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With various states debating measures to elevate the monetary status of
gold, the gold standard is more politically relevant now than it has been in
decades. When the LA
Times (to pick just one example) runs an article stating matter-of-factly
that "economists" uniformly oppose gold, you know the defenders of
the current system are getting nervous.
Precisely because a gold standard is such a hot topic lately, it's
important for people to understand its rationale. In the present article I'll
try to clear up a few misconceptions.
Do All Economists Oppose the Gold Standard?
I realize I am betraying my naïvete by
admitting this, but I was very surprised at the depth of falsehood in the LA
Times article mentioned above. Here is the blurb below the title,
"Pushing for a Return to the Gold Standard":
The idea to make the precious metal
legal tender has gained currency in more than a dozen state capitals, aided
by Tea Party support and other efforts to rein in federal power. Economists
say the plan would be disastrous.
I suppose the final sentence is technically true, but it's very
misleading. It's a bit like saying, "Baskin-Robbins offers 31 flavors,
but customers buy chocolate." Yes, some economists say a return
to the gold standard would be disastrous, and I'd grant that perhaps even a
large majority do. But the blurb above makes it sound as if virtually
all economists oppose the move, which isn't true.
The writer, Nathaniel Popper, reinforces this misconception in two other
places. He quite clearly tries to pit the rube businessmen and tea-party
politicians against the professional economists. First he writes,
The ultimate goal is to return the nation to the gold standard, in which
every dollar would be backed by a fixed amount of the precious metal. Economists
of all stripes say the plan would be ruinous, but that view is of scant
concern to Pitts [a South Carolina state representative].
"Quite frankly, I think that economists from universities are
thinking within the confines of their own little world," Pitts said.
"They don't deal with the real issues." (emphasis added)
Just to make sure the reader gets the point, Popper writes later in the
article:
The United States and most of the rest
of the world operated on a full gold standard until the Great Depression.
Economists generally agree that the policy helped cause the depression and
earlier severe downturns by limiting the amount of money the government could
create, constraining its ability to stimulate the economy.
Scholars say moving to a gold standard
now would be likely to slow the economy's already meager growth.
"At some point someone may be
crazy enough to try it, but they won't stay with it anymore than they did in
the past," said Allan Meltzer, a Carnegie Mellon University economics
professor and a critic of the Fed's current monetary policy.
Given the lack of support from
mainstream economists, activists have turned a few texts written by outsiders
into their bibles, such as "Pieces
of Eight," an out-of-print book by [constitutional lawyer]
Vieira.
In the entire article, Popper doesn't quote a single economist who
is in favor of the gold standard, or even paraphrase his or her views. This
might be acceptable, except for the fact that Popper quotes or makes
reference to businessmen, politicians, and the lawyer Vieira. (I am not
familiar with Vieira's work, and it should go without saying that I'm not
criticizing him.)
Now, it would be easy for me to accuse Popper of lying, but for all I
know he was so sure of the stupidity of the gold standard that he didn't even
try to find actual PhD economists currently teaching at colleges (some even
at top-20 graduate schools) who would have nice things to say about the gold
standard. I personally know at least 20 such people, so believe me, they're
out there if Popper or other journalists actually want to give the case for
gold a fighting chance.
As far as books touting the advantages of the gold standard, yes indeed
there are volumes written by people with PhDs in economics. A classic text is
Ludwig von Mises's The Theory of
Money and Credit, while a newer, much more reader-friendly selection
is Murray Rothbard's What Has Government Done to Our Money?
My own book
on the Great Depression exploded the myth that the gold standard had
something to do with it.
Did Gold Cause the Great Depression?
Before moving on, let me quickly address that particular claim. I've
written a longer
response here, but for now we have to wonder: If the gold standard caused
the Great Depression, what else was going on? After all, the gold standard
wasn't implemented in the 1920s. Although there had been plenty of
industrial crises or financial panics in the previous hundred years, there
had been no prolonged global depression approaching the experience of the
1930s — even as more and more countries joined the growing worldwide
market of gold-based economies. So clearly it's not enough to point to the
"golden fetters" of the monetary system to explain what happened in
the Great Depression.
hus, to blame the Great Depression on the
gold standard is just as nonsensical as blaming it on the
"laissez-faire" policies of Herbert
Hoover, who (even if we take the caricature of him seriously) was no
different from all his predecessors. It would be like explaining a particular
airplane crash by citing gravity.
As a final point, let's not forget that FDR abandoned the gold standard in
1933. The Great Depression thus lingered on — after leaving
the allegedly awful gold standard — for at least another 8 years (and I
would say 13 years, because I don't think World War II "fixed" the
economy), in what was still the worst economic period in US history. It's odd
that the gold standard could wreak so much havoc in the early 1930s —
even though it had never done anything comparable earlier in US history
— and then could continue to "cause" the Great Depression,
from 8 to 13 years after abandoning it. It starts to make you wonder whether
the "economists of all stripes" know what they're talking about.
"You Can't Eat Gold!"
One of the most absurd objections to returning to a gold standard is that
"You can't eat gold." I am not making this up; Dave Leonhardt of the New York Times actually said that
to Ron Paul when he defended
the idea on the Colbert Report.
Dr. Paul didn't really get a chance to answer (Colbert instead made a
funny joke about idolatry), but it would have been delicious had he quickly
asked the cynic, "Oh, so you make sandwiches out of Federal Reserve
notes?" (We also would have accepted, "Oh, so I take it you are
proposing a hamburger standard for the dollar?")
The utter absurdity of the objection — namely that you "can't
eat gold" — is that gold actually is a useful commodity
even for nonmonetary purposes. It's true, you can't eat gold, but you can wear
it, you can fill
cavities with it, and you can treat
arthritis with it. In contrast, all you can do with fiat paper
currency is use it in exchange, and you'd better not
keep a large fraction of your wealth in actual paper dollars, since their
purchasing power constantly erodes with the passage of time.
Don't Austrians Favor Market Choice?
Ironically, in addition to ill-informed critiques such as those emanating
from the LA Times, the gold standard has critics from the purist libertarian
camp. Such critics often ask, "What's so special about gold? Why do Ron
Paul and so many other alleged fans of the free market favor the federal
government telling us what the money should be?"
Of course Murray Rothbard — and as
far as I know, every living Austrian economist — would prefer that
money and banking were returned to the private sector, receiving neither
special regulations nor privileges distinguishing them from any other
industry. That means banks would be free to issue their own paper notes
(backed by gold reserves) if they wanted, but if they issued too many and got
caught in a "run," the government wouldn't declare a "bank
holiday" and relieve the irresponsible institution of its contractual
obligations.
What Rothbard and his modern followers believe
is that gold almost certainly would be the free choice of individuals
all over the world, if they were allowed to settle on a
money without government legal-tender laws and other interventions
stacking the deck.
In the meantime, given that there is a Federal Reserve (and other central
banks), many Austrians (though here the agreement is
not universal) believe that restoring the convertibility of the dollar to a
fixed weight of gold would be a move in the right direction, even though it
would still not be perfect.
The purpose of repegging the dollar to gold
would be to remove what is euphemistically called "monetary policy"
(a more sinister description would be "legalized
counterfeiting") from politics and special-interest corruption as much
as possible. People laud the current Fed as being
"independent," but of course that is absurd. The Fed as it
currently operates is clearly a cartelization device that shoves new money
into the pockets of rich bankers, and that allows the government to finance
massive deficits much more cheaply than would otherwise be possible.
"So You Want the Government to Set Prices?"
Related to the above criticism, some purists also ask, "Why don't
you favor a market-driven price for the dollar and for gold? Just let supply
and demand determine prices, not some rigid number picked out of a hat by the
politicians."
This objection sounds plausible at first, but it too misses the mark. If
the Fed were to say, "We are now announcing a new policy objective of
maintaining the price of gold at $2,000 per ounce, from now until the end of
time, and we will begin accumulating stockpiles of gold to reassure investors
that we will be able to maintain the target," this would not be
analogous to the federal government saying, "We are establishing a
minimum price of labor at $7.25 per hour."
Under a genuine gold standard, when the Fed "sets" the dollar
price of gold it isn't threatening people with fines or jail time if they
want to trade gold at a different price. Rather, the Fed (or the government
in general, if there were no central bank) would adjust the quantity of
dollars in existence to maintain the target. If the forces of supply and
demand were such that the market price of gold had drifted upward to, say,
$2,025 per ounce, then the Fed (assuming a $2,000 target) would need to sell
off some of its gold holdings,[1]
which would (1) flood the market with more gold and (2) shrink the amount of
dollars in the financial system. This contractionary
policy would push down the price of gold toward the peg of $2,000.
"Under a
genuine gold standard, when the Fed 'sets' the dollar-price of gold it isn't
threatening people with fines or jail time if they want to trade gold at a
different price."
On the other hand, nobody would be so foolish as to sell his gold for less
than $2,000 per ounce, if the Fed (or the Treasury) had a standing invitation
for anyone to trade in an ounce of gold in exchange for $2,000 in Federal
Reserve notes. Why sell your gold to another private citizen for (say) $1,950
an ounce, when the US government stands prepared to buy unlimited quantities
of gold at a fixed price of $2,000 per ounce?
Finally, a critic could (and actually did, on my blog) ask how this
arrangement differs from the current one? After all, right now Bernanke
"sets" interest rates, but not through literal price controls.
Instead, the Fed adjusts the quantity of reserves in the banking sector such
that the "market-determined" federal funds rate is close enough to
the Fed's target for this interest rate. So isn't this basically the same
thing as the gold standard, with a different "good" serving as the
monetary commodity?
There are two problems with this sophisticated objection. First, in the
current system the Fed has a moving federal-funds target. At best,
then, it would be analogous only if the Federal Open Market Committee said
after each meeting, "We are now setting the target price of gold at
such-and-such dollars. However, if unemployment begins rising and core CPI is
under 2 percent, we will begin raising the target price of gold in $10
increments over the next few meetings." That system would be
nothing like the classical gold standard.
Yet the deeper problem with the analogy is that on a classical gold
standard, the government is (imperfectly) mimicking what would happen if the
money were actually gold, with people walking around with gold coins
in their pockets, and merchants quoting prices not in dollars but in grains
or ounces of gold. The classical gold standard, by fixing the dollar as
convertible into a definite and constant weight of gold, doesn't introduce
another price: the dollar is supposed to be a claim-ticket to gold. This
isn't really "price fixing," any more than defining a foot as 12
inches is "central planning."
In contrast, what would be the free-market analog of the Fed's current
strategy of targeting short-term interest rates? The only thing I can think
of is if the money commodity in a community weren't something tangible like
gold, silver, or tobacco, but rather overnight bonds issued by banks. Yet
what is a bond but a promise to deliver money? So how could the money
itself be a short-term bond? At this point I am dropping the analogy, lest I
become permanently cross-eyed.
Conclusion
As the Fed's debasement of the currency reaches literally unprecedented levels,
more and more regular Americans are waking up to the merits of commodity
money. Yet this isn't some populist fad; there is a whole tradition of
excellent academic scholarship touting the virtues of the gold standard. If
he returns to the subject, I hope critics like the LA Times's
Popper will give gold a fairer hearing.
Par : David Bond
Editeur : The Silver Valley Mining Journal
Silverminers.com
David Bond est
contributeur à 24hGold.com. Les vues présentées sont les
siennes et peuvent évoluer sans qu’il soit nécessaire de
faire une mise à jour. Les articles
présentés ne constituent en rien une invitation à
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