The 'Perils' of a Gold Standard?

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Bullion Bulls Canada ) -- Among my own list of pet peeves, near the very top are systemic flaws in analysis. Put another way, I am infuriated by seeing analytical mistakes which everyone makes, because when the supposed experts in our society insist on repeating flawed analysis again and again they teach flawed thinking to those exposed to this defective logic.

At the top of the list of mistakes made by everyone is the complete incapacity of commentators (in virtually all fields) to properly analyze the analytical principle known as causation. One could write an entire book on this one subject, because there are so many different variations of this flawed analysis.

I will focus on a single example -- the inability to distinguish between causation and correlation -- for two reasons. First of all, this is (by far) the single largest category of flawed analysis on the subject of causation and because it is essential to understand this distinction/principle in order to debunk one of the central myths which has been perpetuated about a gold standard.

Let's begin with the general principle. The reason why virtually no one in our society engages in competent causation analysis is because this term is so poorly understood. To illustrate this defect in thinking (as always) we must start with definition of terms. Sadly, few analysts have more than a vague understanding of the word correlation. Once one understands this term/principle correctly it becomes much harder to continue to make the same mistakes in causation analysis.

A correlation is nothing more than the simultaneous occurrence of two events. In short, correlation suggests nothing more than coincidence, and (most particularly) correlation implies nothing about causation. To comprehend this, I must repeat one of the earliest lessons I learned while studying economics.

To illustrate the complete absence of any connection between correlation and causation, economists provide the example of the high correlation between economic booms and sunspot activity. The joke among economists (who aren't exactly the wittiest group) is that economists are still trying to determine whether economic booms cause sunspots, or whether sunspots cause economic booms.