by Dr. Gary North
(Editor’s note: There are few subjects more important than monetary policy, since bad monetary policy steals your money, and good monetary policy protects your money. Gold and silver ARE money.)
The experts on gold are the people who publicly recommended that investors purchase gold when gold was under $300. They recommended that people purchase gold when gold was at $300, $400, $500, $600, $700, $800, $900, $1000, $1100, and, finally, $1200.
The non-experts on gold are the people who never told investors to invest in gold at any price, and who are now saying that gold is going to decline in price, and therefore it is not a good investment.
I have personally monitored the gold market ever since 1963. I guess you would call me an old hand in the gold market. I have seen gold bugs come and go, and I have seen gold haters come and go. I have seen many arguments in favor of gold, and I have seen many arguments against gold.
What I have not seen is someone who could consistently time the markets in terms of buying gold low and selling it high – people who went public with this information just before the turning points.
HOW TO BECOME AN EXPERT
It is easy to become an investment expert in any field. Study it on an almost daily basis for about 10 years. Follow every aspect of it in the public press. Get an understanding of why and how the market operates with respect to this particular commodity, stock, or asset class.
It would not hurt if you spent 20 years on this study. Frankly, it would not hurt if you spent your whole life on this topic.
Over time, you will develop skills at market timing, but you will never get the timing perfect. The market will always fool you. The best that you can hope to do is to buy in shortly after the market has begun to move up, and to sell out shortly after market begins to move down.
With respect to the arguments in favor of this or that commodity, you can become an expert here a lot easier than you can become an expert in the actual timing of the changes in price of the commodity. The arguments do not change very much. This is because the same people push the same arguments, year after year, decade after decade. Those were bearish remain bearish, and those were bullish generally remain bullish. This is a matter of human personality; it is not a matter of market pricing.
THE ARGUMENTS AGAINST GOLD
The arguments against gold all stem from one idea: that private property is insufficient to establish a reliable monetary system. All of the arguments, without exception, rely on one version or another of a rival idea: central governments must intervene in the market for gold and silver in order to provide a reliable monetary unit. When I say government, I also mean the government-licensed monopoly that we call the central bank.
All opponents of a gold coin standard adopt some version of the anti-free-market ideology. They may be free-market people in other areas of their thinking, but in the area of monetary policy, they do not trust the free market. They do not trust individuals who act in their own self-interest, and who establish voluntary contracts with other individuals.
This is certainly true of the monetarists. The monetarists, following the arguments of Milton Friedman, have always opposed the idea that individuals are sufficiently reliable, trustworthy, and knowledgeable to make their own decisions about what kinds of money are best for them.
The monetarists have always opposed the standard free-market argument that individuals who pursue their own self-interest are capable of making their own decisions. These monetarists also oppose the idea that the decisions of individuals relating to their choice of a monetary standard will produce, collectively, a reliable monetary system.
This hostility to free-market money is opposed to the official position of the monetarists with respect to other aspects of the market economy. Some of them believe in antitrust laws. Some of them do not. But all of them believe that the central bank, when backed up by the power of the Federal government, is the only reliable institution with respect to the establishment of the fundamental policies governing monetary policy. These people trust the central bankers.
When you find scholars who oppose the full gold coin standard, you can be certain that these men do not really believe in free market. They believe in it for some areas of the economy, but they do not believe in it with respect to the central institution of all economic decision-making in a modern economy: the money system. They believe in government, which means they believe in coercion. They believe that somebody with a badge and a gun has the right to stick that gun in the belly of a decision-maker and demand that this individual use the money provided by the central bank.
Because academic economists are overwhelmingly Keynesians, and because a minority are monetarists, they believe in the legitimacy and wisdom of people who carry badges and guns. They believe in coercion in the area monetary policy, and they recognize that gold is the greatest single threat to government coercion that there is.
Individuals make decisions day after day, in almost every area of their lives, by using money. They establish the rules of the game on their own authority. Most people will never think of getting their hands on a gun in order to fight the central government. But in their daily decision-making, in the free market, they establish their own authority over government activities by means of the monetary system.
Control over governments by people who have the right to make exchanges in terms of non-government, non-central bank monetary systems is a crucial control over government. This is because such control is constant. Using gold coins is not self-consciously a means of exercising control over government, but it functionally is control over government. It forces the government to restrict its spending and its taxing as no other single legal right possessed by citizens and non-citizens.
This is why the overwhelming opinion of the opinion-makers in the modern world is opposed to a full gold coin standard. The reason for this is that the overwhelming opinion of the opinion-makers is in favor of government power. The individuals who openly favor the establishment of a full gold coin standard are in opposition to the dominant outlook of the intellectual world.
The intellectuals are committed to the expansion of the power of the state. Even those members of the academic community who say that they are not in favor of the expansion of the power of the state are, in fact, in favor of the expansion of the power of the state in the central institutional area that coordinates all other economic decisions: the monetary system.
Because of this, individuals who have decided that the fiat currencies of the world are unreliable, because the politicians are unreliable, face an uphill battle. They face ridicule. They may face self-doubt. They hear constantly that gold is not a good investment, that gold is not a reliable standard for the monetary system, that gold is a barbarous relic. They must take a stand against these anti-gold opinions, and they feel hard-pressed to come up with answers against the technical criticisms of the gold standard. I have watched this for over 40 years.
We see today that a tiny minority of citizens in the United States are beginning to rethink the legitimacy of the central bank. Ron Paul has made famous the phrase: “End the Fed.” Because the popularity of this phrase is beginning to grow, people are beginning to rethink the question of whether or not the central bank is a reliable institution to control the money supply. As doubts are raised regarding the reliability of the Federal Reserve System, doubts are also raised about the reliability of the arguments against the gold coin standard.
When we hear on the financial media that some expert has said that gold has peaked or soon will, so that anyone who invests in gold today is taking a terrible risk, we can be sure that this person did not tell people to buy gold at any time in his career. That person is a standard knee-jerk gold hater.
The hatred of gold is ideological. It is based on a love of government. It is based on trust in the Federal Reserve System. It is supported by most academic economists, and it is supported by an even higher percentage of politicians at the national level. This constant barrage of opinion against investing in gold is a concerted effort to keep people from protecting themselves against the expansion of Federal power by means of the expansion of the money.
These people are ideological purists. They oppose the free market system. They want a rigged economy. They may say they believe in the free market, but what they really believe in is the right of insiders to manipulate the markets by means of government policy and central banking policy. They want a rigged market, because they do not trust the authority and legitimacy of individual citizens making their own decisions with their own money.
So, when you hear these arguments, you can be sure that you are listening to someone who does not believe in the free market. This person is a spokesman for the government. He may not be on the government payroll, but he has bought into the worldview which says that individuals do not have the authority or the wisdom to make their own decisions with respect to the currency that they choose to use in voluntary exchange. These people are part of the government-financial complex.
If you trust the government to tell you the truth, then you probably also trust the proclamations of these self-appointed experts in gold, who never told anybody to buy gold, that gold is a bad investment. These people have been wrong for a decade. They have told you to buy stocks, but stocks were higher in March 2000 and they are today. They told you not to buy gold in 2000, if they even mentioned gold in 2000, and gold is up over 4 to 1. These people missed the investment of the decade, and they told you to buy and hold stocks, in what was a bad investment for the decade. It would have been a better investment to stick your money into an FDIC-insured savings account and leave it there. You would be ahead of the game. You did not need these experts in gold or experts in stocks to tell you what to buy, because they did not know what to buy.
They are spinning the same old party line today about buying and holding stocks and not buying gold that they were spinning in the year 2000. They were wrong then, and they are wrong now.
Within the conservative movement, there is a pro-fiat money group called the greenbackers. They have been around since the 1860s. They are radicals, leftists, and believers in the welfare state. They oppose the gold standard with the same enthusiasm that they oppose the Federal Reserve System.
They oppose the Federal Reserve System because they oppose banking. They oppose banking because banks charge interest. They favor the creation of pure fiat money, which the government issues in order to expand the welfare state. They oppose the gold standard because the gold standard, meaning individuals owning gold coins and using them in exchange, restricts the expansion of government expenditures beyond tax revenues. They do not want to see the government restricted by any factor other than voting pressure from citizens. If the government wants to expand its spending, the greenbackers approve. They do not want any kind of monetary restraint placed on the Federal government, whether by a full gold coin standard or by lenders who do not wish to lend the government any more money at low interest rates.
So, there is a far left element within the conservative movement that cries out against the Fed, not with the idea of replacing the Fed with a voluntary system of money and banking, but with the Congress of the United States being totally in control of the money supply. They believe in government with the same enthusiasm that the Keynesians believe in government, and they adopt almost identical arguments with respect to the legitimacy of the gold standard.
Pay no attention to the little men on the TV screens. That’s because they are the little men behind the curtain of coercion. It is not an iron curtain. It is a fiat-money curtain. They believe in the wisdom of men with badges and guns.
There are too many men with badges and guns today: badges and guns and fiat money. Take away their fiat money, and a lot of them will have to turn in their badges and guns.
Gary North is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.
Copyright © 2010 Gary North