I’ll let Robert Landis and Reginald Howe tell the story:
The Golden Constant by Roy W. Jastram
- Thanks to the generosity of John Wiley & Sons, Inc., which has graciously granted the necessary copyright permissions, we are able to republish today in PDF format and post in the Library as a public service what many consider the leading empirical study of gold: Roy W. Jastram’s The Golden Constant originally published by Wiley in 1977 and now nearly impossible to find except in university or other large libraries.
- This seminal work rigorously analyzes the purchasing power of gold in England and the United States from 1560 to 1976, employing a meticulous methodology that:
- constructs unified series of the price of gold since 1560;
- constructs unified series representing the level of wholesale commodity prices in every year since 1560
- determines the statistical relationship between these two series in such a way as to measure the purchasing power of gold since 1560;
- analyzes the behavior of that purchasing power in periods of inflation and deflation; and
- assesses the extent to which gold served as a hedge during inflationary periods and a conservator of purchasing power during deflationary periods.
The Golden Constant demonstrates conclusively that gold holds its purchasing power remarkably well over time. It concludes that gold prices do not chase after commodities, but rather that commodity prices return to the index level of gold, over and over, and that gold provides an effective refuge in times of upheaval.
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From page 40:
“European commerce was severely impeded by the sparse supply of gold and silver. Economic development had come almost to a standstill and the prospect for expansion was dim.”
Is there an Austrian point of view on this? Was lack of new sources of gold a bane to commerce, or was it a boon because its supply was not subject to inflation? Did the influx of gold cause bubbles of over-investment in, say, further exploratory missions? The many failed attempts to discover the Northwest Passage spring to mind …
The Austrian view, which I believe originated in the classical period before Austrian economics, is that any quantity of money is sufficient for money to serve as money. The purchasing power of money can adjust by changes in the general price level to accomodate any quantity of mony in relation to goods.
Economic development depends on savings and investment, which is distinct from money. To see this, note that savings can occur even in a non-monetary economy. Savings can occur when someone abstains from consuming a consumption good and transfers it to another producer.
There is a good discussion of this in Rothbard, Chapter 11 (http://mises.org/rothbard/mes.asp).
I believe that Rothbard qualified the statement that “any quantity is optimum”, nothing that a quantity too large or too small ruled out the use of something as money. If the quantity is too large, the value/weight will be too low (imagine having to pay for everything in its steel-value). If the quantity is too small, it is insufficient proper liquidity and trading. If there were only 1 atom of gold for every person on earth, for example, there would clearly not be enough gold to use as money (I doubt that 6-billion gold atoms would even be visible to the naked eye, though I don’t care to do the calculations to figure out how many grams that’d be).
I always love the complaint “there was not enough money”. That means the borrowers objected to the price the lenders requested for use of their wealth. Solution? We’ll make our own money and lend it at proper rates! (Fed).
If gold got the point of not being divisible enough to use in everyday common transactions (such as platinum would be today), some other commodity (eg. silver) would arise to serve as a subunit. And by allowing the participants to decide that through experience (the market), we would eventually have a solution to the problem.
I believe this bears out historically in that (until government fixing of exchange rates) gold was used primarily for large volume, international transactions and silver for smaller, common transactions.
I’m interested in the file, but the link doesn’t work… ???
The book seems to have been removed from the website. But I did find this 1981 speech by Jastram, which contains some of the key material from the book:
http://www.goldensextant.com/Resources%20PDF/JASTRAM%20THE%20GOLD%20STANDARD.pdf
The concluding paragraph of the speech is rather ironic.
Could Robert Blumen please kindly explain what happened to the Roy W. Jastram Golden Constant pdf? What pressure was brought to bear by/on the publisher to bring about the removal of said pdf document? I think you owe us all a proper explanation. For those who make a mockery of “gold manipulation” you need look no further for evidence.
Conspiracy theory’s? BAH! Conspiratorial practices
indeed. Keep the people ignorant of gold’s behavior under inflation/deflation and the suckers will “invest” their monies in equities ’til the ugly monetary debasement “Bernanke helicopter money” end. Glug, glug, glug.
Where has this document gone? Is this a software bug or has it been removed intentionally? I would very much like to read it.
Had to remove. I’m so sorry.
could please someone let us know why the link had to be removed? I am very interested in reading this book and it’s unavailable at any bookstore or online store. This is very disappointing
Jastram has released an updated version (through 2007) of his book.
The fact that gold has a fixed or minimally increasing supply has a drastic effect on a society which uses gold for money. If the total wealth of a nation or society (the amount of goods and services it produces) increases, but the money supply stays the same, prices must fall, or deflate. Most people don’t understand the dangers of deflation, because they think of it as predictable. But inflation and deflation don’t hit predictably immediately upon increase or decrease of money supply. They happen suddenly after the general perception takes root that there is too much or not enough money. And in the case of deflation, falling prices mean people will choose to hold on to their money rather than spending it, since it is obvious they will get more for it by waiting. Any guesses what happens to employment when no one is interested in buying anything? Investing is harder, because no one wants to pay back more valuable dollars. People hoard cash rather than spending and investing.
Obviously, the best policy would be for the money supply to exactly equal the amount of goods and services in the economy. But this is an extremely complicated question, not least because prices fluctuate so readily even when money supply is fixed. Gold is a good answer, but not a perfect one. Should countries with gold deposits be the recipients of the world’s wealth? That is the effect of a gold standard when gold deposits are not evenly distributed (which is, of course, the case). The simplest answer is to target a certain interest rate, since interest is, after all, the “price of money.” This is actually a good solution, were it not for the fact that, as spoken in the linked article, it is administered in a somewhat arbitrary fashion by men and not impassionately by laws.
Turns out, as good as currency manipulation and interest rate targets look on paper, there is simply too much opportunity for corruption, both well- and ill-intentioned, to seep in. Metal-backed currency, as imperfect as it is, had much to recommend it. It does prevent fast economic growth, by limiting the total demand (read: currency) in the system. That has a downside.
For those looking to read Jastram’s book, this link appears to be working: http://rapidshare.com/files/337950383/The_golden_constant.pdf
For those who care to read my response to Mark and interpretation of “money” and “wealth” (purchasing power) read on.
@ Mark
You appear to be an adherent of Deflationary Spiral Theory… The computer industry continually experiences price deflation, cosmetic surgery continually experiences price deflation, and people are still buying. Why should we believe anything different would occur with other idustries, especially ones considered necessities by many? Industries like food (agriculture, grocery stores, etc) and energy (fuel for heat, gas for transport, etc)… By Deflationary Spiral Theory logic, people would “put off” addressing their hunger needs/pains until food prices reached a “floor.” It’s hard to be persuaded by such an argument. I think the base of Maslow’s “Hierarchy of Needs” puts to rest the fears put forth by adherents of Deflationary Sprial Theory. There are too many variables at play to jump to the “Deflationary Spiral” conclusion. There is an economic incentive to spend in order to be the “first.” If you are a business-owner/entrepreneur and you started spending (investing) to expand your productive capacity before everybody else, wouldn’t you be in a position to dominate market share? Wouldn’t you plausibly be in a position to take profits, while others are just getting started?
The problems associated with any form of money, result from that form having some sort of monopoly status. When talking about money, people often forget money first started as a “means of exchange.” The store of wealth, divisibility, and other qualities are “added benefits” – which is to say, “money” does NOT necessarily have to provide those “services.” Needless to say (but I’m saying it anyway), the use of “money” constitutes only one of the two forms of exchange that exist in an economy, which is “Indirect Exchange.” The other form of exchange (I’m sure you know) is commony known as barter, but formally known as “Direct Exchange.”
One last point. There is certainly convenience and benefits found with money possessing store of wealth, divisibility qualities, etc, but the problem becomes people always thinking “money” is the best way to store ones “wealth.” I say that thinking can be misleading. Case in point: in todays economy is it “better” to store your “wealth” in U.S. dollars (money=paper) where there is a supply glut? Or, is it “better” to store your “wealth” in more tangible things (gold, silver, grain, sugar, coffee, cotton, copper, coal, oil, gas) where the quanitity supplied is (or becoming) short of the quantity demanded? All I’m suggesting is that people can – and should at least have the opportunity to understand – that they can store their “wealth” in different ways other than “money.” Such a proposal would “alleviate” the disproportionate “wealth effects” due to the “unequal” distribution of resources around the world that you cite as problematic going back to some type of precious metal or commodity standard.
I suppose one could argue that people should not be subject to the “time horizon” effects of others in storing their “wealth” – which is probably used as the “intellectual” and “moral” reasoning for centralized money and credit, i.e. “The Fed.” However, even if “The Fed” were not subject to human corruption, it still fails as a solution in terms of preventing people from being subjected to someone elses “time horizon,” because all the institution of a “central bank” merely does is transfer a major portion of the “time horizon” into the hands of an “elite” and potentially “corrupt” few (central bankers). So people are still at the mercy of somebody elses “time horizon,” the only difference is that central bankers hold a greater “share” of the “time horizon” and with it, greater “power” to influence others “time horizons” due to government’s monopoly on money.
In conclusion, I don’t think there is a solution to prevent being subjected to somebody elses “time horizon.” Unless human knowledge is able to advance to the point that the fourth dimension (time) can be manipulated so as to travel to a time where nobody but you existed – I think a free market in the “form of exchange” is the most fair, and efficient way of allocating “time horizons.”
I think, at a minimum, “Legal Tender Laws” should be abolished as well as interest rate/reserve and other banking requirement setting by “The Fed.” This would free the “time horizon” allowing competition to determine the most productive and efficient allocation of “time horizons.”
You highlighted the “interest rate” as the “price of money.” That is incorrect. The “interest rate” is the “price of credit.” “Money” can be any good, so what ever is being used as “money” has its “price” determined by the pure supply and demand of it (scarcity). It isn’t the form of “money,” or its price that is the “unknown” variable per se, it is the infinitely many and different “time horizons” of all individuals that is “unknown.” To leave arguably the MOST IMPORTANT “unknown” variable in economic calculations to be almost entirely determined by a few elite and likely corrupt human beings (central bankers) I think is reasonable to say the least, an act of folly.
It is hard to imagine how the existing money and credit system could be any more insidious, in terms of money supply, fractional reserves, mal-investment and consequently the misallocation of resources. I don’t want to come off sounding like a narc, but I doubt the average person understands the system even to the small extent that I do. Notice how I didn’t even delve into fractional reserve lending and money creation? I mean the average Joe thinks money is only created when “The Fed” buys bonds. Don’t get me wrong, I don’t advocate keeping “The Fed,” but if its role were reduced to just buying and selling bonds, oh what a different world we would be living in today! “Interest rates” determine the “price of credit” which MAY influence the “price of money” if lending institutions decide to take “The Feds” bait and start lending more than they have in reserves, thus creating money, which increases its supply. Savings and Lending institutions are subjected to the “time horizon” of “The Fed” through its manipulation of interest rates (which banks are obligated to follow) if they want to borrow and lend with other institutions, or from “The Fed” itself. As an individual you are subjected to “The Fed” in two ways, 1.) It’s “time horizon” through influencing the “price of credit” by manipulating interest rates and 2.) The potential dilution of your “wealth” (purchasing power) you hold in the form of money because of money printing, fractional reserve lending and other money creation schemes all controlled or at least strongly influenced by “The Fed.”
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