Gold, inflation and smashing the state
Kudos to Jason Ballot for handling some of my light work.
No, really. I’ve been meaning to get around to posting in response to James Hamilton’s recent post, The gold standard and the Great Depression. Jason, however, beat me to the punch with a great post and lots of educational links to follow. I still want to weigh in on the matter, though.
Hamilton essentially says the gold standard (as a government policy) is flawed because of uncertainty over whether or not a government might stick with it. While there’s a kernel of truth involved in what Hamilton says, his overall reasoning is akin to saying attempting to lose weight is bad because you might cheat on your diet.
The gold standard, if adhered to, is an attempt to impose some small mitigating measure of morality upon a fundamentally immoral institution — government. The term inflation refers to not merely any increase in prices, which can reasonably be expected to fluctuate up and down somewhat. Inflation is when a government, through the mechanism of its coercive monopoly on currency issuance, artificially increases the size of the money supply to cover its own expenditures. It is a subtle and pernicious form of theft, indirectly stealing portions of the value of existing currency in non-governmental hands.
A true gold standard as a public policy is a reasonably effective, but not flawless, way to address that. If a government can be made to tamely limit its issuance of currency within the natural bounds that scarcity of a commodity such as gold dictates, then its ability to steal through inflating the currency supply is undermined. This results in a more prosperous society. It’s amazing what ordinary people can build and accomplish when you’re not bleeding them to death.
The problem with a gold standard as public policy, which Hamilton explicitly points out without really grasping, is that governments will gradually undermine any procedural constraints on their power, such as a gold standard. As Friedrich Hayek stated:
“The gold standard has been destroyed chiefly because it was an obstacle to inflation.”
The solution to the problem flows naturally from adequately comprehending the nature of the problem, then. The problem with the gold standard as a public policy is that it’s a public policy. Hamilton points to uncertainty over whether a government will stick with a gold standard. In truth, you can’t trust a bandit gang.
The answer, then, is true Free Banking and, ultimately, abolition of the state. We, the people and not government, need to develop a competitive market of several independent, non-governmental currency systems — either commodity-based receipts (such as e-gold or the silver Liberty Dollar) or any contractually derived securities (such as the Ithaca Hour).
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Given the fact that we do have a state, a fed, a monetary policy, and interest rates manipulation to fine-tune the economy though, how can it possibly make sense to tie our currency to a metal, the supply of which is determined by mining operations?
I suppose your argument is that we should not have the state control of interest rates, the monetary policy, the fed, the state. But to argue for a return to gold while we still have such a system in place is a non-starter.
It’s like saying that the horse is the best animal to pull the buggy when we’re currently gadding about on an automobile. I mean, sorry for the value-laden example. What I mean is not so much that having fiat money is intrinsically superior to gold-tied money, just that a gold standard seems to me to be utterly incompatable with today’s financial system.
As for the argument that the gold standard keeps the government ‘honest’ despite itself, that’s like saying “if I tie my hand behind my back, then I can’t eat the cookies from the cookie jar”.
I suppose your argument is that we should not have the state control of interest rates, the monetary policy, the fed, the state.
Yes. I thouight I clarified that towards the end, after taking pains to show how I arrived at that conclusion.
But to argue for a return to gold while we still have such a system in place is a non-starter.
I wasn’t arguing for that, though. I would have, a few years ago, when I still believed political reformism was a worthwhile approach.
As for the argument that the gold standard keeps the government ‘honest’ despite itself, that’s like saying “if I tie my hand behind my back, then I can’t eat the cookies from the cookie jar”.
That point, however, does not buttress the status quo. It accepts the indictment of the status quo that goldbugs propose “gold as policy” as partial remediation for.
It’s entirely possible to make a valid diagnosis and then propose a flawed treatment. I’m accepting the goldbugs diagnosis (”inflation as theft”, although seldom stated that boldly) and offering what I believe to be a superior treatment.
Although I believe free currency markets are likely to mostly standardize on gold, that doesn’t mean I fetishize that particular commodity. I would have no moral objection to widespread use of McDonalds gift certificates or chits redeemable in bales of flax. [shrug]
Ah, I see I have commented too hastily. It’s obvious upon rereading your post that you do not think a return to the gold standard would be the way to achieve the goals you want to achieve.
That’s correct — “gold as public policy” is not a way to achieve what I want.
Now, that doesn’t necessarily mean that I think it’s completely worthless.
For example, I value the Bill of Rights as an obstacle to violations of our natural rights. I also recognize that, as I said above, “governments will gradually undermine any procedural constraints on their power“. Even though the government violates the Bill of Rights constantly, wouldn’t you still recognize what’s left of it as a good thing?
Likewise, a gold standard as public policy is a doomed attempt to stave off the natural institutional drive in government for accrual of more power — the power to inflate the currency supply, in this case. A gold standard as public policy has some marginal value as a procedural hurdle that Leviathan government has to clear. It merely buys us time to arrive at a real solution.
That said, I put my own energy into advocating what I see as the real solution — seperation of state and banking at a bare minimum, and abolition of the state preferred.
It’s to late to turn back to the way things were, at least here in the US. Government has metastasized into empire — and empires always fall. If somehow the public policy fairy waved her magic wand and put the US back on a gold standard, would I complain? No. Is that going to happen? No.