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A return to gold might just reset our ethical compass

November 2010

Years of moral recklessness have made the idea of a commodity standard attractive, says Ron Robins

Right now, the rising price of gold stands as the ethical barometer of the mismanagement of our fiscal, monetary, and currency systems. Gold is in the early stages of re-asserting its historic role of helping to bring order to monetary and currency chaos. Its price has risen more than fourfold over the past ten years as a result of investors anticipating the predictable financial and currency chaos we have today.

The central banks and government treasuries, particularly those of the US, Europe, and Japan, have been weakened and our trust in them eroded. For decades they assured us that only they, with their paper currencies and fractional reserve banking systems, can keep our economies growing forever. They are now failing for all to see.

The monetary and currency systems and organizations responsible for them are deteriorating because they essentially lack an ethical standard. That is not to say that most individuals in these organizations are unethical. It is that as organizations they have implemented policies over the past several decades that they knew – or should have known – would eventually lead to great financial and economic hardship.

One such policy was the encouragement of debt creation way beyond income or economic growth. When many in the financial, banking and political elites are motivated primarily by greed, unethical financial behaviour asserts itself. Until we as a species are able to have an inner compass that is driven by higher ethics and consciousness, then some form of firm control in regard to credit and debt creation has to be enabled. Gold is ideally suited to act in this controlling capacity.

However, anyone who has studied economics at Western universities and colleges since World War II has been left with an understanding of gold as – in the words of the economist John Maynard Keynes – a ‘barbaric relic.’ It is perceived wisdom today that we are capable of managing our monetary and currency affairs more wisely than having them subjected to some system where gold acts to control the issuance of currency or credit availability.

What modern economists forget is that during the late 19th and early 20th centuries, when the world was on a gold standard, global economic growth was unprecedented. Monetary conditions are increasingly calling for the kind of control that only gold can offer. However, it is unlikely that we will go back to a traditional gold standard. What is more probable is the tying of gold to a new international currency or to some form of monetary or credit measure. Soon it will be realized that all paper currencies have the same historical deficiencies: their administering agencies and human governors lack the necessary restraints on credit creation unless they are tied in some way to a commodity standard. And that is best fulfilled by gold.

Ron Robins is founder and analyst at Investing for the Soul. r.robins@alrroya.com




Ron Robins | Global | Investment

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