Book Review: The Golden Revolution

There are many books on the market today about the coming collapse of the global dollar-based monetary system. Many of them purport to help the reader “profit” from the collapse(!) Others are filled (just like the blogosphere from which they often come) with dark, conspiratorial whispers, psychologizing of leaders in government and finance, and preposterous ideas about how people actually think and act. They often contain policy prescriptions that consist of doing more of what caused the problem in the first place: politicizing banking and trading with even more regulations, taxes, prohibitions, agencies, etc.

I have not written a book review before now because I think those books are misguided. The nihilistic envy of corporations and banks is a part of the problem and not the solution. The idea that “real estate, stocks, and bonds have had their bubbles and now it’s our turn” is naïve, at best.

The Golden Revolution by John Butler is not cut from the same cloth.

We have a perverse and self-defeating monetary system today. Without knowing how it evolved, where it came from, and what transitions occurred along the way, it is almost incomprehensible. One can listen to the talking heads on the mainstream media, the strident alternative financial press, or even economists who really understand, and still not understand why the monetary system is the way it is or how it operates. How is one to evaluate whether a failure of regulation caused the collapse of 2008 or whether China-India trade denominated in yuan will threaten the US dollar’s reserve status?

Mr. Butler covers the history of what led up to 2008, without dwelling too much on details that will bore most readers. It is important to understand the connection between Nixon’s 1971 default on the US government’s gold obligations and today’s endemic perpetual crisis. Mr. Butler sheds some light on what led up to Nixon’s decision. The monetary system today is the product of Nixon’s decision and Nixon’s decision was the product of an untenable framework that was created after World War II (which itself was the product of earlier decisions, etc.)

Mr. Butler makes the radical (perhaps not to most of my readers!) proposition that the world will end up, one way or the other, on some form of a gold standard. He explores this from various perspectives including Game Theory. He makes a compelling argument, not based on what some shadowy “they” want, but uses a very “Austrian Economics” method. He looks at how each player will react to unfolding events and why they will behave in certain ways.

Human action is not the action of particles of an ideal gas, as modern econometrics presumes. Nor is it the shuffling of sleeping sheep guided by all-knowing shepherds as modern public policy theories would suggest, nor is it accurate to portray the citizens as simply obeying orders they hate strictly under compulsion of a dictator. There is a feedback process between the governor and the governed. Each is pursuing what he defines as his interest. And it is a dynamic system that is inexorably moving somewhere.

I don’t think I would spoil a book called The Golden Revolution to say that the system is moving towards gold!

Mr. Butler devotes part of the book to discuss the transition itself, a topic that is not much addressed yet. In a way it’s insane: even the enemies of gold must acknowledge that the current system is unsustainable in many different ways and by any definition of sustainability. And yet few of them—or the “goldbugs” either—spend much time thinking seriously and realistically about what the process of change might look like, how it might occur, and how it will impact different people and sectors.

And there is the question: transition to what? Gold is the money of a free market. If one wants the opposite of a free market, i.e. socialism and central planning, then one should be happy for the government to simply print ration coupons for the things it decides that one needs; there is no need for gold. I found a particular pleasure to read Mr. Butler’s discussion of regulation and even the very existence of central banks. Why do we need them? Is it even conceivable to live without them?

Along the way, Mr. Butler tackles the Capital Asset Pricing Model, showing how unnaturally low interest rates caused by central banks distort the market’s ability to allocate capital. Most people focus on the propensity of prices to rise, and do not think about the impact of the interest rate. If the former can be thought of as a tax, and the latter as something which forces capital out of certain sectors and into others, then it is obvious that distorted interest rates do more damage to the economy. And further, as Mr. Butler shows, GDP is a false measure that is not helpful in understanding the distortion or the consequent damage.

John Butler has had a career at major banks, working in interest rates and foreign exchange. He is on the leading edge of the trend towards re-monetizing gold, being the first that I have seen to report on the Basel and subsequently the FDIC/Fed/OCC proposed rules to allow banks to hold gold as a zero risk-weight asset.

In The Golden Revolution, he has written an important book that should be of interest to any serious observer or participant of the financial system and especially to advocates of sound money.