Gold Will Destroy the Keynesian Fallacies

The BRICS summit, currently taking place in Johannesburg, South Africa, is expected to include an agreement on a first step toward establishing an alternative international trade settlement system based on commodities, which would certainly include gold.

Although the coming change may be characterized as one between the Western democracies and the BRICS nations, the real battle is one of ideas between Keynesian economic theory and gold.

The challenge to the fiat dollar began with its debasement, which lowered its purchasing power to gold by 98% since 1971, and accelerated with introduction of the so-called "Russian Sanctions" of freezing Russian owned assets in the West and denying Russia access to the international dollar trade settlement messaging system known as SWIFT. Russian monetary expert Sergey Glazyev has led the movement toward an alternative system.

Introducing gold into the trading system will expose the main fallacy of Keynesian economics; i.e., the elevation of aggregate demand to prominence in a nation's economy rather than production.

The new international trade settlement system will require settlement in gold. A possible mechanism has been outlined by Alasdair Macleod of Goldmoney.com. The benefits of the new system will become obvious to every nation, not just the current BRICS members. The political benefits are that no one nation can control or manipulate the system for its unearned benefit. The economic benefits are that government spending will be minimized so that resources can be allocated to production rather than state aggrandizement. A member can expand imports only by expanding exports. This puts market pressure on member governments to reform their internal economies in order to increase production.

To artificially increasing demand, per Keynesian orthodoxy, would be counterproductive, because gold would drain from the nation’s gold settlement account and imports would be suspended. Therefore, the system encourages sound economic practices within its members’ individual economies. Printing money, excessive and unnecessary regulations, excessive taxation, and excessive government spending do nothing to aid a member’s ability to engage in trade. Nations like the US who have huge welfare obligations and who have politically connected industries that do not add to the nation’s capital base will struggle. Having lots of nuclear weapons will be irrelevant and having bases around the world will be liabilities rather than assets.

An important point made by Macleod is that over time the gold settlement system for international trade will expand into members’ internal monetary systems. In other words, fiat currencies, which can be inflated/debased by governments, will be thrown on the ash heap of history. They will become “barbarous relics” instead of gold, as Keynes predicted in 1924. 

https://mises.org/wire/gold-will-destroy-keynesian-fallacies