Gold by Nathan Lewis - Book Report/Review Example

Gold by Nathan Lewis Book Review Introduction Gold has been regarded as a standard of judging economic parameters since the ancient period.This metal appears to be working like almost an institution. So, Nathan Lewis in his book Gold attempts at evaluating the history of this metal as an economic factor and the reason why it has not been able to become an institution until now. Money is never found to be stable when it comes to gold. Lewis tries to find the reason behind this instability that has caused sufferings throughout the history of the world. He also suggests the ways by which gold can be used in a more proper manner in order to bring stability in the economic scenario of any country. Even in today's market, every term of economy is more or less associated with the value of gold. Lewis also discusses the role of governments and banks in controlling the market with the help of gold price. The way Lewis says everything in Gold is fascinating and his use of language is quite comprehensible to a layman. The writer is quite well known in the world of major economic journals and here in this book, too, he leaves a mark of his writing dexterity and crystal clear understanding of the subject. Book Review "Good Money is Stable Money" is the title of the first chapter of this book. Gold begins with very interesting lines where Nathan Lewis explains why human beings are actually the weakest creatures on the earth. Creating tools, discovering techniques and establishing organizations are all that the human beings can do. Human beings do not have efficiency like the animals to hunt for food, but they are very good at calculations. Calculating the effort and productivity, they have gone to the top of the world and ruling over all the other species alive on earth. Then Lewis turns to the subject of capital investment, which is one of the main sources that have been used for the development of individual economy and productivity. Taking risk is undoubtedly a part of this investment and this cannot be avoided by any means. Lewis compares the risk factor with the endangerment that is involved in the act of hunting. The risk factor present a constant threat and the human beings have always fought with that. The author explains how the human beings have always searched for a method to develop their productivity. This characteristic, according to him, is quite natural for the most rational creature on this planet. He draws the reference of Charles Darwin in order to prove his theory. Hardship is an integral part of any financial establishment in a human being's life. To draw a comparison Nathan Lewis beautifully draws the picture of a pregnant mother who suffers from pain during feeding herself. Then he also draws the reference of a family structure to show how the whole system operates. Food and shelter of the family are the elements that are ensured by the husband, while, on the other hand, the wife nurtures the new-born baby and takes preparations for the upcoming future days. Through a series of examples Lewis wants to establish an idea in the readers' mind that some of the very basic steps are required for human beings' existence, whether be at the level of families or in business. These steps include building knowledge (which, in case of business, can be taken as capital investment), specializing in some subject, productive efforts (or in commercial terms, 'equity investment'), and maintaining promises as well as other bonds. The relationship between children and their parents is also drawn into observation regarding this topic. Lewis says that in business, too, the children or the establishment should look after their parents or founders at some point of time. (Page: 5-6) Explaining the market economy, Lewis contradicts the theory of competition in the market. According to him, the system involves more of a cooperation rather than competition among the companies. This cooperation has expanded with the spread of the market horizon and dependability on people of different strata. As example he describes the farmers who are directly engaged in the process of producing food throughout the history. On the other hand, a modern citizen is entirely dependable on them when it comes to arrangement for foods. No matter whether this person feels independent or not, he or she is actually not free from the dependability on the other spheres of the economic environment. This dependability is now far greater than what it was in the ancient days. With the growth of unemployed generation, this dependency has strengthened even more nowadays. The reference of gold comes in the next chapter entitled as "Hard Money and Soft Money". Hard money, the amount of money that is fixed is compared to gold by Lewis. This is the amount of money on which law has its complete control. On the other hand, soft money, according to him, is indefinable. He further terms soft money as 'monopoly money' (Page: 20). Lewis rightly says that history has shown how a perfect balance between hard and soft money works effectively. A stable monetary system is, according to the author, the main thing sought by any citizen and the latter can even withdraw support from the government if he does not feel that his money is safe. Nathan Lewis goes against the historical belief that coins were made for evaluating the commodity value in comparison with the precious metals. He says that in Lydia, the ancient coins, although made of gold and silver, did not have any measured amount of those metals. These metals in Lydia were actually available in the river bed. So it was never possible for the Lydian people to judge the things' values in the term of gold and silver present in the coins. "Owl" was an Athenian coin which continued to be in use throughout almost six centuries despite the huge ups and downs in the market. Lewis successfully refers to Plato, the great Greek philosopher, calling him the "soft-money man" (Page: 21). Plato was the first person to understand the true value of currencies and he attempted at stopping the export of money. This was how the understanding of the true value of money became clearer from one age to another. Throughout the second chapter Lewis continues the discussion of how the idea of money and the true evaluation of commodities developed. Value of currency is the third chapter's main issue of discussion. Lewis offers an in depth discussion regarding the role played by the central banks all over the world in the regulation of money and judging the value of currency. He tells the readers how the value of currency is inversely dependent on supply and demand factors. The way Lewis explains things to happen if a central bank increases the production of money is really written in a very lucid manner. One does not have to be a student of economics in order to understand his point of view. This is what attracts the readers to Gold. He explains the transaction of money in the same manner. The universality of his way of interpretation is the main thing to be noticed here. Whatever he says is applicable to the economic system of any country. Lewis shows why it is wrong to say "banks create money" (Page: 50). Deposit in the bank can never be taken as money. It can be, according to him, taken as a 'debt instrument'. As it is quite possible for anyone to create credit in the bank by making loan, the very idea of credit, therefore, cannot be considered as money. In the fourth chapter Lewis explains the idea of inflation. He starts with a concrete definition of the term: "Inflation is defined as a decline in the currency's value. It will first be noted in the currency's exchange rate with gold, and likely in the foreign exchange market and the international market for commodities." (Page: 72) Lewis states that devaluation of currency by the government is the prime reason of inflation in this age. He refers to the British and American governments who have taken the non-intervention policy about the matters concerning the private corporations. He even quotes Earnest Hemingway in order to explain the true reasons behind inflation. Inflation is considered as an element that can distort any kind of economic relation. Foreign exchange according to definition is the first field that is affected by inflation. The most sufferers are the countries which have debts to be paid to other nations. Devaluation of economy is the main thing, which is caused by inflation. Lewis cites examples of how the countries have suffered from inflation throughout the history of economics. There are many misunderstandings which are also caused by inflation. Sometimes the country's economic growth is mistaken as 'inflationary overheating'. This, according to the author can be taken as a false growth. Lewis contradicts a popular belief, which says that growth can devaluate currency. Here, too, Lewis cites the example of Japan, a country that has rightly valued its currency during the time of economic growth. Nathan Lewis comes to the main subject of the book no earlier than the fifth chapter. "The Gold Standard" is the title of this chapter where he discusses on how gold can be made effective in making the currency of a country stable. He says that although gold has provided its enormous service as far as economic standardization is concerned, this metal has always been misjudged and misunderstood. Lewis explains the very basic reason of why gold is used as a parameter to judge the prices of other commodities. History has showed that the stability of gold is much higher than any other things available in the market throughout the world. Quantity, however, is not the main thing that should be taken into consideration when it comes to gold. This is a point to judge its value. History also shows that gold has been in the use of business even before the invention of coins. But soon with the passage of time human beings found several drawbacks that are associated with the metal coins. They are not scientific when it comes to large transactions. Lewis shows how the banks play roles of immense importance in controlling the economy of a country through the help of gold reservation. Every bank makes it a point to observe the incoming and outgoing amount of gold to their organization. This shows the upheavals in the economy of a certain place in a certain time. The scenario is always judged from a national standpoint. Lewis explores a very interesting topic when he discusses how a bank having no gold in the reserve can maintain to have a gold standard. (Page: 104) By adding these little interesting parts in his book, Nathan Lewis has been successful in making this work suitable for all readers. In the part two of this book Nathan Lewis comes to the discussion of money in the United States of America. He shows how the concept of paper notes and silver coins settled in this country. In "The Bretton Woods Gold Standard" (Chapter 10) Lewis shows a clear picture of the Great Depression in America, which has ever been one of the most discussed topics for the eminent economists across the globe. Political leaders, however, took more prominent steps to solve the actual problem. The Bretton Woods meeting was the very first step from their part in which they successfully reestablished the standard of gold throughout the world. This was the time when an organization like the World Bank came into existence. International Trade Organization (ITO) and International Monetary Fund (IMF) were also two other organizations who contributed in the task. Conclusion What Nathan Lewis tries to establish throughout Gold is the truth that gold provides a country's economy with stability - the most important element that is required for any kind of further development. The well-documented approach of the book is really interesting and this is quite appealing to the readers that, even in this age of cyber communication, Lewis looks back towards the old world of gold. According to Lewis, the use of gold in stabilizing the economy of a country is ever unfailing and this is why economists should concentrate on this part. To assure the readers about the importance of gold in the world market, Nathan Lewis discusses about all forms of money and cites their relationship with gold. He takes pain to delve deep into the discussions of economic terms explaining them to common people. Lewis, from one point of view, wants to recreate the history. He is a believer of the idea of learning from historical events and regarding gold standard as an effective method is the reflection of this belief. Being a former international economist himself, it has been easy for him to decipher how the systems run in major countries throughout the world and their individual histories, too. The way Lewis mingles the past with very recent events is really praiseworthy. Gold is a must read for anybody who is interested in understanding how economics work across the globe. This book will also tell how to contradict the common wrong notions that have crept into public understandings of this subject. Although written about the importance of gold standard for full fledged economic growth Gold can be treated as a book that covers almost every contemporary economic aspects of this age. Bibliography: Lewis, Nathan. Gold: The Once and Future Money. 2007. John Wiley and Sons. Read More