The True Gold Standard (Second Edition)
Next we turn our attention to the economic infirmities of the world dollar system, which:
The first of the world dollar standard's economic disorders:
1. The world dollar standard causes a persistent trade deficit, hollowing out our industrial base.
The U.S. trade deficit grew to $497.8 billion in 2010, from $374.9 billion in 2009. This means that Americans bought almost half a trillion dollars of goods and services from abroad more than what we sold. Many people sense that it is wrong to spend more than you earn, particularly at this scale. They are right.
Hugo Salinas Price, one of the most successful and astute citizens of Mexico, writes, in an exceptionally important paper, The gold standard: generator and protector of jobs:
The abandonment of the gold standard in 1971 is closely tied to the massive unemployment the industrialized world has suffered in recent years … Free Trade is unquestionably beneficial for humanity at large. It is good to be able to buy goods where they are cheapest; some countries enjoy conditions that favor them in production of certain things; each country should produce those things in which it has an advantage over other countries. Thus, the whole world can benefit from the good things each country has to offer. It is an appealing and sound doctrine, but... there is a crucial catch: the doctrine of Free Trade was conceived for a world where the sole means of payment was gold.
Under the world dollar standard the excess half a trillion dollars we spend a year gets recycled. And not to the entrepreneurs of America. That money gets sent right back to Washington, by way of Wall Street, by purchase of T-bills by international central banks. America loses jobs. America consumes more than it produces. Other countries produce more than they consume. The rest of the world gains jobs yet ends up in a form of forced labor, producing without consuming. The economy becomes a Sisyphean labor for all.
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Key Monetary Writings
Selgin (2012) makes an important point when he notes that: the historical gold standard that … performed so well was an...
Why the Gold Standard?