Gold and the Trade Deficit....Nathan Lewis... New World Economics

Gold and the Trade Deficit

by Nathan Lewis - New World Economics

Published : September 13th, 2011

942 words - Reading time : 2 - 3 minutes

Almost everything that people say about the gold standard today is baloney. One of the most popular items in the baloney store is the notion that a gold standard system causes “balanced trade.”

The United States used a gold standard system for 182 years. So, we should know what the answer is, right? Does a gold standard lead to ”balanced trade”? Did the U.S. have “balanced trade” for 182 years straight?

You already know the answer, don’t you? It’s a total fantasy.

During most of the 19th century – the gold standard years – the U.S. experienced capital inflows, or what is known as a “current account deficit.”  In the 1830s, the U.S. imported an average of $125.4 million per annum. By the last decade of the 19th century, this rose to $3,071.4 million per annum.

Why was this? The U.S. was a good place to invest, so Europeans invested there.

In fact, all trade is “balanced.” That’s what trade is: the exchange of items of equal value.


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There are only two reasons why we don’t use gold standard systems today. One is that we have become enamored of the idea of trying to solve economic problems with currency manipulation. This is what Ben Bernanke talks about all the time. It’s what people in Britain talked about – just before the British pound became the world’s former leading international currency. It is totally antithetical to the goal of creating a stable, neutral, predictable currency.

The other reason is that people don’t know how to do it. They are still bogged down in laughable nonsense like “a gold standard causes balanced trade.” The fact that, as I mentioned, the historical record shows the complete opposite condition, does not seem to bother these people. They repeat the same platitudes decade after decade, oblivious to historical reality. ................

Nathan Lewis

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