Gold Standard a Bad Idea?!Submitted by Shamus_McMises on Thu, 04/26/2012 - 01:54
This idea that a commodity backed currency is a bad idea because those in power will hoard said commodity in order to dominate the economy lacks all regard for the origins of money and basic understanding of monetary policy in a free society. The Regression Theorem tells us that all currency can be traced back to a specific point in time in which it had previously been valued only as a commodity for industrial use, but at that point begins to be stored and accepted as a medium of exchange. The value of a commodity, in America’s case gold and silver, would go up because it now is used as a store of value for future trade and not just for consumption in its original industrial purpose. Use as a medium of exchange brings a commodity’s value up in the marketplace because it now has diversified its uses and the conditions in the market place add to or diminish its value based on supply and demand just as with any other commodity. Use as a medium of exchange, even though its employment as money is mandated by government, does not make it neutral or impervious to market volatility. If gold and silver were made to be legal tender once again and a group of people attempted to buy and hoard all of it, all that would happen would be a rise in the purchasing power of the American currency. Those that were frugal and kept there gold and silver stashed away would be made more wealthy which would have positive impact on the economy. If necessary people would start to trade with other, less precious metals such as nickel and copper. All of this talk of hoarding precious metals out of sinister intent is contradictory to begin with because it underestimates the amount of gold and silver that is already in the hands of private American citizens and the fact that both are industrial metals whose uses are more than just media of exchange.
“The quantity of money available in the whole economy is always sufficient to secure for everybody all that money does and can do” – Ludwig Von Mises.
The hoarding argument also lacks merit because it amounts to nothing more than a promotion for paper currency. The entire argument behind the use of a paper promise as a medium of exchange centers on the ability to use monetary policy to make the currency stable which is impossible as currency is subject to the same laws of supply and demand as any commodity on the market. The premise that stability is a measure of economic success is contradictory as a whole because economic change is the goal of every participant in an economy. A baseless, fiat currency also goes against all laws of human nature because in order to implement paper money you must first allow a person, or group of people, the power to print it. This enormous amount of power is far too much for any law or regulation to sufficiently protect the population from its eventual abuse. It is a far over-simplified explanation, but I am trying to keep this post short: so far as there is the ability to make something of value out of thin air those that have the ability to do so will find a way to inflate it and give it to their friends. This is why paper currency will always fail; even if monetary policy using a paper dollar works sometime throughout its existence (just as people love to point to the term of Paul Volcker as FED chairman)it is still inevitable that somewhere down the road it will be horribly abused until it finally collapses.
If America is to ever turn herself around, monetary policy will have to be the first place that we start. It is the drive for our entire over-centralization and imperialistic behavior. The monetary policy of the US has taken us into a very deceptive form of monetary dictatorship. Future generations must take the right to a free and legitimate currency as seriously as their right to free speech and their right to keep and bear arms or America will never reestablish and maintain herself as a free society.
When I say "gold standard" I do mean to lift the ban on gold and silver as a currency in combination with allowing competing currencies. Not to just hand control over to the FED of a paper dollar that is loosely tied to gold as was the case from 1913 until 1937 (when FDR stole the people's gold in an effort to continue the grand currency manipulation experiment) and continued until it failed altogether in 1971. In order for any currency to work it must be a commodity currency whose interest rates are determined purely by the market and kept sufficiently away from the hands of any soul that would fancy him/herself capable of out witting the direction that the free market would otherwise take them.
One last thing needs to be clarified, and that is the notion that free markets are subject to wild volitility, as Paul Krugman recently argued in an informal debate with Ron Paul, if left alone without monetary manipulation. His defense centered around the great depression which he claimed was not a result of flawed government policy, but rather was the result of the free market "run-amuck". This, of course, is fallacious as the federal reserve had been created sixteen years prior to the market collapse of 1929 and had egaged in drastic interest rate manipulation for the entire decade leading up to the great depression. The FED had held interest rates below the rate of inflation creating a bubble (just as it did prior to the collapse of 2007) and then after it burst policy was formed which added to the malinvestment where the markets would have forced its liquidation. Though markets do go through times of depression they are much less extreme and are over much quicker than they are under interventionist monetary policy. To argue that markets are more stable with Krugman's idea of good policy in place is as ignorant an assumption as one could make. The early 1920's saw a very depressed economy which was able to naturally correct itself and did so fairly quickly which was of course not the case for the great depression which finally ended after WWII, once the government did as the market would suggest and liquidated its malivestment, cut taxes and cut spending. After that calamity was over the markets continued their natural volitility, but as the FED now had unlimited ability to do as it pleased in attempts to stabalize the market it amassed massive amounts of malinvestment which had to be paid for through the robbery of the American citizen. These policies also did nothing to make volitility less extreme and Americans not only experienced wild economic swings in the last 3/4 century, but we lost nearly all of our currency's purchasing power and indebted our society to the point of bankruptcy. To argue for currency manipulation is no argument.