Global Currency in Circulation Compared to Value of All Gold Mined

Mike Hewitt
DollarDaze Economic Commentary
2010

This figure "shows a historical comparison for the value of mined gold against that of currency in circulation. This chart essentially overlays our previous data on global money supply with the data on the value of gold. It provides the basis for our valuation of gold."

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Library Topic: The Gold Standard

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Quote Page

Quotes on the gold standard from leading experts, economists, and politicians.

Commentary or Blog Post

"Since last Wednesday's high on the NASDAQ -- which I said was the closing bookend on the NASDAQ's spring rally -- the markets have all been in consolidation. Yes, the narrow Dow Jones Industrial Average and the specialized Russell 2000 made new highs -- barely -- on Friday. But since then even they've been in retreat."

Lewis argues for a return to a solidly maintained 'gold peg' for U.S. currency. But he does so in a manner that might infuriate both the mainstream believer in the post-1971 free-floating fiat paper money managed by the Federal Reserve and the hardcore libertarian goldbug who thinks money should be gold, not merely be pegged to it.

Gold! Are a new class of investors treating it like Treasuries? The evidence: A stunningly high correlation of Gold to 20+ Year Treasuries ... from July 21 through August 16 is 0.89. Over that period, Gold is up 12.3%, while Treasuries up 11.8% (not counting today’s spasm).

Massive government interventions in the market in the form of myriad regulations and financial irresponsibility on the part of the government are really to blame. This makes the 'solution' being imposed doubly absurd: more government controls, borrowing, and spending to solve the problems created by government controls, borrowing, and spending.

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense — perhaps more clearly and subtly than many consistent defenders of laissez-faire — that gold and economic freedom are inseparable.

Western Standard columnist Brad Parkes interviews Chris Powell with the Gold Anti Trust Action Committee and explores the relationship between gold and economic freedom.

Monetary systems which are managed by central banks or governments, as opposed to systems which arise in the market and are self-equilibrating, are prone to inflation and repudiation.

The economy does not suffer a lack of consumer demand, and more money in people's pockets will not revive the supply side of the economy.

The current world monetary system assigns no special role to gold; indeed, the Federal Reserve is not obliged to tie the dollar to anything.

Back in 2007, presidential candidate Ron Paul generated a lot of talk, especially among libertarians, about monetary policy, the Federal Reserve, and the gold standard.

If your government is a credible steward of the money supply, you don't need it; and if it isn't, it won't be able to stay on it long anyway.

In this commentary economist Brad DeLong outlines some of the arguments used against the gold standard.

Chart or Graph

I would argue that the real appeal of gold is that it enables you to protect yourself from constant money creation which erodes the purchasing power of paper currencies.

This figure "shows a historical comparison for the value of mined gold against that of currency in circulation."

It appears Gold and Treasuries are now behaving as one and the same, moving in lockstep fashion.

"The next chart shows the annual oil/gold relationship for the years 1969 through 2011. I have marked the oil embargo years when an ounce of gold would buy much less oil as well as the years when oil prices were deregulated and oil got cheaper."

Increasing or 'inflating' the money supply helps create what we often refer to as inflation or rising prices. We experience 'good inflation' when the price of our stocks or home increases.

The evolution of gold reserves in Figure 2 reveals much about the monetary policies in each country. The United States lost reserves (relative to other countries) between 1926 and 1928 due in part to large capital lending to Europe.

This graph shows the declining purchasing power of the dollar since 1971. It was in 1971 that the United States officially abandoned the gold standard. The red line on the chart also shows the value of gold over time.

Analysis Report White Paper

When we contemplate the gold coins from previous centuries we are painfully reminded to what extent modern man has lost his monetary freedom and hence an important aspect of his economic freedom.

For some reason, there are a lot of people out there who can't stand the gold standard. But since I'm an economist, not a psychoanalyst, all I can really do is patiently explain how silly the antigold arguments are.

While the tightening of U.S. monetary policy in 1928 is often blamed for having initiated the downturn, France increased its share of world gold reserves from 7 percent to 27 percent between 1927 and 1932 and effectively sterilized most of this accumulation.

This paper provides a reassessment and a restatement of the essential properties of gold standards. Second, it emphasizes the role of the Real Bills Doctrine in Federal Reserve policy as the primary cause of the Great Contraction of 1929-1933.

The present worldwide inflation has done, and will continue to do, immense harm. But it may eventually lead to one great achievement. It may make it possible to restore (or perhaps it would be more accurate to say to create) a full 100 percent gold standard.

There is no reason, technically or economically, why the world today, even with its countless wide-ranging and complex commercial transactions, could not return to the gold standard and operate with gold money. The major obstacle is ideological.

The evidence supports the 'internationalist' view of close international linkages over the 'specie-flow' view of circuitous linkages and domestic autonomy in money and capital markets.

This study addresses the leading criticisms of the gold standard, relating to the costs of gold, the costs of transition, the dangers of speculation, and the need for a lender of last resort. The U.S. would not enjoy the benefits of being on an international gold standard if it were the first and only country whose currency was linked to gold.

Imagine a team of doctors hovering over the bed of the U.S. economy. With charts in hand and apparatus all around them, the medical team confers about a patient that has been in intensive care since June of 2009, which is when the recession ended. While the patient listens, the senior physician makes a quick rundown.

It was only after the major countries abandoned gold during World War I that major imbalances in international trade began to fester — imbalances that eventually exploded during the early 1930s.

"The case for a free-market commodity money as provided by a genuine gold standard is simple yet decisive. It is based on the insight that the root cause of inflation in the modern world is the almost absolute monopoly over the supply of money which all national governments possess within their respective political jurisdictions."

Recently, 'the money question' has emerged in full force once again. Its resurrection has come, not coincidentally, as an aftershock of a financial earthquake of staggering proportions."

The U.S recession of 2007 to 2009 is unique in the post-World-War-II experience by the broad company it kept. Activity contracted around the world, with the advanced countries of the North experiencing declines in spending normally the purview of the developing economies of the South.

Alternative monetary systems cannot be evaluated in isolation, but only in comparison with other arrangements. The question 'why gold?' thus divides into two other questions. The first is 'compared to what?' The second is 'why not?'

Video/Podcast/Media

In this video, economist John Maynard Keynes predicts that the British suspension of the Gold Standard will have positive results for the economy.

Dedicated to Murray N. Rothbard, steeped in American history and Austrian economics, and featuring Ron Paul, Joseph Salerno, Hans Hoppe, and Lew Rockwell, this extraordinary new film is the clearest, most compelling explanation ever offered of the Fed, and why curbing it must be our first priority.

Presented by Ron Paul at the 'Birth and Death of the Fed' conference at Jekyll Island, Georgia, 27 Febuary 2010. Includes an introduction by Mises Institute founder and chairman Llewellyn H. Rockwell, Jr.

In this video, Murray N. Rothbard gives a presentation on the gold standard prior to the civil war. Rothbard addresses a number of oft cited fallacies used to denounce gold as money.

Primary Document

The book begins with Hayek's most excellent essay on money. It is also his most radical. He plainly says that central banks cannot be reformed. There can never be sound money so long as they are in charge.

"In a complete revision of the standard account, Rothbard traces inflations, banking panics, and money meltdowns from the Colonial Period through the mid-20th century to show how government's systematic war on sound money is the hidden force behind nearly all major economic calamities in American history. Never has the story of money and banking...

The most famous speech in American political history was delivered by William Jennings Bryan on July 9, 1896, at the Democratic National Convention in Chicago.

The gold standard did not fail. The governments were eager to destroy it, because they were committed to the fallacies that credit expansion is an appropriate means of lowering the rate of interest and of 'improving' the balance of trade.

Men have chosen the precious metals gold and silver for the money service on account of their mineralogical, physical, and chemical features. The use of money in a market economy is a praxeologically necessary fact.

"I have attempted to analyze thoroughly and in depth nearly a score of major problems raised by inflation and chronic fallacies that are in large part responsible for its continuance."

"In 1912, when Mises, at age thirty-one, wrote this landmark book, no monetary theory could be described as both securely founded on economic reality and properly incorporated into an analysis of the entire economic system. The Theory of Money and Credit opened new vistas. It integrated monetary theory into the main body of economic analysis for the first time, providing fresh new insights...

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