Nathan Lewis: Gold: the Final Standard – Book Review

Nathan Lewis has written the third in a series of books about gold.  Gold is innately understood by all, but theoretical knowledge has wandered in the economics wilderness for nearly a century.  I call this the Gold Paradox.  Academia and economists have reverted to the equivalent of wives’ tales as explanation for their lack of understanding gold and gold standards.  Lewis provides the antidote for economists’ sickly, anemic grasp of the monetary realm with his books, Gold: the Once and Future Money, Gold: the Monetary Polaris, and Gold: the Final Standard.

Gold: the Once and Future Money is a historical overview of the unique monetary properties of gold, how it evolved into the monetary standard, and the unerring economic success of gold standards applied in practice.  Gold: the Monetary Polaris is a must read economic primer on Mercantilist vs Classical economics thought.  It contains a how-to section for national governments to successfully return to gold standards and stable money.  In the last chapters, it puts current global economic distortions in perspective. 

Gold: the Final Standard is a more wonkish look at gold from the beginning of recorded history.  It traces in great detail the evolution of gold and its use as money down to grams of gold in established gold coins throughout history.  This leads to the establishment of gold standards in the late 17th century.  Three hundred years of documented economic success follows when national governments properly implement gold standards.  GTFS then traces the roots of the decline in gold knowledge; initialized by the attempt to define economics as an equation centric, hard science and cemented in misunderstanding of the cause of the Great Depression.  Eighty years later this confusion continues to errantly influence the global economic environment.  

No one has spent more intellectual effort to define and clear up this economic confusion than Lewis.  His three books and website are a must reference for anyone who desires to understand Classical economics.  Lewis, like most great economic writers throughout history, is not an economist.  That is his great advantage.  When free of the cloistered clutches of present day Economics orthodoxy, one can pursue economic thought without the binding constraint of institutional dogma.  Breaking free of the errant demand-side model that monopolizes economic thought is the first step to understanding economics.  The producer is the center of the economic world, not the consumer.

Tedious detail in the early chapters may bog down the layman reader.  If this is the case, skip forward to the latter chapters.  They are highly relevant to today’s economic environment and alone are worth the price of admission.  The latter chapters examine sequential economic eras and put in perspective the result of errant economic models applied in practice.  They are essential reading for understanding how the global financial system has evolved into the mess that appears beyond the average individual’s comprehension.  Negative interest rates and secular stagnation are intuitive nonsense, but how to explain them?    

Lewis has delved into historical global central bank data to examine the various explanations for the Great Depression.  There are five theories.  I have a post about them on Man on the Margin, Nathan Lewis vs the Economics Profession.  I wrote:  

“Nathan examines each of the monetary arguments.  He looks at central bank data of the major gold standard countries during this period.  By examining the five theories as they relate to central bank balance sheets, gold holdings, foreign exchange, interest rates, base money, Fed credit, gold flows, stock indices, GDP and any other relevant data, he systematically destroys each one of the arguments.  What becomes clear is that the five theories require intellectual somersaults, inconsistent logic, and tortured data to fit preconceived conclusions.  They cannot withstand intellectual scrutiny backed by data.  The theories are as ephemeral as their real world results when applied in practice.”

An interesting observation becomes obvious in the latter chapters.  There are a plethora of charts observing relevant, important economic statistics.  In every chart, the year 1971 stands out vividly as a major inflection point.  The year 1971 is when U.S. economic statistics across the board begin to go haywire.  The reason is 1971 is the year Nixon ended the Bretton Woods international monetary system that linked global currencies to gold.  The intervening 46 years of constant monetary chaos, economic distortion, and financial crises is the result.  Again, this chaos is intuitive to our daily lives, but intellectually confusing.

Lewis sums up our post 1971 central bank PhD monetary standard world succinctly on page 226.  He writes:

“But, a central bank cannot ultimately do anything except distort the money that allows the economy to function. This mechanism, though it may grant favors and advantage to some, cannot, by its nature, create lasting prosperity. Its whole method of operation is to undermine the market systems that create prosperity. Thus, a society puts all of its hopes on a vehicle that is inherently destructive, while all other matters of economic policy languish for lack of attention.”

The economics profession has to ignore Lewis because they cannot intellectually respond to his data and arguments.  The rest of us are more fortunate.  Without the debilitating, dead weight of institutional bias, we can study, appreciate, applaud, and learn from his excellent series of Gold books.

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