Conservative economic policy is easily recognised when stated as balanced budgets, low taxes and sound money. Today, these are a distant prospect.

For all the work the Government have done, this year’s net financing requirement is £144.9 billion, larger than the health budget (£140bn) or education (£98bn). As my weekend brief explains, “The Government have delivered a typical tax cut of £705 for over 25 million people and taken over 3 million people out of [income] tax altogether”, however, please contact me if you think income tax, VAT, NIC and, say, fuel duty are low. “Sound money” seems today to be taken to mean consumer price inflation around the 2% target but have you looked at house prices and the FTSE? According to the Bank of England’s own Andy Haldane, they have “intentionally blown the biggest government bond bubble in history”…

This is the context, repeated across the world’s social democracies, for John Butler’s brisk and fascinating book, The Golden Revolution: How to Prepare for the Coming Global Gold Standard (Wiley, 2012).

In Part I, Butler explains why our present system of fiat money – money not backed by a physical commodity – is “doomed to a short, ignominious existence” according to a crystal clear historical record in which “all purely fiat currencies eventually fall to their intrinsic value of zero.” The fiat dollar was always potentially unstable and recent events, according to economic and monetary history, imply a return to gold is not only inevitable but imminent.

Part II sets out scenarios for the return to gold including a well-known one in which the Russians transform the financial system with a new gold-backed currency. Gold is likely to rise substantially in price.

The final part gives a lucid insight into the economic, financial and investment implications of a gold standard. Butler indicates which industries, countries and markets are likely to benefit or suffer. His investment strategies are practical and comprehensive.

Butler ultimately concludes that a world on a gold standard will be more pleasant, productive, peaceful, stable and moral. “Golden ages” are not so named for nothing.

I found myself wishing I had read Butler’s book sooner. Having just attempted to tease out the issues of productivity, capital and stagnant wages with the Governor of the Bank of England, I’d begun once again to wonder if the mainstream consensus in favour of endless credit expansion was broadly right. As Butler reminded me, of course it is not. The Governor indicated that business investment is up; Butler explained why with a pithy quote from Mises’ Human Action:

[Via credit expansion] they create an abundance of disposable money for which its owners try to find the most profitable investment. Very promptly these funds find outlets in the stock exchange or in fixed investment. The notion that it is possible to pursue a credit expansion without making stock prices rise and fixed investment expand is absurd.

And so it is that the present policy of easy credit and pumping up the asset markets with QE has caused the consequences which are now apparently a puzzle to so many mainstream economists. Perhaps sustainable, just and inclusive prosperity can be delivered by simultaneously expanding the supply of credit right around the world, but I think not.

I read Butler’s book when prompted by the arrival of the second edition of Detlev Schlichter’s Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown, which I endorsed. I recommend both books. Butler’s is the shorter, it sets out transitions and it gives advice for coping in the new order. Schlichter’s explains in more detail why the mainstream is wrong. Enjoy.

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