What Kind of Gold Standard?
The Daily Bell– by Staff Report
BY disclosing a plan to conjure $600 billion to support the sagging economy, the Federal Reserve affirmed the interesting fact that dollars can be conjured. In the digital age, you don’t even need a printing press. This was on Nov. 3. A general uproar ensued, with the dollar exchange rate weakening and the price of gold surging. And when, last Monday, the president of the World Bank suggested, almost diffidently, that there might be a place for gold in today’s international monetary arrangements, you could hear a pin drop. Let the economists gasp: The classical gold standard, the one that was in place from 1880 to 1914, is what the world needs now. In its utility, economy and elegance, there has never been a monetary system like it. It was simplicity itself. National currencies were backed by gold. If you didn’t like the currency you could exchange it for shiny coins (money was “sound” if it rang when dropped on a counter). Borders were open and money was footloose. It went where it was treated well. In gold-standard countries, government budgets were mainly balanced. Central banks had the single public function of exchanging gold for paper or paper for gold. The public decided which it wanted. – James Grant, New York Times
Dominant Social Theme: Gold provides hope for the world. Let the government get out of the way. The proper function for the authorities is merely to set the standard and then leave it alone.
Free-Market Analysis: Money is being argued about again, which is a good thing. But as usual (or so it seems to us) the argument is being framed in terms of what “ought” to be done. This is a kind of promotion, a dominant social theme, whether or not one wishes to admit it. Even the argument over re-imposing a gold standard, as the excellent James Grant argues in the article excerpt above (and he is surely a fine financial journalist) is tendentious because it involves GOVERNMENT solutions, or at least government involvement, however marginal. It certainly gives us permission to think in terms of government solutions.