The book that is the subject of this review is Gold: the money of once and of the future, written by Nathan Lewis and published in 2007. Lewis, “former chief international economist with a leading economic forecasting firm,” provides a comprehensive examination of the use of gold to support the value of a currency (the gold standard), as well as a history of gold standards in the past and their arguments for reverting to a gold standard of international floating currencies now in use. The purpose of the book is to argue the case for a return to the stability of the gold standard and to dispel the most common myths of past gold standard failures.
Lewis divides his book into three separate sections. The first section, “Money in all its forms,” provides many general economic and historical background to gold. Topics such as the stability of gold, the differences between hard and soft money, a history of various gold standards, taxes and inflation, deflation, and the value of the currency are examined. Although much of the information presented in these chapters is highly technical, Lewis breaks the monotony of the discussion with historical events and anecdotes. In fact, one of the most memorable sections of the book is the history of the gold standard in ancient and pre-modern civilizations. A common feature of these stories is that civilizations, once the gold standard is abandoned, march rapidly toward devaluation and destruction of the currency, but if the gold standard is restored, there may be a return to normalcy.
In the second section of the book, “A History of US Money,” Lewis examines the history of the currency in the United States, from the time before the Revolutionary War and its hyperinflationary results, to the many competing currencies of the new country, to the pseudo-Bretton Woods Gold Standard, to the current floating dollar. Interestingly, the United States was “the only great power to adhere to the gold standard” during World War I, and this is one of the reasons for its postwar boom in the 1920s. And after World War II, the The strong US dollar was used as the new gold standard through the Bretton Woods system, whereby other major nations pegged their monetary values to the dollar, which in turn was pegged to gold. Obviously this system was not a true gold standard, it was broken in 1971 and the values of the coins have floated ever since. Lewis also discusses the relative successes and failures of various Federal Reserve presidents, such as the monetarist Paul Volker throughout the 1980s, and the gold standard advocate Alan Greenspan through the late 1980s, 1990s and early 1990s. XXI century.
The final part of the book “Currency Crises in the World” is an examination of the modern currency crises faced by nations, mainly in the 1900s and early 2000s. The first country Lewis talks about is Japan, focusing on the period post-WWII and the nation’s staggering rise to economic prosperity. Through low taxes and low interest rates, Japan was able to improve the strength of its currency against gold and spur economic growth to become the third largest economy in the world. Only recently, since it left behind many of its pro-growth policies, has Japan experienced a long recession. As Lewis states, “Japan’s two great periods of economic success, from 1868 to 1914 and from 1950 to 1970, were times when floating currencies were replaced by hard currencies.”
Other currency crises Lewis discusses include the Asian crises of the late 1990s and Russia, China, Mexico, and Yugoslavia. Throughout his evaluations of each of these events, Lewis points to several recurring themes. In each of these countries, the fall in the value of the currency caused economic difficulties, and their responses to these crises directly affected the recovery capacity of the countries or the worsening of their financial conditions. Lewis points out that reducing taxes and encouraging private enterprise had much greater stimulating effects than higher taxes and higher deficit spending. Furthermore, in countries that received loans and “advice” from the International Monetary Fund, the currency tended to weaken further, prolonging the economic recovery. Countries that started IMF programs and then abandoned them experienced a faster rate of recovery than that resulting from the IMF program, and countries that did not accept IMF assistance and instead lowered taxes and interest rates experienced few difficulties. and a quick recovery.
In fact, some of these themes unfold throughout the book, as Lewis examines the policies of various countries at various times of economic distress. When countries experience a loss in the value of their currency, it is much better to return to a stable currency. Therefore, Lewis considers that most of the conventional economic wisdom used by central banks is wrong, from targeting interest rates to encourage growth or relying on higher taxes, price and wage controls, and deficit public spending. . The most important tool of central banks that Lewis examines is their ability to create or destroy the monetary base by selling or buying government bonds. This adds to or subtracts from the money supply, is more easily managed and is a stronger indicator of the health of the currency, according to Lewis.
Lewis’s book offers strong arguments and common sense examples supporting a return to a gold standard for the US dollar and other currencies around the world. Far from having deficiencies in the gold standard, Lewis shows that inflation and currency devaluations have been the result of countries abandoning the gold standard at various points in their history, most often during wartime. Various arguments have been put forward to explain the actions of the economy and currency values over time, and the result is the current strategy of central banks to manipulate the economy through monetary and fiscal policies, rather than link the value of the currency to gold. . These new techniques, according to Lewis, have and will continue to fail, as they give central banks the excuse that they do not control their countries’ currencies. This is a mistake, and the current era of floating coins around the world will come to an end; the only question that remains is how difficult and voluntary the transition will be.