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« The end of tolerance | Main | Let the circle be unbroken »

February 13, 2009

Bring Back the Gold Standard!!

...At least that's how I feel after reading this fascinating Judy Shelton column in the WSJ.

I'm providing this excerpt...

So we must first establish a sound foundation for capitalism by permitting people to use a form of money they trust. ... A study by two economists at the Federal Reserve Bank of Minneapolis, Arthur Rolnick and Warren Weber, concluded that gold and silver standards consistently outperform fiat standards. Analyzing data over many decades for a large sample of countries, they found that "every country in our sample experienced a higher rate of inflation in the period during which it was operating under a fiat standard than in the period during which it was operating under a commodity standard."

...and this excerpt...

The same values that will help America regain its economic footing and get back on the path to productive growth -- honesty, reliability, accountability -- should be reflected in our money. Economists who promote the government-knows-best approach of Keynesian economics fail to comprehend the damaging consequences of spurring economic activity through a money illusion. Fiscal "stimulus" at the expense of monetary stability may accommodate the principles of the childless British economist who famously quipped, "In the long run, we're all dead." But it shortchanges future generations by saddling them with undeserved debt obligations.

...because (1) it's the bloggy thing to do, and (2) it gives a sense for the two-fold argument Shelton makes: both economic and moral (not that they aren't inherently intertwined -- they are indeed). But you simply must read the entire piece. Don't make me excerpt the whole thing!

My Question: Is there a good counterargument to Shelton's powerful argument for a parallel gold-standard economic option? And, goodness, isn't that the "pro choice" -- and thus, to borrow common postmodern values, *superior* -- policy option? What's that you say? The "pro choice" argument didn't work for the Social Security reformers either? Well, that's true.

And what's clear is that the problem with democracy is that the "nannier" the government gets, the larger the opportunity for self-interested older generations to hose the younger ones. Hey, Generations X, Y and younger ... get your rain gear on. The hosing has only just begun.

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Comments

EB

While I'm a proponent for the establishment of a silver or gold standard we must also be prepared to see the values increase dramatically if it takes effect.

We could conceivably see gold at $5,000 an ounce and silver at $100 an oz.

David

Shelton's argument is rather appealing, until one recognizes that there will still be a "monetary system" and it will still be administered by the same kinds of people who have (mis)managed, seduced and deceived us into the current debacle.

Shelton asserts that "The same values that will help America regain its economic footing and get back on the path to productive growth -- honesty, reliability, accountability -- should be reflected in our money." That seems sensible. But I wonder, if we (all of us, but especially those in positions of great influence) actually practiced honesty, reliability and accountability, would a gold standard be necessary? Put another way: Just as federal reserve notes are backed by "the full faith and credit of the US government", so Bernie Madoff's investments were backed by the full faith and credit of Bernie Madoff. Had his transactions been done in gold, his clients would be just as broke. A gold standard may make it easier for ethical people to manage money, but it surely will not enable a nation or a society to manage unethical people.

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