OLD TIME RELIGION
I go back and forth in winter to a small island in southwest Florida. Peak population on Gasparilla Island is 4,500 during winter. The small village on the island is named Boca Grande and that’s the name this barrier island goes by. This summer we were sweating bullets as hurricane Irma seemed to be closing in on our place. The predicted 14-foot surge of ocean waves would have wiped out every residence on the island. Fortunately for us, the hurricane went ashore just to the south of us at Naples and Fort Myers.
My wife and I took our first trip down in mid-November. When you’ve been going there for years you get to know a lot of people. So it gets to be a social place. My wife does a lot of volunteer work for the Women’s Club and seems to know everybody. There are always a lot of programs, plays and visiting speakers at the community center. In early December, Larry Kudlow was speaking about his new book JFK and the Reagan Revolution. He contends that a tax cut will generate 4% growth without fear of inflation.
I’m on a different wave length than most people in the audience. We already have significant inflation, especially in assets. Bubbles are caused by too much money and credit. The whole world is pumping out money and credit. Consequently, I believe we are eventually going to see runaway inflation worldwide. The root cause of inflation is government spending. No brake exists on government debt and the budget deficits only seem to grow. This can’t go on forever. Inevitably, it must lead to a collapse.
The only cure for central bank monetary excess is a type of money that can’t be created endlessly. Some would suggest Bitcoin, but cryptocurrencies are being created by the thousands. Money creation cannot be unlimited. Legitimate money that serves as a unit of account, store of value and medium of exchange only exists in one asset – gold.
Gold can serve as money because there is a lot of it in the world. Silver could never be money again because there is so little of it. The great Austrian economist Ludwig von Mises had this to say about gold: “The gold standard has one tremendous virtue: the quantity of the money supply, under the gold standard, is independent of the policies of governments and political parties. This is its advantage. It is a form of protection against spendthrift governments.”
Did the gold standard work? Mises answers, “The gold standard was the world standard in the age of capitalism, increasing welfare, liberty, and democracy, both political and economic… It was the medium of exchange by means of which Western industrialism and Western capital had borne Western civilization into the remotest parts of the earth’s surface, everywhere destroying the fetters of age-old prejudices and superstitions, sowing the seeds of new life and new well-being, freeing minds and souls, and creating riches unheard of before.” Mises also pointed out why the gold standard disappeared: “The gold standard did not collapse. Governments abolished it in order to pave the way for inflation…The classical or orthodox gold standard alone is a truly effective check on the power of the government to inflate the currency. Without such a check all other constitutional safeguards can be rendered vain.”
I’m back in Minnesota trying to avoid the patches of ice and snow that cause so many people to fall. My friend David fell on his icy driveway and broke his shoulder. I can’t wait to go back to Florida where you can go for a long walk or a jog without much fear of a fall. Life is good for the affluent residents of Boca Grande. The last thing that would enter their minds is the possibility of a return to the gold standard. Nevertheless, at some point in the future a return to the gold standard is inevitable. A lot of wealth will have evaporated by then. I may not be here for it, but its coming is certain. When no other money has value, gold will be money again.