by Jeff Bell
George Gilder is a prophet. He’s been right repeatedly about almost every issue—from sex to Israel to economics—and now he’s back to tackle the most important — yet least debated — issue of our time: money.
Why is money—specifically, the value of our currency—so important? Why is it important to get right?
Many economists believe there is only one factor to worry about when it comes to monetary policy—inflation. But that’s not true — there are plenty of factors to consider. Here is one: Since the U.S. government officially abandoned a gold-backed dollar in 1971, workers’ wages have largely remained stagnant, creating an ever-widening gap between the rich and everyone else.
In his new book, The 21st Century Case for Gold: A New Information Theory of Money, Gilder argues that we need to abandon our failed discretionary money-printing policy in favor of the gold standard. Gilder writes about the inefficiencies of global currency markets and the chronic instability that has defined modern finance. He makes the case that gold is not the archaic monetary system that its critics claim it to be, but instead is the most technologically sound monetary system available—the only system that will work in a 21st century global economy.
Gilder describes a trip he took to China in the late 1980s with monetarism’s most prominent advocate, Milton Friedman. Friedman urged Chinese leaders to get control of their money supply, arguing that, with a stable money supply, economic growth would inevitably follow.
This assumption, the entire premise of monetarist theory, was based on the formula MV = output, where M is the money supply. Friedman made an assumption that V, or velocity, i.e. the speed at which money moved through the economy, was a constant. That has proven to be wrong.
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