I mentioned in an earlier post on Ron Paul that one of the policies he advocates that I do support is a return gold standard. I used to think this for two reasons -- both moral rather than economic principles, but after reading a post by Megan McArdle I changed my mind.
The two reasons that I fundamentally distrust fiat money are the following:
1) In contrast to a great many people, I consider money a moral good. Honest people trade the value of their labor through the means of money, and in a fiat money system that moral standard is degraded. Money is a far superior means of trade than the alternatives: coercion and force. In this sense, I am a moral capitalist. Free market capitalism is not only more successful system than the alternatives on utilitarian grounds; it is indeed a more moral system because it relies on the least use of coercion.
To quote Ayn Rand in Atlas Shrugged:
To trade by means of money is the code of the men of good will. Money rests on the axiom that every man is the owner of his mind and his effort. Money allows no power to prescribe the value of your effort except the voluntary choice of the man who is willing to trade you his effort in return. Money permits you to obtain for your goods and your labor that which they are worth to the men who buy them, but no more. Money permits no deals except those to mutual benefit by the unforced judgment of the traders. Money demands of you the recognition that men must work for their own benefit, not for their own injury, for their gain, not their loss--the recognition that they are not beasts of burden, born to carry the weight of your misery--that you must offer them values, not wounds--that the common bond among men is not the exchange of suffering, but the exchange of goods. Money demands that you sell, not your weakness to men's stupidity, but your talent to their reason; it demands that you buy, not the shoddiest they offer, but the best that your money can find. And when men live by trade--with reason, not force, as their final arbiter--it is the best product that wins, the best performance, the man of best judgment and highest ability--and the degree of a man's productiveness is the degree of his reward. This is the code of existence whose tool and symbol is money. Is this what you consider evil?
2) The second reason is that when the government inflates the money supply they are really taxing the public in a truly pernicious and largely invisible way. I hate it when the government can tax the public without standing up and saying, "Hey, we're taking the money." It is an abdication of the responsibility to justify government policy to the public.
However, this is not an issue about which I am ideological. There are moral principles at stake for me, but I am willing to listen to economic arguments showing that losing the gold standard is better for the economy than keeping it.
In that light, Megan McArdle has done several posts that have convinced me. Her largest post -- which I recommend reading completely -- has this key quote:
In short, you don't get anything out of a gold standard that you didn't bring with you. If your government is a credible steward of the money supply, you don't need it; and if it isn't, it won't be able to stay on it long anyway. (See Argentina's dollar peg). Meanwhile, the limitations on the government's ability to respond to fiscal crises, the necessity of defending against speculative attacks in times of crises, and the possibility of independent changes in the relative price of gold, make your economy more unstable. It's a terrible idea, which is why there are so few economists willing to raise their voices in support of it.
Also, check out this post. I was particularly amused by this:
2. Americans don't save because they're afraid inflation will erode their savings. This is daft. Moderate inflationary expectations are built into the interest rates that banks offer. After thirty years of stable monetary policy, a good portion of the population doesn't even remember high inflation, and the ones that do are mostly retired and spending down their savings. Americans don't save because . . . well, have you tried the Wii? It's awesome.
You live and you change your mind. Oh well.
- Log in to post comments
haha, you need to read what Alan greenspan says about gold and the gold standard. In short he says the argument is all made up. Making people think gold is unimportant. And he basically laughs at you, because in the end he says gold is the protector of property. On the gold standard you DONT LOOSE WEALTH.
Bottom line is,,THEY CANT MAKE GOLD. They can print money though. You need to read what the federal reserve really is. And lastly in this short article, you dollar was devalued about 3/100th of a cent...
Whenever I am forced to read anything by Ayn Rand, I am always struck by the feeling that her entire worldview was frozen in time somewhere before about 1890. And that she lived in a world where she never encountered any actual people going about their daily lives. "Money permits you to obtain for your goods and your labor that which they are worth to the men who buy them, but no more. Money permits no deals except those to mutual benefit by the unforced judgment of the traders." I mean, really! The goal of most modern capitalists is to do just the opposite of that as much as they can get away with.
As Ms. McArdle correctly points out, most gold fetishists are poor students of history, glossing over the basic fact that the reason we don't have a gold standard anymore is that the gold standard essentially failed to keep pace with our economies.
There's no magic and no invisible hand. If there's no responsibility, no rational policy, then you're screwed no matter what. All money, no matter what it's made out of or what "backs" it, is an entirely social construct. We invent it for our accounting convenience.
Never trust the judgment of someone who thinks "lose" is spelled with two "o"s.
The industral uses are well-known, the supply is stable. Speculation isn't ever going to be lucrative.
That a government could in theory be good stewards of fiat money in no way implies that in practice that they ever are, besides which ours has given up stewardship to a supra-governmental banking cabal, that whether you subscribed to the Alex-Jones-kook bullshit that it's the illuminati or whether you believe is just another corporation that big banking corporations have seats on its board, doesn't have to listen to Congress or the president anymore than it feels like being polite.
The government needs to be forced to be the steward of our money, and we need an easy and simple way to keep watch over them. That is easiest when there is no way for them to inflate, otherwise they create all sorts of cooked numbers that even economists can't follow.
Should the commodity be gold? Not necessarily. Any commodity might be acceptable to me. But to think that they should be able to print money to "help the economy" is absurd... despite their claims, they only seem to hurt it. "Oops, we got that depression/recession wrong, but we know how to fix it this time! Trust us!" and then they go and bail out greedy companies that bought subprime derivatives.
I think society benefits most when the maximum amount of money can be 'believed into existence'.
Since money motivates human effort, and so the more money, the more people invent and create values.
Any artificial restriction, like gold, would slow our technological progress down.
"That is easiest when there is no way for them to inflate,"
That way doesn't exist. A gold standard is easy to inflate, just change the peg. It's true that in practice, during the years we had a gold standard, it wasn't done very often, mainly because it was easier to just go off when necessary. Now I suppose if we gave up paper and virtual money, and went back to a metal-coin-only system, that would be harder to inflate. It would be insanely deflationary, but then we could buy bread for a penny again.
Keith, have you considered moving to Zimbabwe? They "believe" money into existence more than any country right now, and their economy is a fiat-currency utopia. They give you a new car just for immigrating, because everyone has so much money. Everyone lives in mansions, and why shouldn't they, when but for a printing press everyone can be multimiillionaires?
I would go there, but I'm a gold standard dullard who hates economic progress such as they have.
You should read some of the comments to the McArdle's posts.
This would be a good one to start with.
http://meganmcardle.theatlantic.com/archives/2007/12/why_is_the_gold_st…
Don't confuse so called economic trends, inflation or business cycles as independent of the fiat currency system. As a general rule it is the cause of it. It is common knowledge that the central bank uses its control on the supply of money to influence the markets, but what seems to be misunderstood is the true effect of their policies. This is however being brought to light more and more, with current economic and fiscal crisis', and with the help of Dr. Paul's message.
The statement that if you can't trust the government to be good stewards of fiat currency then you can't trust them to be good stewards of a commodity based currency, takes as its base assumption that they are to "steward" the commodity based currency. This is exactly the opposite of the intention of a metals based currency. There isn't supposed to be a moving peg, or a control of the supply by the government, or management of the economy by the central powers that be. It is supposed to be a standardized free market instrument of exchange whose value will be determined by the market.
As well to say that the growth of the economy depends on the increase in currecny supply is another fallacy. There are plenty of instances, even now, in which growth in an industry clearly outpaces the growth of inflation or the money supply. The result is simply deflation of the market value of those goods, which in actuality accurately represents the increased efficiency in the production of those goods. For some reason "deflation" has become a dirty word, and inflation has been sold to the general population as a natural effect.
Think about this; who stands to gain in an inflationary economy, when the cost of living goes up faster than wages for the working class? Inflation literally is the indirect transfer of wealth from the poor and the working class to the rich. Wouldn't then a deflationary economy do the opposite? As the cost of living decreased people would not easily take less money for their labor, and would in fact become wealthier as their purchasing power increased.
As far as Ayn Rand is concerned, people usually argue against her free market philosophy by using examples contradictory examples of the current economy or business environment in the U.S. Um, I hate to break it to you but you are not living in a free market economy. Even Alan Greenspan stated explicitly that same fact, and that there hasnt been a free market since the inception of the Federal Reseve System when has said, "To the extent that there is a central bank governing the amount of money in the system, that is not a Free Market..." What exists now in the U.S. is a corrupt, controlled, and exploited economy of regulation and subsidization, all enabled through fiat, and managed by the central banking powers for thier own interests almost necessarily against the interests of the vast majority of other people in the country. So when you look at Ayn Rand's beliefs in economics, remember that the fundemental premise of all of them is that their existence and fidelity depends on a free and JUST society and government.
What really is needed is a means of exchange that is not controlled by a central force and that is not used as a means to enrich a select group of greedy men through the enslavement of everyone else, and that is a currency which the marketplace determines. As DR. Paul has previously stated, he's not so much in favor of the gold standard as he is in allowing competition, or a free market, in currencies.
In that sense perhaps the gold standard isnt the best system possible for a free market. But if you arent willing to let the market decide for itself then the best compromise is to limit the power of government over the economy and currency as much as possible, and gold who's supply is naturally limited, would go quite a ways to doing this.
*Allan Greenspan on the Jon Stewart show
http://feedraider.com/item/4014468/The-Big-Picture/*Alan-Greenspan-on-T…
http://video.google.ca/videoplay?docid=2492207885138072526&q=greenspan+…
"As far as Ayn Rand is concerned, people usually argue against her free market philosophy by using examples contradictory examples of the current economy or business environment in the U.S."
Well, that's the world we live in, so deal with it. Listening to your crazy old aunt raving on about her utopian pipedreams of how it was in the old days doesn't really help much. All Rand ever did was contradict Marx, and made something up that works just as well.
"I would go there, but I'm a gold standard dullard who hates economic progress such as they have."
One could also use your logic with Somalia as an example of a small government paradise. Strawmen are very easy to create.
One of the things I haven't seen addressed in this thread is the volume of historical evidence that is especially damning to gold-bugs. When we used the gold standard, bank panics and depressions were ubiquitous, while the advent of the Keynesian monetary system saw the virtual elimination of these phenomena. There is a reason why the general consensus among economists is that the gold-standard is deflationary and causes unnecessary economic instability.
Society is a contract for allegiance promising equalities of the prior generation and delivering 90%.
Maybe somebody can explain to me why gold is special? Why not use some other precious metal standard? In this day an age maybe we should use oil as our "gold standard", everyone seems to actually need energy, whereas the only reason gold has value is because it's shiny.
Someone please enlighten me, I'm vastly unsophisticated in this realm.
Then why don't you persuade society to define everyone to be wealthy?
Oh, wait - that can't be done.
Financial creationist.
Thank you