The True Gold Standard (Second Edition)
"...a money supply based on nothing other than faith in government is a productivity killer."
John Aziz is a young British blogger on matters economic, publishing at azizonomics: economics for the jilted generation. In a recent entry he addresses the predicament that during the post-war gold-exchange standard "average family income increased at a greater rate than that of the top 1%. From 1979-2007 (years without a gold standard) the top 1% did much, much better than the average family." The stagnation of family income, and the growing disparity between the middle class and the wealthy is, of course, one of the fundamental complaints underlying the former Occupy Wall Street movement and its more structured successor, the 99% Spring. Of course, economic growth rates are a combination of labor force growth plus productivity growth. Without productivity growth wages stagnate. So ... consider the correlation between monetary policy and productivity growth (and the absence thereof).
Aziz writes, with exceptional lucidity:
I have long suspected that a money supply based on nothing other than faith in government is a productivity killer.
Last November I wrote:
As we have seen with the quantitative easing program, the newly-printed money is directed to the rich. The Keynesian response to that might be that income growth inequality can be solved (or at least remedied) by making sure that helicopter drops of new money are done over the entire economy rather than directed solely to Wall Street megabanks.
And now I have empirical evidence that my hypothesis has been true — total factor productivity.
In 2009 the Economist explained TFP as follows:
Here’s US total factor productivity:
Only a wilful and ideological Keynesian could ignore the salient detail: as soon as the USA left the gold exchange standard, total factor productivity began to dramatically stagnate.
Coincidence? I don’t think so — a fundamental change in the nature of the money supply coincided almost exactly with a fundamental change to the shape of the nation’s economy. Is the simultaneous outgrowth in income inequality a coincidence too?
And it’s not just total factor productivity that has been lower than in the years when America was on the gold exchange standard — as a Bank of England report recently found, GDP growth has averaged lower in the pure fiat money era (2.8% vs 1.8%), and financial crises have been more frequent in the non-gold-standard years.
The authors of the report noted:
Still think it’s a barbarous relic?
Full marks, Mr. Aziz
Oct 20, 2014
Lawrence H. White is an economics professor at George Mason University who teaches graduate level monetary theory and policy. Lawrence White As described by the Wikipedia, "White earned his BA at Harvard University (1977) and PhD at the University of California at Los Angeles (1982). Before his current role at George Mason...
The Federal Reserve System's James Narron and David Skeie, career officials with the Federal Reserve System, are two eminent historically erudite figures. Writing in the New York Federal Reserve Bank's online publication, Liberty Street Economics, they recently provided a continuation of their valuable historical "revue," Crisis Chronicles: The Collapse of the...
Jul 23, 2014
An article headline in Saturday’s Wall Street Journalread “Rate Talk Heats Up Within The Fed.” As Journalreporters Jon Hilsenrath and Michael Derby...
Oct 05, 2012
Key Monetary Writings
The second part of the “Golden Fetters” indictment, to quote a recent statement of it (Bordo 2010, p. 40), is...
Why the Gold Standard?