|
“Stable
money” means money that
doesn’t change in value. In practical terms, this has always been
achieved, as closely as has been possible, by linking the value of the
currency to gold
and silver, and finally, in the late 19th century, to gold alone. This
was true for literally 5,000 years, from about 3200 B.C. to 1971. There has
never been a “stable money” system of any significance, which was not a gold
standard system.
There have always been funny-money promoters. The philosopher Plato, in The Laws (360 B.C.), suggested
a government-controlled fiat coinage probably
made of iron. Ownership of gold and silver would be made illegal, and
exchange rates with the gold and silver coinages of other Greek states would
be set by government decree.
“Unstable money” and “currency chaos” have always been a hard sell. For over
100 years now, the funny-money promoters have been selling their ideas as
versions of “stability.” This continues to the present day. Don’t be fooled.
One early version was the “compensated
dollar” of Irving Fischer in 1913, which has precursors going at least as
far back as William
Stanley Jevons in the 1870s.
Fischer wanted to make the dollar more “stable” by changing its value vs.
gold from time to time, based on commodity prices. In practice, these would
only be downward movements–currency devaluations. Nobody would want to
revalue the currency upward, no matter what commodity prices did. These
arguments were central to the dollar devaluation of 1933, when the dollar’s
value fell from $20.67/oz. to $35/oz. But when commodity prices soared upward
in the 1940s and 1950s, did anyone suggest revaluing the dollar from $35/oz.
back to $20.67/oz.? That idea was nowhere to be found. Since commodity prices
tend to be economically sensitive, it boiled down to a justification to
devalue the currency in a recession; or possibly during a time of low
commodity prices even without a recession, as commodity producers (family
farms) were a huge political support group in those days.
“Domestic stability” was a popular term among the Keynesians of the 1930s
onwards. It meant manipulating the currency, and interest rates, as a form of
macroeconomic management. “We will not sacrifice domestic stability for the
gold standard” meant: We will blow up the gold standard, and allow floating
fiat currencies, so we can continue our money manipulation games. Arguments
like these led to the dissolution of the world gold standard in 1971.
Then there was the “monetary stability” of the monetarists, led by Milton
Friedman, who wrote a book called A
Program for Monetary Stability in 1960. Friedman’s “stability” took the
form of a steady growth rate of some monetary factor, whether base money or
perhaps a measure of credit such as M2. Attempting to “stabilize” either of
these factors implied a floating fiat currency, which was why Friedman was
always a big floating currency fan.
In other words, “monetary stability” = a floating fiat currency. In 1965, he
wrote:
As I see it, there are only three kinds of criteria for
controlling the stock of money.
One is the kind of automatic criterion that is provided by a commodity
standard, a gold standard in which we do not have discretionary management of
the system but in which the amount of money in the system is determined
entirely by external affairs. I think such a system is neither desirable nor
feasible in the United States today. … [W]e are not willing at home to obey
its discipline; we are not willing to subordinate domestic stability to the
necessities of the external balance of payments.
I should qualify this last statement. Nobody will say he is willing to
sacrifice domestic stability to the balance of payments, yet our present
policy is one in which we are doing it.
“Sacrificing domestic stability to the balance of payments” was econobabble
for “maintain the gold standard.” By “we” he means “I,” of course.
Then there is “price stability,” which means something like a floating fiat
currency with a vague CPI target–the conventional wisdom among most central
banks today.
Today, we also have the ever-popular “macroeconomic stability,” a popular
term among Friedman’s third-generation monetarists, the “nominal GDP
targeting” fans. Stable growth in nominal GDP might seem attractive, but it
would be achieved with changes
in the value of the currency. A few recent claimants even, rather
bizarrely, try
to graft this notion directly onto gold standard and free banking ideas.
What do all these claims of “stability” have in common? They are all excuses
for periodic devaluations and floating fiat regimes. None of them even
attempts to do what a gold standard system does–ensure stability of currency
value–in a better or more improved way. In the end, it amounts to rhetorical
tricks; or what, more unkindly, might be called propaganda.
All of this was part of the process to get you to think that today’s monetary
madness was normal and necessary. The gold standard–the common monetary
system of Western civilization for 500 years before 1971, the monetary
foundation of the Industrial Revolution and European rule of the entire globe
by 1914–was supposedly superstitious nonsense.
The reason we still get these arguments about “stability” is that everyone
knows that stable
money works. Don’t be distracted by Team Funny Money’s word games. Stable
money means gold.
|
|
