Gold Is Back—And So Is Judy Shelton

Gold is on the rise, and so is the typical gold-standard nostalgia that has erupted every time price inflation, banking crises, and/or debt concerns have reappeared after the fall of the Bretton Woods gold-exchange standard in 1971. Certainly, the precious metal’s ascent, as usual, is signaling that all is not well.

Earlier this year, the precious metal soared past $2500 an ounce to all-time price highs, making it one of the best-performing assets of 2024, following a price gain of 13 percent in 2023—the result of persistent economic as well as geopolitical uncertainties. More interestingly, perhaps, the World Gold Council reports that central banks have been the precious metal’s most aggressive buyers, purchasing 1,037 tons of gold in 2023 alone—the second highest annual purchase in history—following the record high of 1,082 tons in 2022. Indeed, a Gold Council survey revealed that 29 percent of central banks respondents planned on increasing their gold reserves in the coming year—the highest percentage since the World Gold Council began this survey in 2018.

A recent piece in The Times (of London) sums up the moment:

Gold, it seems, just can’t be ignored any more. The prospect of falling US interest rates, a decline in the dollar and worries about America’s debt sustainability should lead to more institutional and retail money flocking into gold… There is even talk that the long-mooted new currency set up by the expanded Brics countries will be backed by a number of assets, including gold. A century on from the demise of the [Classical] Gold Standard, which collapsed in the interwar years amid a breakdown in central bank cooperation over how to manage the metal, gold is quietly becoming a more important feature of our financial system rather than an outmoded 20th-century relic.

All of which has led to much talk about sound money, cryptocurrencies, and even the feasibility of a new gold standard, as is attested by the latest title from former Trump administration economic adviser and longtime sound money advocate Judy Shelton—Good as Gold: How to Unleash the Power of Sound Money—currently a best-seller on Amazon.

Shelton, speaking on the phone from Paris, on her way back from a recent New Delhi gathering of the Mont Pelerin Society—the free-market economics conference founded by Friedrich Hayek and Milton Friedman—remains surprisingly upbeat about the precious metal’s monetary prospects despite the myriad of setbacks over the past fifty years.

“We have the gold,” she says, pointing to the US government’s reported holdings of 261.5 million ounces—more than any other nation. “Why not utilize it?”

An inveterate sound money champion, Shelton argues that the present moment is especially propitious, especially on the international level. The fact that gold-buying by central banks has reached a near-frenzy “testifies to good prospects for the serious consideration of a new proposal,” she says.

And she has one, of course: a well-articulated plan to reaffirm gold convertibility for the average American for the first time since the days of the Classical Gold Standard (1815-1914); albeit beginning exclusively through the ownership of gold-linked US Treasury bonds. To Shelton, the right of dollar-to-gold convertibility—her end goal for the entire US monetary system—is essential: it wouldn’t just signify fiscal and monetary rectitude; it “provides the ultimate simple rule for regulating the money supply in accordance with individual rights and free-market principles,” one of the book’s key arguments.

Her proposal calls for a new issuance of Treasury zero-coupon securities—dubbed Treasury Trust Bonds—offering lower interest rates than conventional Treasuries (thus reducing current deficits), but with the distinguishing feature that they can be redeemed at maturity either at their face value in dollars or at a pre-specified equivalent in gold—at the buyer’s discretion.

In other words, should monetary policy continue on its current off-the-rails path, and the purchasing power of the dollar decline significantly, it could result in a significant loss of US government gold. If not, and the United States straightens out its finances, most of the bonds would be likely redeemed in dollars. In essence, they would offer a “trust-but-verify provision,” as Shelton calls it, staking the nation’s gold holdings on a new resolve to demonstrate fiscal and monetary rectitude. “All that officials would need to do to make the issuance a success is to surpass expectations,” she explains. If they do, the bonds will have led the way “for the United States to issue a dollar-denominated financial instrument that is, literally, as good as gold.”

Acknowledging that her proposal appears modest in comparison with the “impressive gold-standard proposal” that came out of the US Gold Commission during the Reagan years, Shelton argues that by successfully establishing this type of “beachhead for sound money” and “bulwark for fiscal and monetary integrity,” substantial monetary reform here and abroad would likely follow, perhaps even resulting in a new, gold-based international monetary system.

In that case, the power of the Federal Reserve would have to be substantially curtailed, of course. Describing her economic views as “closer to the Austrian School’s than others,” despite her long-time association with supply-side advocates and theory, Shelton agrees with Austrians that the fatal flaw in Bretton Woods (1945-1971) as well as myriad other rule-based proposals is that they ultimately rely on the “discretionary inclinations of technocrat authorities.” Indeed, she acknowledges that the classical gold standard of the late nineteenth century was “much better” than the watered-down, gold-exchange standard of Bretton Woods (in which individuals were denied direct convertibility) as a result of the fact that “it gave individuals, not the government, the power to control the money supply.”

Moreover, the new book makes it clear that 1) central planning doesn’t and has never worked, whether in the old Soviet Union or modern central banking policy; and, therefore, that 2) the Federal Reserve’s “displacement of free-market outcomes may one day breed the same sort of cynicism that caused the Soviet approach to collapse.”

The bottom line for Shelton is that “the highest level of performance to which a central bank could aspire would be to match the economic interactions and results that would likely occur under a gold standard,” an argument her book makes by surveying the results of previous monetary systems. Alternatively, she adds, alluding to Hayek’s best-known book, “substituting the perspicacity of designated monetary authorities for the shared acumen of hundreds of millions of people carrying out voluntary transactions to facilitate their daily needs and future dreams is akin to selecting the path to serfdom.”

In short, while Shelton’s new plan may represent yet another less-than-ideal monetary reform, it would certainly mark a positive step in the unambiguous direction of sound money; and possibly with some real teeth, as she outlines in Good as Gold. Perhaps it will even generate grassroots enthusiasm for real monetary freedom, the reason she hopes the bonds are inaugurated in 2026, the 300th anniversary of the Declaration of Independence.

Indeed, the new book presents such a robust and articulate defense of free-market capitalism in the context of American history and its founding principles, that it makes one wonder whether the prospects for sound policy are better today because Judy Shelton was blocked from joining the Federal Reserve in 2020 and instead continues, unabashedly, to expound her sound-money message.

With the new book, Shelton has doubled-down on everything that got her labeled as a member of the “crank right-wing fringe” and denizen of the “gold-bug circuit” by mainstream writers and analysts in 2020. And her Treasury Trust Bond plan—and greater vision for sound money—will have succeeded, she says, if it leads the nation toward a future in which “payment in future dollars is deemed literally as good as gold.”

“That,” she says, “would be historic.” It certainly would be.

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