In response to Floyd Norris’ defense of the virtues of unitary executives managing capitalism

Mr. Norris:

It so happens our friend, Thane Rosenbaum, interviewed Larry Summers last night at the 92nd Street Y in New York. When asked about a gold standard, Summers recoiled and shrieked “a gold standard is the creationism of economics!” The crowd got a big chuckle out of that. So you seem to be in popular company with your February 3rd piece, “In a Focus on Gold, History Repeats Itself” (
But please consider the following:

The stock of money does not need to be managed higher by policy makers to accommodate a growing economy, as Keynesian and Monetarist economists argue and as you seem to agree. Were the money stock (global money stock, not just US dollars) to grow at 1.5% per year (annual growth of the gold stock), all that would mean is that the price level of all aggregate global goods and services could rise only 1.5% per year (more or less). Of course, price levels within the bucket containing all-things-not-money would still shift based on preference. The point is economies could and would grow as much as they should, not as much as they were willing to leverage themselves.

All things equal, the price of gold in paper currency terms rises with paper money growth and falls with unreserved credit growth. Its “exchange rate” to US dollars is simply a function of its relative scarcity, like any other currency exchange rate. It’s not as complicated or as emotional as you and most economists suggest.

All the unreserved credit in the world today (unreserved because there is not enough base money with which to repay it, by a factor of about 7 times for US bank assets only), suggests strongly that global central banks will have to manufacture more of their currencies. Thus, the strong bid for gold today.

In fact, some would argue the current price of gold in USD terms is way too low in the current environment given the enormous leverage already in the system and the amount of money that has to be manufactured in the future to de-lever it. Based on this metric we believe gold is undervalued by as much as five times presently, even without any further Fed printing. It might interest you to know that, using this metric, gold in 1980 became extremely overvalued and so it should have fallen, and obviously it did. Sadly for your readers you did not consider relative value vis-à-vis gold’s proper benchmark – the gap between unreserved credit and base money.

So, there are some secular reasons to like gold at current prices and even to believe in a disciplined monetary system. If the fervency of gold bugs annoys you so much, why not just suggest that your fellow world improvers abolish capital gains taxes on physical bullion and let us crazy gold bugs save in a currency we think will maintain its purchasing power better? We will go away quietly and let you and Mr. Summers amass debt-based “savings”. Maybe a little balance is in order?

Kind regards,

Paul Brodsky & Lee Quaintance
QB Asset Management Company, LLC

Paul Brodsky
QB Asset Management Company, LLC


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