Jim Grant Joins The Chorus Demanding A Return To The Gold Standard

Tyler Durden's picture

We salute Jim Grant for joining the ever greater chorus demanding a return to the gold standard: "Let the economists gasp: The classical gold standard, the one that was in place from 1880 to 1914, is what the world needs now. In its utility, economy and elegance, there has never been a monetary system like it." And no, as Jim Rickards among others claim, a return to the gold standard would not be deflationary...if gold were to be converted to the USD at between $5,000 and $35,000/oz.

How to Make the Dollar Sound Again, by James Grant

Originally appearing in the New York Times

BY disclosing a plan to conjure $600 billion to support the sagging economy,
the Federal Reserve affirmed the interesting fact that dollars can be
conjured. In the digital age, you don’t even need a printing press.

This was on Nov. 3. A general uproar ensued, with the dollar exchange
rate weakening and the price of gold surging. And when, last Monday, the
president of the World Bank suggested, almost diffidently, that there might be a place for gold in today’s international monetary arrangements, you could hear a pin drop.

Let the economists gasp: The classical gold standard, the one that was
in place from 1880 to 1914, is what the world needs now. In its utility,
economy and elegance, there has never been a monetary system like it.

It was simplicity itself. National currencies were backed by gold. If
you didn’t like the currency you could exchange it for shiny coins
(money was “sound” if it rang when dropped on a counter). Borders were
open and money was footloose. It went where it was treated well. In
gold-standard countries, government budgets were mainly balanced.
Central banks had the single public function of exchanging gold for
paper or paper for gold. The public decided which it wanted.

“You can’t go back,” today’s central bankers are wont to protest, before
adding, “And you shouldn’t, anyway.” They seem to forget that we are
forever going back (and forth, too), because nothing about money is
really new. “Quantitative easing,” a k a money-printing, is as old as
the hills. Draftsmen of the United States Constitution,
well recalling the overproduction of the Continental paper dollar,
defined money as “coin.” “To coin money” and “regulate the value
thereof” was a Congressional power they joined in the same
constitutional phrase with that of fixing “the standard of weights and
measures.” For most of the next 200 years, the dollar was, in fact,
defined as a weight of metal. The pure paper era did not begin until

The Federal Reserve was created in 1913 — by coincidence, the final full
year of the original gold standard. (Less functional variants followed
in the 1920s and ’40s; no longer could just anybody demand gold for
paper, or paper for gold.) At the outset, the Fed was a gold standard
central bank. It could not have conjured money even if it had wanted to,
as the value of the dollar was fixed under law as one 20.67th of an
ounce of gold.

Neither was the Fed concerned with managing the national economy. Fast
forward 65 years or so, to the late 1970s, and the Fed would have been
unrecognizable to the men who voted it into existence. It was now held
responsible for ensuring full employment and stable prices alike.

Today, the Fed’s hundreds of Ph.D.’s conduct research at the frontiers of economic science. “The Two-Period Rational Inattention Model: Accelerations and Analyses” is the title of one of the treatises the monetary scholars have recently produced. “Continuous Time Extraction of a Nonstationary Signal with Illustrations in Continuous Low-pass and Band-pass Filtering”
is another. You can’t blame the learned authors for preferring the life
they lead to the careers they would have under a true-blue gold
standard. Rather than writing monographs for each other, they would be
standing behind a counter exchanging paper for gold and vice versa.

If only they gave it some thought, though, the economists — nothing if
not smart — would fairly jump at the chance for counter duty. For a
convertible currency is a sophisticated, self-contained information
system. By choosing to hold it, or instead the gold that stands behind
it, the people tell the central bank if it has issued too much money or
too little. It’s democracy in money, rather than mandarin rule.

Today, it’s the mandarins at the Federal Reserve who decide what
interest rate to impose, and what volume of currency to conjure.

The Bank of England once had an unhappy experience with this method of
operation. To fight the Napoleonic wars of the early 19th century,
Britain traded in its gold pound for a scrip, and the bank had to decide
unilaterally how many pounds to print. Lacking the information encased
in the gold standard, it printed too many. A great inflation bubbled.

Later, a parliamentary inquest
determined that no institution should again be entrusted with such
powers as the suspension of gold convertibility had dumped in the lap of
those bank directors. They had meant well enough, the parliamentarians
concluded, but even the most minute knowledge of the British economy,
“combined with the profound science in all the principles of money and
circulation,” would not enable anyone to circulate the exact amount of
money needed for “the wants of trade.”

The same is true now at the Fed. The chairman, Ben Bernanke, and his
minions have taken it upon themselves to decide that a lot more money
should circulate. According to the Consumer Price Index, which is
showing year-over-year gains of less than 1.5 percent, prices are
essentially stable.


To reinstitute a modern gold standard today would take time, too. The
United States would first have to call an international monetary
conference. A chastened Ben Bernanke would have to announce that, in
fact, he cannot see into the future and needs the information that the
convertibility feature of a gold dollar would impart.

That humbling chore completed, the delegates could get down to the
technical work of proposing a rate of exchange between gold and the
dollar (probably it would be even higher than the current price of gold,
the better to encourage new exploration and production).

Other countries, thunderstruck, would then have to follow suit. The
main thing, Mr. Bernanke would emphasize, would be to create a monetary
system that synchronizes national economies rather than driving them

If the classical gold standard in its every Edwardian feature could not,
after all, be teleported into the 21st century, there would be plenty
of scope for adaptation and, perhaps, improvement. Let the author of
“The Two-Period Rational Inattention Model: Accelerations and Analyses”
have a crack at it.

(read the full Op-Ed here)

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Calvin Jones and the 13th Apostle's picture

Bernanke would jump off the nearest bridge before he'd ever agree to do anything like this.  Maybe that's Grant's idea.  I don't know.

Bendromeda Strain's picture

And no, as Jim Rickards among others claim, a return to the gold standard would not be deflationary...if gold were to be converted to the USD at between $5,000 and $35,000/oz.


Tyler, I know you are pretty tight on your cites, but Rickards said almost verbatim those words on his last KWN interview dated 11/9. Returning to gold wouldn't need be deflationary at a higher price. Rickards knows this.

beanieville's picture

I demand the return of the clam standard.  We should trade clams and lobsters.

Jack Burns's picture

"We should trade clams and lobsters."


Behold, a rich endowment!



Zero Debt's picture

I find the clam and lobster standards highly objectionable.

If we would have to re-price clams (or lobsters) in consideration of the total global stock of clams versus the global M3 nobody would be able to afford a clam and there would soon be no base money left as the clams would become extinct quickly.

Even with a gold standard, the total value of all circulating currencies in the world PLUS the total value of all gold ever mind is LESS than the total US government obligations. I just can't see where Obama would be able to mine 80 T USD of gold or fish up 80 T USD of lobsters/clams/seashells/unicorns to pay off all these obliations.



honestann's picture

See, we told you gold was massively undervalued.

However, all debts denominated in FederalReserveNotes are invalid anyway, since the FederalReserve and fiat currency are fiat, fake, fraud, fiction, fantasy and massively unconstitutional.

To abandon all these debts has another important function - to teach everyone in the future never to accept fiat, fake, fraud, fiction, fantasy paper BS.

StychoKiller's picture

Bernanke would jump off the nearest bridge before he'd ever agree to do anything like this.

You write that like it's a bad thing! :>D

Jim Willie CB's picture

Lira is a sharp bold cookie. He ignores the powerful feedback loop mechanism on the hyper-inflation claim to hit by next year. The uniformly rising cost structure will result in added profit margin pressure for businesses in the USEconomy that bring about even greater profit margin erosion. That will force a steady and relentless job cut trend in direct response. Lira does great work. A bit cocky, he ignores a basic fact of economic life, RESPONSE MECHANISMS. In my Hat Trick Letter work, I always factor in the vicious feedback loop effect. This one will be powerful and will cause tremendous job cuts, followed by public outcry. Worse, it will result in known wrong project bids, which will later cause devastating losses and company shutdowns like in the construction business. Got half a million more comments on this important topic. I suspect Lira will be half right, by that I mean the price inflation needle will move halfway to where he expects it in his hyper-inflation scenario. The Jackass and Lira agree on the direction, just not the speed of movement, since the feedback will be horrible. Just imagine all the company liquidation sales and the competition, pitting dead businesses in liquidation against live businesses threatened!! 

unwashedmass's picture


and the article is on the NYT editorial page. Ben has to be crappin' his pants as the crowds are starting to turn on him.

MeTarzanUjane's picture

Right next to the article written by Nobel Prize winner Paul Krugman. I'm sure he's shaking in his golden slippers.

honestann's picture

Those types of morons will not recognize what's happening until somewhere in the following sentence:

ready... aim... fire !!!

We all look forward to that day.

DosZap's picture

Well,more and more WELL respected people are advocating this,or a form there of.All I can say is if it were to even get semi serious talks going among the Soverigns, all public holdings would be devalued, and confscated.

Going back on the Std, might be a good idea, just not for those of us around the world have chosen to protect ourselves with it as insurance.

It might get revalued, but not before the publics holdings were taken at face value, or VERY little above.

I do not want a GS it would not work, not with the players we have stil in control.

JLee2027's picture

DosZap said" I do not want a GS it would not work, not with the players we have stil in control."


 In fact, Marco Polo said of Kublai Khan and the use of paper currency:

"You might say that [Kublai] has the secret of alchemy in perfection...the Khan causes every year to be made such a vast quantity of this money, which costs him nothing, that it must equal in amount all the treasure of the world."

Even Helicopter Ben would be impressed. Marco Polo went on to say:

"This was the most brilliant period in the history of China. Kublai Khan, after subduing and uniting the whole country and adding Burma, Cochin China, and Tonkin to the empire, entered upon a series of internal improvements and civil reforms, which raised the country he had conquered to the highest rank of civilization, power, and progress. ...

"Population and trade had greatly increased, but the emissions of paper notes were suffered to largely outrun both...All the beneficial effects of a currency that is allowed to expand with a growth of population and trade were now turned into those evil effects that flow from a currency emitted in excess of such growth. These effects were not slow to develop themselves...The best families in the empire were ruined, a new set of men came into the control of public affairs, and the country became the scene of internecine warfare and confusion." (- Daily Reckoning)


http://www.thedailybell.com/800/Depression-2010-Western-Fiat-Money-Finished.html   Moral of the story is that Obama, Bernanke, Geithner, etc, their time is limited. They'll be in power until the currency collapses.

-Michelle-'s picture

There is nothing new under the sun...

honestann's picture

If you read my posts (above in this thread) about what exactly is a real, honest, ethical gold standard... you would see that it works just fine... superbly in fact.

Yes, we must stop letting the predators enslave us.  We are not slaves... they only claim we are.  If you believe them, you are a poor abused, self-enslaved fool.

We do not accept being poor abused slaves any longer.  We own gold (and silver, and other real, physical, valuable goods).  If they demand we give them our real, physical goods, we will refuse ("I don't have any [any more]").

If that is impractical for any reason (unlikely), we shall convert our gold into other real, physical goods.  If they decide to wander down the periodic table of elements and attempt to confiscate all 92 or 103 elements, let them try.  They will not get very much from us... except for lead, if you catch my drift.

The gold standard will work.  But it will only come to pass when all of us convert our fiat, fake, fraud, fiction, fantasy paper assets into real, physical goods like gold, silver, platinum, palladium, nickel, copper, lumber, seeds, farmland, productive equipment and so forth, and refuse to accept fiat paper for goods we produce.

We must make the gold standard exist, and work.

Hold your wealth in fiat at your own peril.

poggi's picture

Jude Wanniski in 1997: http://www.polyconomics.com/memos/mm-971229.htm.  Remembered fondly.

The role of gold as numeraire is what remains, and that role will remain as far as the eye can see. Ordinary people, as opposed to government, must have a numeraire which enables them to accurately price present goods against future goods against foreign goods and foreign future goods.




A "strict" gold standard is not uninformed 19th century thinking. It is uninformed 20th century thinking. The gold standard worked in the 19th century not because banks held gold in equal reserves to the notes they issued, but because the United States government guaranteed its national debt in dollars at a specified weight of gold. The establishment of the government standard is what enabled the private banks to issue notes that could circulate from one sphere to another, although their primary function was to intermediate bills of exchange denominated in dollars, even though those dollars technically did not exist. The great classical economists of the 19th century, from David Ricardo through Karl Marx, understood that gold's principle function as money was to provide a numeraire through which the markets could infer all other exchange rates, i.e., "prices." Money is functioning at the peak of efficiency when the bank need hold no gold. That is, as long as the bank has assets that enable it to acquire gold at a moment's notice, it does not have to hold the specie itself.

nuinut's picture

as long as the bank has assets that enable it to acquire gold at a moment's notice, it does not have to hold the specie itself.

That's a great theory, but where exactly does the buck stop?

The bank is relying on who to supply them with physical gold at a moments notice?

And upon whom is that party relying to supply them, and so on and so forth.

What if demand is great; how will they pay if the price rises dramatically? Counterparty risk must be removed from the system, and physical in your possession is the only way to do it. Take responsibility for yourself, and expect likewise of others. Problem solved.


If the opportunity is there for shell games to be played, it will be taken; that's human nature.

Don't give the opportunity.

honestann's picture

The ONLY honest, ethical, practical solution is:

 ---  pure physical gold standard

Anything else is pure fraud.

Add the following definition to every dictionary:

paper (noun): fraud.

Because given the diabolical nature of predators today, any form of paper gold, gold receipts, fractional reserve practices, or similar --- will instantly empower the predators-that-be to print fiat paper, buy every politician (and every real, physical good on earth), and enslave everyone yet again.  We've been through this already several times.  Wake the frack up, humans!

trav7777's picture

BACK to a gold standard?  we never had one, jfc.  We were on a silver standard, or bimetallism to be more accurate.

NOTHING about the gold standard prevents the same type of bullshit we've been seeing.  You people actually believe the BANKS won't print paper gold?  JFC the BOE did this for CENTURIES.  How the hell you think Britain became a world empire?


BennyBoy's picture

The Gold Standard was manipulated by the banks back then and would be again. So easy to do.

A mixed commodity bag may work better. We are on the Oil Standard now.

All CB's need to be completely transparent no matter what system is adopted.

Any and all transactions to be posted within 5 minutes of being done. No exceptions. All banks in trouble would fail quickly. No time to have 2 sets of books or off blance sheet items.

Perhaps the rate of monetary growth would equal population growth.


dkny's picture

Why should the rate of money growth equal population growth?

Why should it even grow?

honestann's picture

The fact is, no matter what the exchange rate between gold and other goods becomes on a real, honest, pure physical gold standard... the system will automatically equalize in fairly short order.

For example, if the initial "value" (conversion rate) for gold was accidentally set too low initially, gold mines would close, reducing supply below the growth of goods and population, restricting gold supply, which would gradually lead to slower rising gold prices (a balance).  The same process works in reverse if the initial "value" conversion rate) for gold was accidentally set too high initially.

It may not be obvious, but in the end (after a few months, or years at most), the gold standard would be very stable whether the supply of gold increased slowly or not.  My guess is, gold supply would not quite keep pace with the growth in goods and population, which would effectively create a modest equivalent of "interest" on gold savings even when burried in your back yard.  This is good, but is not necessary.

ExistentialSkeptic's picture

Your understanding of the consequence of mis-priced conversion is wrong -- you are thinking of gold the way you would any commodity.  In actuality, the ability to add to the flow (open more mines as in your example) is very limited.  Any government setting convertability at any fixed price would find themselves out of gold quickly.

honestann's picture

Oh yes!  Of course that's true.  I would never, ever support government setting prices of anything.  In fact, if you read what I wrote above in this thread, you'll see that it is absolutely necessary for the unit of value (or "currency") to be "1 gram of gold".

The only "price fixing" involved is to define:

one gram of gold == one gram of gold

No way around that price fixing - that's pure reality.  No way a gold standard can have "dollars", "pesos", "euros", "yen" or other bogus names.  The only "money" that could exist is "n grams of gold" - period.

What I mean by the initial exchange rate might initially be slightly too high or too low is this.  If we switch to a real, honest, physical gold standard, the exchange rate between eggs and gold, and every other real, physical product [and service] might be slightly higher or lower than the long term exchange rate that would automatically occur.

NOBODY sets these exchange rates!  Or to put it more accurately, every producer of goods sets the exchange rate for his goods versus gold.  If he cannot exchange all the goods he produces, he may decide to lower the exchange rate to assure he sells all the goods he produces.  Or if he cannot keep up with demand at his initial exchange rate, he might decide to raise the exchange rate to match demand with his productive ability (get as much for his product as the market will bear at the quantity he attempts to sell).

dkny's picture

I believe Murray Rothbard pointed out in his book The Mystery of Banking that coupled with printing was also the oh-so-common suspension of the obligation to redeem. Additionally, there was the aspect of threat of force by the state which eventually conveyed legal tender status on BOE notes.

So, if you have perversions of the gold standard system with such elements as fractional reserve, lender of last resort, and legal tender for the notes of the lender of last resort, then you are not really on the gold standard.

Freewheelin Franklin's picture

Free banking, Bithchez.


Competing bank notes, Bitchez.


Repeal the National Bank Act of 1864 & 65, Bitchez.

MeTarzanUjane's picture


Trav and B9K9 are my 2 favorite ZH'ers. They get it.

StychoKiller's picture

increasing the number of FRNs in circulation in either cyberspace or meatspace doesn't seem to add to oil supply either.  Check your premises.

MeTarzanUjane's picture

That is not Trav's argument, it has never been his argument regarding oil.

oddjob's picture

Peak Oil is a silver/copper play.

zaphod's picture

No, "us" people understand that a gold standard requires convertability to physical gold, that prevents the banks from printing paper gold. That is the mechanism that keeps them somewhat honest.

No converability, no gold standard.


honestann's picture

No paper gold == no convertability.

Therefore, no paper gold.  That is the answer.

Nobody needs so-called "paper gold", and only a braindamaged moron who has learned nothing from the past 100 years of fraud would ever even imagine so-called "paper gold" as part of a new gold standard.

The entire notion is 100% totally freaking insane.

There must not be convertability, but only because there must not be any form of so-called "paper gold".  Once you or any sucker is willing to accept receipts for gold, you (and the rest of us) are finished.  The predators-that-be will instantly print up enough pieces of paper gold to buy every real, physical asset on earth (not to mention every politician), and you and everyone else will instantly become their slaves again.

Wake up!  Gold is valuable enough that you can outright buy a house with a quantity of gold you can carry in a [reinforced] briefcase or bowling bag.  And that is today, before the relative exchange rate of gold to other goods rises a factor of 10x to 100x as would probably happen naturally on a gold standard.

Please stop habituating stupid thought.

Just because you carry paper-fiat and metal-fiat today doesn't mean you need to carry paper-fiat tomorrow, even paper-fiat that supposedly is a receipt for gold.

No more paper gold.  No more paper scams!

honestann's picture

Repeat after me 1,000,000 times:  no convertability.

In fact, no paper gold.

In fact, braindead humans out there, please just read that phrase "paper gold".

If you do not recognize the phrase "paper gold" as a blatantly self-contradiction and inherent fiat, fake, fraud, fiction, fantasy... you are terminally braindamaged or braindead.

In the world we live in today, which is infinitely more intellectually corrupt than any previous time in history:

A gold standard must not recognize paper gold.

The predators-that-be will instantly take control of any such system, and create infinitely more pieces of paper gold than the physical gold that supposedly backs it (but in fact they already sold or leased).

Wake the frack up, humans!

One important reason the  gold  standard existed is because you can carry enough gold to buy almost anything you could possible want or afford with a quantity of gold you can carry in your pocket, or at worst in a couple [reinforced] bowling bags (to outright buy a house).

We cannot afford, and do not want, any "paper gold".  So-called "paper gold" is a self-contradiction and pure, unadulterated, inherent fraud and theft.

No paper gold.
No fractional reserve practices of any kind whatsoever.

Otherwise, don't even bother.

nmewn's picture

"You can’t blame the learned authors for preferring the life they lead to the careers they would have under a true-blue gold standard. Rather than writing monographs for each other, they would be standing behind a counter exchanging paper for gold and vice versa."

Excellent insight.

Reminds me of the old Richard Pryor joke line where he says..."and we would compliment each others lies".

nuinut's picture

Physical gold only (NO PAPER GOLD) freely floating is what is required.

The classical gold standard allowed the lending of gold, which is the source of all the problems.

Internet Tough Guy's picture

Just say no to a fixed gold price; it never works, the government cheats. Floating gold price, Freegold, can't be cheated. Freegold, bitches.

honestann's picture

No, no, no, no, no.  You have the right intention, but you formulate the idea in the worst way possible.

The unit of any real, honest gold standard is:

one gram of gold

Not "dollar" or "peso" or "euro" or "yen" or any other fraudulant artificial bogus name.  These are not units of anything, as proved by the endless devaluations of these supposed units against gold and other currencies over the centuries.

one gram of gold will always and forever equal one gram of gold.

No more fraud.  No more fictions!  No more word games!

drbill's picture

No Central Bank, or the government that they have bought, will ever willingly go back to a gold standard. Gold puts the people in charge. Going back to gold would mean to give up control. The government (a.k.a. politicians that the banks have bought) will resist gold with their last dying breath. Let's hope they die sooner rather than later. The longer they take to die, the more damage they will do.

RobotTrader's picture

Nice theory, but it will never happen.

We'll NEVER go back to a gold standard,  not in our lifetime.

Internet Tough Guy's picture

Right and wrong. We won't go back to a fixed price gold standard. Euro is already on a floating standard, and have been for 10 years. Get thee to FOFOA.

honestann's picture

Yes.  In any real, honest gold standard, the value (and name) will be "1 gram of gold", not "dollar" or "euro" or "peso" or "yen" or any other stupid name.

Note: For the few absolute numbhead dimwits in the room:
one gram of gold will always equal one gram of gold.

Translation:  depreciation is impossible.

SWRichmond's picture

We'll NEVER go back to a gold standard,  not in our lifetime.

I am ranking that statement right up there with "Don't bet against the Fed."

Dollar Bill Hiccup's picture

That's right friend.

The Bernank will save us. With the quantitative easing ...

MeTarzanUjane's picture

I rip my nose hairs out by the root. I pinch them between the index and thumb and rip. I like the pain but I don't like the infection that sets in a day or two later.

ColonelCooper's picture

Try the dingle hairs.  Nearly equal pain, way fewer infections.

equity_momo's picture

RT , you understand heatmaps , momentum and lingerie catalogues but when it comes to anything cerebral , be a good boy and stfu.

Never say never.

AUD's picture

Only because the government will never acquiesce to having its debt repayable in gold.

Otherwise we never would have lost the gold standard.

honestann's picture


And you can be certain, if the market and/or other countries ever force the USSA to return to the gold standard, the USSA will pay off all its debts in fiat currencies.

As much as I hate the predators-that-be, I must admit that I consider this appropriate --- all debts contracted in fiat paper should be settled in fiat paper.

That will be a good lesson for the future... to prevent morons from ever accepting or lending fiat paper.