Monday, August 03, 2009

Loose Change on the Gold Standard

I admit it, I have been a bit hung up on the gold standard lately--largely through reading Steil and Hinds' thought-provoking book, who make it clear that the case against the gold standard is not nearly as complete as its opponents seem to believe, and that the case for it is stronger than I might have guessed. In the end, I am not persuaded, for one ineluctable reason, and that is: the gold standard is vulnerable to exactly the same defect that its proponents see in paper money--namely that politicians may ultimately betray it. Even assuming that a gold standard is self-executing (though apparently it isn't), and assuming that it does not crimp growth (my guess is that it does crimp growth, although the evidence does seem somewhat equivocal), even assuming that politicians will corrupt a paper standard (they will, and do, all the time)--still, assuming all these points, we are stuck with the fact that politicians who adopt a gold standard may also abandon it, and the abandonment may (sic) lead to disruptions as severe or more severe than anything you get from the corruption of paper money.

I am savoring, however a couple of apparent contradictions in discussions of the gold standard--one deep-seated, the other more transitory.

First, deep-seated. It's my experience that gold standard advocates are also, to a considerable extent, strong nationalists--fierce, some would say paranoid, protectors of national sovereignty. Yet one thing you can unambiguously say about a paper standard is that it is an assertion of sovereignty--that it is a refusal to let others control the nation's money. This being true, it seems that the embrace of a gold standard is the ultimate surrender of sovereignty--the surrender of control over money to somebody, somewhere (the gnomes of Zurich?) whose identity we cannot discern and whose behavior we therefore cannot possibly control.

More transitory--I follow with interest the campaign of Ron Paul and others to get an "audit" of the Federal Reserve. Opponents of the audit seem to fear, inter alia, that an audit would be a camel's nose under the tent--a preliminary foray directed at destroying the independence of integrity of the Fed. Cf., link. On the face of things, this would appear to be a plausible concern. Yet it is puzzling. Proponents of the audit for the most part seem to be those (like Paul) who argue that the Fed fails to control the integrity of the money supply. Yet isn't this exactly the reason why we should fear the nose under the tent--the fear that greater Congressional inquiry control meddling will corrupt the very integrity of money that the Fed is supposed to protect?

1 comment:

Pankaj.shah said...
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