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The book that is the subject of this review is Gold: The Once and Future Money, written by Nathan Lewis and published in 2007. Lewis, "formerly the chief international economist of a leading economic forecasting firm," provides a thorough examination of using gold to support the value of a currency (the gold standard ), as well as a history of gold standards in the past and his arguments for returning to a gold standard from the international floating currencies now in use. The purpose of the book is to argue the case for a return to the stability of the gold standard, and to dispel the most common myths of the failures of past gold standards.
Lewis divides his book into three distinct sections. The first section, "Money in All its Forms," provides much general economic and historical background of gold. Such topics are examined as the stability of gold, the differences between hard money and soft money, a history of various gold standards, taxes, and inflation, deflation, and the value of currency. Although much of the information presented in these chapters is very technical, Lewis breaks up the monotony of the discussion with historical events and anecdotes. In fact, one of the more memorable sections of the book is the history of the gold standard in ancient and pre-modern civilizations. One common feature of these stories is that civilizations, once the gold standard is abandoned, quickly march towards currency devaluation and destruction, but, if the gold standard is reinstated, there can be a return to normalcy.
In the second section of the book, "A History of US Money," Lewis examines the history of currency in America, from the time before the Revolutionary War and its hyperinflationary results, to the numerous competing currencies of the new country, to the pseudo-gold standard of Bretton Woods, to the current floating dollar. Interestingly, the US was "the sole major power to stick to the gold standard" through World War I, and this is one of the reasons for its post-war boom in the 1920's. And after World War II, the strong US dollar was used as the new gold standard through the Bretton Woods system, whereby other major nations pegged their currency values to the dollar, which was in turn pegged to gold. Obviously, this system was not a true gold standard, and it broke down in 1971, and currency values have floated since then. Lewis also discusses the relative success and failures of various Federal Reserve chairmen, such as monetarist Paul Volker throughout the 1980's, and the gold standard advocate Alan Greenspan through the late 1980's, 1990's and into the beginning of the twenty-first century.
The final part of the book "Currency Crises around the World," is an examination of modern currency crises faced by nations, mostly in the 1900's and early 2000's. The first country Lewis discusses is Japan, focusing on the period after the Second World War and the nation's amazing rise to economic prosperity. Through low taxes and low interest rates, Japan was able to improve the strength of its currency against gold and encourage economic growth to become the third-largest economy in the world. It has only been recently, since leaving behind many of its pro-growth policies, that Japan has experienced a long recession. As Lewis states, "Japan's two great periods of economic success, from 1868 to 1914 and from 1950 to 1970, were both eras in which floating currencies were replaced with hard currencies."
Other currency crises that Lewis looks at include the Asia Crisis of the late 1990's and Russia, China, Mexico, and Yugoslavia. Throughout his evaluations of each of these events, Lewis points to various recurring themes. In each of these countries, the falling value of the currency caused economic hardships, and their responses to these crises directly affected the countries' ability to recover or their worsening financial conditions. Lewis points out that lowering taxes and encouraging private enterprise had far greater stimulating effects than raising taxes and higher government deficit spending. Also, in countries that received loans and "advice" from the International Monetary Fund, the currency tended to weaken even further, prolonging any economic recovery. Countries that began IMF programs and later abandoned them experienced a rate of recovery faster than that resulting from the IMF program, and countries that accepted no help from the IMF and instead lowered taxes and interest rates experienced little hardship and fast recovery.
In fact, some of these themes play out throughout the book, as Lewis examines the policies of various countries in various times of economic hardship. When countries experience a loss in the value of their currency, it is far better to return to a stable currency. Thus, Lewis sees most of the conventional economic wisdom used by central banks as misguided, from targeting interest rates to encourage growth or relying on higher taxes, wage and price controls, and government deficit spending. The most important tool of central banks that Lewis examines is their ability to create or destroy base money, by selling or purchasing government bonds. This adds or subtracts from the supply of money, and is more easily managed and a stronger indicator of the health of the currency, according to Lewis.
Lewis' book provides strong arguments and common sense examples that support a return to a gold standard for the US dollar and other currencies worldwide. Far from there being shortcomings of the gold standard, Lewis shows that inflation and currency devaluations have resulted from countries abandoning the gold standard at various points in their history, most often during times of war. Various arguments to explain the actions of the economy and currency values have been proposed over time, with the result being the current strategy of central banks to manipulate the economy through monetary and fiscal policies, rather than pegging the value of the currency to gold. These new techniques, according to Lewis, have failed and will continue to fail, as they give central banks the excuse that they are not in control of the currencies of their nations. This is a mistake, and the current era of worldwide floating currencies will come to an end; the only question remaining is how difficult and voluntary the transition will be.
