Saturday, August 27, 2011

Eichengreen on Gold

There's a kinda sorta must-read up at The National Interest right now by Barry Eichengreen, called A Critque of Pure Gold," shorthandable as "Eichengreen against the gold bugs."   Eichengreen is the gold standard of monetary historians working today but I kinda sorta hedge my bets because the piece, for all its palpable merits, appears to tangle three or more topics into one.   Foremost, there is the matter of "the gold standard" itself and why, in Eichengreen's perspective, it wouldn't solve our problems.    Gold bugs have succeeded in making this a topic of central importance and there is nobody better equipped than Eichengreen to present the "nay" case.  He does so in a serviceable manner although notably, he gives more time and attention to the "impure" gold standard--gold-pegged currency controls, like the system Richard Nixon threw over in 1971.  Apparently Eichengreen thinks (and he would probably be right) that support for any hairy-chested purity is ephemeral enough that it doesn't deserve much attention beyond the title.

All right so far but Eichengreen also undertakes to present a fascinating if somewhat diversionary account of how gold came to be so central to modern libertarianism.   As Eichengreen points out, there's no essential  link between libertarianism and gold; the iconic Friederich von Hayek had no particular love for gold (he preferred "free banking").  As we know, Milton Friedman was no special fan either.  The key seems to be Ron Paul: Paul embraced gold and Paul has stood for some years now at the head of the libertarian parade, and so gold has a place along with him.   It's a good story and worth telling in its own right though I am not sure it helps to clarify matters here.

Moreover, I don't think Eichengreen really puts his finger on the one reason why the gold standard has become so popular with libertarians: it seems to take money "out of politics."  "Politics" being, virtually by definition, a limit on "freedom," gold therefore ehances "freedom," QED.  I think I've spoken out before on why this seems so goofy to me: one, the decision to "choose gold" would, in some sense, be a "political" decision--and any polity that could make the decision could later change the decision, by the same political process.   And two, embracing gold doesn't seem to me so much an enhancement of sovereignty as a surrender--from the pinheads in Washington to the proverbial gnomes of Zurich.

ichengreen provides splendid background on these issues in books like Globalizing Capital and Exorbitant Privilege.  I admit I haven't read his big book on gold--$43.14 on Kindle.   Setting that one aside, I'm still waiting for someone to state the case against gold as coherently as the case for it is set by 

Benn Steil Manuel Hinds

1 comment:

Ebenezer Scrooge said...

I'm not sure that the Paul-ites wouldn't have a ready answer for your objection. The answer goes as follows: money is a social, not a statal phenomenon. (This is true as far as it goes: words like "shinplaster" and "not worth a Continental" go to show what happens when the state gets ahead of society in matters monetary.) The gold standard, then, is no more than the recognition of a social consensus by the state.

This, of course, relies on several--ahem--weak assumptions:
1. That there is in fact a social consensus in favor of gold;
2. That Zurich gnomes are not powerful intermediating institutions. Since they are not the state, they must be mere individuals who can no more shape social forces than your or I.

I'd also like to note that the Paulites take a sixteenth-century attitude toward money when they insist that the medium of exchange be bits of metal or warehouse receipts for same. Even eighteenth century money was mostly credit money, at least among merchants.