Government hiring camouflages looming recession warnings. Inflation and political blunders worsen the crisis, fueling public outrage at the establishment’s mishandling of the economy.

READ MORE →

Prices Up 2500% Since FDR Abandoned Gold

Article coverOn April 5 1933, Franklin D. Roosevelt abandoned the gold standard, wielding questionable legal power amidst America’s dire economic depression. His whimsical approach to monetary policy, including coin flips and lucky numbers, unleashed unprecedented inflation and price increases that have since amounted to nearly 2500%. Our guest commentator explores this tragic history and the legacy […]

READ MORE →

How Inflation Buzzwords Manipulate

article cover imageWelcome to the world of modern economics where the term “inflation” no longer signifies the increase in the quantity of money, but has evolved into a plethora of buzzwords. From “shrinkflation” to “greedflation,” these new terms and semantic shifts are by no means harmless but a manipulation of popular sentiment. Von Mises said they play […]

READ MORE →

Dollar Down 20% Since 2020, Biden Blames Greed

Assuming CPI measurements are not understatements, the dollar’s value has plummeted by a staggering one-fifth since 2020, yet, rather than acknowledging its role in fueling this economic turmoil, the Biden administration deflects, casting capitalism and corporate greed as the villains. The latest February CPI data show more signs of the upcoming inflation bloodbath.

READ MORE →

Comments are closed.

Call Now