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After The Gold Rush: A Perfect Antidote To Nouriel Roubini

The opinions expressed by columnists are their own and do not necessarily represent the views of

NYU’s Nouriel Roubini is a very elite public intellectual. Together with Princeton’s Prof. Paul Krugman Prof. Roubini is one of the most acidly eloquent critics of gold. Earlier this month he published an essay titled After the Gold Rush. (Its title suggests homage to Neil Young’s song, based on a never-produced movie, of the same name. This reader found the words “I was thinking about what a friend had said. I was hoping it was a lie.” echoing in his mind while reading.)


Since Roubini teaches at NYU, and Krugman at Princeton, it is worth noting that Albert Gallatin, founder of NYU, and John Witherspoon, sixth president of what would become Princeton, both were sophisticated proponents of the gold standard. Both were passionate critics of fiduciary paper currency. Witherspoon called paper money “absurd and contemptible.” Gallatin wrote “Gold and silver are the only substances, which have been, and continue to be, the universal currency of civilized nations.” Both great statesmen would cringe at the subversion of the institutions they built to the cause of fiduciary monetarism.


"At the peak, gold bugs – a combination of paranoid investors and others with a fear-based political agenda – were happily predicting gold prices going to $2,000, $3,000, and even to $5,000 in a matter of years. …

"There are many reasons why the bubble has burst, and why gold prices are likely to move much lower, toward $1,000 by 2015."

This writer has no quibble with Roubini’s skepticism of gold as an investment. Gold’s price doesn’t move as much as the price of the dollar moves, so an investment in the yellow metal is a presumption that one knows which way the Treasury and Fed will move in terms of protecting the dollar, or letting it slide in a form of ‘benign neglect.’

But Roubini’s critique goes beyond an indictment of gold as speculative portfolio material. He goes on gratuitously (and with surprising ignorance for one of his intellect and stature) to indict the proponents (presumably including this columnist) of the gold standard. On this point his argument falls apart.


"[S]ome extreme political conservatives, especially in the United States, hyped gold in ways that ended up being counterproductive. For this far-right fringe, gold is the only hedge against the risk posed by the government’s conspiracy to expropriate private wealth. These fanatics also believe that a return to the gold standard is inevitable as hyperinflation ensues from central banks’ 'debasement' of paper money. But, given the absence of any conspiracy, and the inability to use gold as a currency, such arguments cannot be sustained."

One always can find a few fanatics. They exist on the fringes, left as well as right. Teddy Roosevelt’s observation that “there is a lunatic fringe to every reform movement” remains true. The fringes never are representative and to present them as such is a cheap shot. Fringe figures are, as always, isolated and irrelevant to the ongoing policy discourse.

The monetary reform conversation is being led by perfectly probative figures such as Steve Forbes; by former Reagan Gold Commissioner, author of The True Gold Standard and Money, Gold and History, historian, philanthropist, and chairman of the Lehrman Institute (with which this writer has a professional affiliation) Lewis E. Lehrman; and by investor/philanthropist Sean Fieler (who chairs American Principles in Action, with which this writer also has a professional affiliation), among others. None of the policy-influential figures arguing for the gold standard anticipate “inevitable hyperinflation.”


Their argument for the gold standard is grounded in an empirical assessment as to which monetary regimes most consistently have promoted a climate of equitable prosperity. Prof. Roubini either is being disingenuous in mischaracterizing the gold standard’s proponents or he simply has not been paying attention to the discourse as actually being conducted in Washington, in the financial media, or in official circles around world.

Less familiar to American readers but certainly of no less importance to the debate is career central banker Savak Sohrab Tarapore, formerly deputy governor of the Reserve Bank of India. The Reserve Bank of India (RBI), of course, is the central bank of the world’s largest democracy — one of the BRICS. It is a key institution with, perforce, great direct influence on the fortunes of over a billion people and indirect influence on the rest of the world.

Gov. Tarapore is a distinguished figure. According to the Wikipedia article on the RBI, among the RBI’s supportive bodies “The Tarapore committee was set up by the Reserve Bank of India under the chairmanship of former RBI deputy governor S. S. Tarapore to ‘lay the road map’ to capital account convertibility.” The sophisticated and consistent advocacy for the classical gold standard by one of the RBI’s most illustrious former deputy governors is notable. Gov. Tarapore long has been a world-respected voice for fiscal-monetary integrity, in general, and for the classical gold standard, specifically.


This columnist was honored by a request to contribute advance praise for the governor’s recently issued book, A Commentary on India’s Recent Financial Policies, a book whose relevance by no means is limited to India, and said this:

"Keynes, in The Economic Consequences of the Peace wrote: There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. S.S.Tarapore stresses the socio-economic destruction caused by negligent fiscal-monetary policies. This work by a disciple of Jacques Rueff, the great French monetary statesman, should persuade the authorities to view the classical gold standard as an impressive tool for generating a macroeconomic climate conducive to equitable prosperity. This volume deserves close study by Central Banks, Finance Ministries, legislators, monetary-fiscal policymakers, academics as also discerning citizens— not only from India but all key and emerging economies."

Tarapore writes expertly and elegantly about many aspects of financial and monetary policy and affairs. Every chapter is worth taking to heart. Of keenest interest to this columnist (whose work, full disclosure, is mentioned briefly, as is that of the American Principals Project and the Lehrman Institute), is Part XI, The Importance of Gold. Part XI comprises five chapters on this crucial and interesting topic.

Tarapore provides an authoritative antidote to Roubini’s indictment of the gold standard as policy instrument. From Chapter 73, "The RBI’s Tiny Pot of Gold":


"For many years, central banks treated gold as a barbaric relic which was unproductive and, therefore, to be discarded from the foreign exchange reserves. Central bank speak and central bank action in many countries were ambivalent.

"In 1965, Gen Charles De Gaulle, the then French President, on the advice of the percipient economist, Jacques Rueff, called for a return to the gold standard. While it was Gen De Gaulle who thundered on the return to gold, it was Germany that quietly built up the gold portion of its reserves."

Chapter 75 is entitled "There is Gold in Zoellick’s Idea":

"THE PRESIDENT OF THE WORLD BANK, Mr. Robert Zoellick, has generated a storm with his article in The Financial Times of November 7, 2010, where he recommends a modified global gold standard to guide currency movements. …

"In this context, Mr. Zoellick has argued that the system should also consider employing gold as an international reference point on market expectations about inflation, deflation and future currency values.

"As the new international monetary order emerges ... Mr. Zoellick may well be beatified and could be on the way to sainthood …."

Roubini: “So gold remains John Maynard Keynes’s ‘barbarous relic,’ with no intrinsic value and used mainly as a hedge against mostly irrational fear and panic.”

Tarapore: “For many years, central banks treated gold as a barbaric relic which was unproductive and, therefore, to be discarded from the foreign exchange reserves. … Charles de Gaulle and his adviser, Jacques Rueff, who called for a return to gold in 1965, are perhaps chuckling in heaven!”


Prof. Roubini? One must grapple with the arguments of the central, rather than peripheral, proponents of the gold standard. To fail to do so suggests the critic to be spinning a mere tale full of sound and fury … Signifying nothing. A fair, rather than cheap, critique of the arguments of the proponents of the restoration of a 21st century classical gold standard simply must address those contained in Tarapore’s A Commentary on India’s Recent Financial Policies.

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