World Bank president, Robert Zoellick, has caused a bit of a fire storm with his endorsement of anchoring the international monetary system to gold once again.
And Martin Wolf, of the “Financial Times,” has joined in, but to attack the idea of any return to a gold-connected monetary system.
I have a new post on the Northwood University blog, “In Defense of Capitalism & Human Progress,” on the theme of “Return to the Gold Standard?”
I argue that not only is it necessary and worth the cost to restore a market-based commodity such as gold as an anchor to the monetary order, but that it would be desirable to do so in the wider context of ending monetary central planning and replacing it with private, competitive free banking.
Indeed, the heavy and manipulative hand of government will never be removed from the handle of the money printing press until there is a total separation of money from the State.
Richard Ebeling
{ 56 comments }
Why do the Austrians not see that “replacing it with private, competitive free banking” and “total separation of money from the State.” are entirely incompatible with a “gold standard!” The whole point is that there should be no standards dictated to us and controlled by central banks or governments. The only acceptable system is private, competitive currencies and free banking and a total separation of money from the state, which requires that there be no standards enforced, gold or otherwise.
Not to speak for anyone else, but as I understand most Austrians, “the Gold Standard” is shorthand for what you’re describing. Those who call for free, private, competitive banking aren’t actually simultaneously calling for gold to be legally enforced as the money, and the persistent talk of gold is not to say that gold is somehow “the best,” only that it is likely that the market would choose gold as the best due to its “moneyish” qualities.
Understood in that way, I think the “gold standard” is compatible with freedom and separation of money from state. Otherwise, you’re right – there seems to be a contradiction.
Yep, that’s about right. It is my opinion that, the more free and competitive a banking system is, the more likely it is that gold will become the de facto standard, more as a result of gold’s properties than by any decree.
It seems that Zoellick’s statement comes a bit too late, anyway. From what I’ve read, here and elsewhere, most of the world’s traders are already using a gold standard – Zoellick just wants to recognise that, so that the World Bank can get the credit for the idea.
The nice thing about gold is that no enforcement of gold as a monetary standard is necessary, gold is useful just as it is.
Somehow if some folks don’t like guvmint-issued paper money then they’re not going to use privately-issued paper money especially when others are issuing gold and silver currency.
Glad to see this. The Austrians should stop calling it the “gold standard” when discussing what they would ideally like to see — words matter, and “gold standard” connotates something entirely different from what you guys are describing.
could the same thing be said about paper??
Bullshit. Gold Standard is gold standard, gold as money. Opinions vary whether it should be enforced by state or would emerge spontaneously.
Wow, you just said bullshit and then went to repeat what he said. You’re smart, aren’t you?
Inquisitor, let me explain it to you if you don’t understand.Gold standard is about gold (a specific element, atomic number 79, density 19.3 g/cm3 etc) and its proxies (certificates of deposit, gold-linked credit) functioning as money.Free market-based monetary/banking system is about letting it go and let the market choose what currency/currencies are used. From what we can gather from history, there would at all times exist concurrently AT LEAST 4 forms of money: gold (and its proxies), silver (and its proxies), private fiat credit (promissory notes of largest financial institutions) and government fiat money (just as it is today).
Gold standard is authoritarian, constructivist (design for perfection) and primitive in its absolutism. Free market is egalitarian and deconstructivist (no design, what works works). And you really, really don’t know whether the free market would choose gold or silver this time. It could breed something very different. Basket of commodities and credit, platinum, rhodium, osmium, there are countless possibilities.
Frankly, it does no good to fantasise about an ideal anarcho-libertarian world. Aint gonna happen in our lifetimes. That said, there is much that can be done at the margin in supporting initiatives that reduce the states power over citizens, and resisting initiatives that do the opposite. I think that carping about a suggestion to return to some sort of gold standard, or at least using it as a reference point , by the head of the world bank no less, does no good at all. Sure, forcing a gold standard on the populace (as distinct from letting some sort of commodity standard emerge spontaneously on a free market) is not a complete anarchocapitalist win and you can mutter about it all you like, but dammit see the suggestion for what it is: its less forcing a gold standard on you and me than it is forcing a gold standard on states/central banks themselves, thereby giving them (slightly) less opportunity to be as dishonest as they currently are. It fetters the inflationary instincts of State incumbents, and that has to be a good thing. At least its being talked about in the mainstream now, and not always in the same breath as the words ‘barborous relic’ either. Thats progress!
Mushindo: I see your point. However, they will just blame all of their problems on gold; something that they can’t do now. They can easily say “we tried it and look what happened!”, and the Austrians can go on and on on how the problem was in central bank manipulation, not gold, but that is not what everyone else will see.
I agree; let the market choose. The Austrians should stop referring to a “gold standard” if they actually do believe in free banking and free choice. “gold standard” means pre-1970s and pre-1930s in the minds of most people.
@ King George. your point is in turn taken. But in the here and now, If I’m faced with the choice of fiat currency backed by a naked promise , or fiat currency institutionally tied to a commodity such as gold, I’d take th elatter any day.
Of course, what I would ideally like to see ( but Im not fooling myself that its going to happen any time soon) ) is the simple repeal of legal tender laws. If govt wants to issue fiat currency let them, but let me and my trading partners have the freedom to contract for payment in gold, or anythign else we mutually agree on. If the holder of a bunch of fiat notes wants to pay me what he owes me, let him go and exchange them for gold at the prevailing exchange rate. Speculating wildly now, if this was to come to pass, I have no doubt that within a few years, we would see a variety of privately-issued gold-backed notes circulating ( and probably other ones specialised in other metals such as platinum, silver and even some of th ebase metals) to obviate the weight of carting large lumps of metal around, and those notes will trade at a range of discounts to physical gold, which in turn are driven by both the convenience of carrying credible vouchers, and the risk reputation of their respective issuers. It’s a fair bet that in such a milieu, these notes would have a much narrower spread than State-backed fiat notes would. In such a world, the fiat-issuing State would probably hurry to link their notes to gold too to protect their issue’s percieved value , but that would in turn be accompanied by the sort of subterfuge monarchs used to use to get something out of nothing, and truth will out.
I often wonder to myself just how much gold is squirrelled away under beds and buried in gardens, in China and India – the life savings of hundreds of millions of people. Both of those countries are characterised by da deep distrust of the State, and gold is the one sure way of avoiding State-driven debasement. After the events of the last last century, I’d warrant that the total amount of gold in the hands of these populations would be much bigger than any official estimate to date.
“Of course, what I would ideally like to see ( but Im not fooling myself that its going to happen any time soon) ) is the simple repeal of legal tender laws. ”
It won’t be enough since the pure logic of taxation and deficit spending means that there will be demand for FRN-denominated assets… but it’s definitely a good start. I don’t know about it happening any time soon, but it’s this that’s the real issue, not whether or not some central bankers start using gold in their transactions.
do any of the other -inums offer anything that gold and silver dont or cant??
has gold standard traditionally meant that there are a caertain percentage of notes claiming to be redeemable for gold in excess of the actual amount of gold????
ie…100 ounces of gold, 200 pieces of paper each saying redeemable for an ounce the same gold???
But of course it has. From what I remember, the reserve ratio for deposits in American banks before 1929 (after which the ratio rose significantly) was around 0.4.
I look forward to the day when happy capitalists can march in a ‘gold Pride’ parade, out and proud as gold traders! It may not happen in our lifetimes, but it is worth aiming for!
is the simple repeal of legal tender laws. ”……………
so you could try to negotiate tax payments in beaver pelts or have the govt seize property accorinding to its own currency value it palces on what you cant pay in taxes???
cant you currently contract to pay someone in anything you want and only if you dont fulfill teh contract the govt can then say you must pay in a legal tender???? is a legal tender law really getting in your way right now in some way???
George,
As Professor Ebeling said, I think the argument is more along the lines of we first need a gold standard “…in the wider context of ending monetary central planning and replacing it with private, competitive free banking.”
So the gold standard is just the first step along the road towards total free banking.
Thank you very much for your “steps” – just leave me fucking alone and decisions about my life to myself. What makes you think your “step” is what I want or I need. Central planner complex?
Yeah. That’s EXACTLY what Lenin’s NEP (look it up) was about. Temporary restitution of gold standard and economic liberties as just the first step along the road towards the dictatorship of proletariat (communism).
I don’t know why these other guys are so angry, but I partially agree with them. You guys talk all about your distrust of the state, but now you suddenly expect them to do a 180 and do the right thing? Dream on, guys. If anything, this is just a plan to watch gold fail, and then replace it with a global currency, or something like that. Not to bring up conspiracy theories, but do you really believe that the central banks will commit suicide?
Lenin was about to lose control of his fledgling regime. He did not care about the people starving and suffering. The NEP was a desperate move. So where is the analogy? Is the USA really about to implode based on the destruction of a functioning price system?
The analogy, as you wrote, is PERFECT.
if the govt isnt going anywhere would you prefer gold/silver money-currency-legal tender than the current dollar-currency???
if so why??
Without any intention of further confusing the matter, it should be pointed out (as I’ve been trying to point out in this very forum for a fair number of years) that “the gold standard,” though it remained effective for a time, must be recognized as one of the steps or “way-stations” on the road that took us to the situation in which we now find ourselves. And, by way of further clarification (and as anyone who has studied Mises–or monetary history–should realize), the “standard” itself was an institution of government control of economic affairs (rather than having been brought into existence by popular acclaim, support, or custom).
Stephen Adkins and Colin Phillips (above) are quite right (in what they’ve addressed to King George)
but King George is entirely correct in finding that many among the commenters (here–and in other places as well) refer repeatedly to “the gold standard” or “a return to the gold standard” when they mean simply (widespread and legal) use of gold (whether or not required–”standardized”–by the State). Note to King George: everyone commenting here is not an “Austrian” and, while nearly all Austrians favor gold as a commodity money, they vary as to whether or not they favor State sanction of its use, i.e., institution of a “standard.” It is not clear which Mises believed the “ideal” but it is certain that he perceived a return to some State-enforced standard as at an initial step on the way to sound money. And, of course, Mises and Rothbard differed significantly (in the further matter of free, competitive banking and money production) over the manner in which production of larger amounts than for which metallic reserves were held should be regarded legally (Rothbard being insistent that such occurence be regarded and criminalized as fraudulent while Mises remained convinced that the market could deal adequately with such incidents as might occur–through their failure and the “education” of the public and their depositors in that regard).
But the entire matter is far more complex than has been broached in any comment I have so far seen
and (at least in my own overview) requires attention at a far more fundamental level than has ever been mentioned in ANY discussion (of which I’m aware). It (the matter of money. etc.) is bound inextricably with the question of the proper role of the State and, as we’re all aware, there are profound differences on that question, even among (or especially among) those professing “Austrian” economic views. In my further comment, it should be understood that, while I take a “minarchist” view, I reject that of those who find no legitimate role for a monopolistic provider (which we call government) of the defensive exercise of violence in order to assure all the enjoyment of the existential benefits we call our “rights.”
I shall continue my comment (following, I hope, not too great an interruption) but will state here my conviction that the entire matter of money and its value is one over which the State ought exercise no control whatever; such control (though extremely popular, for reasons to be developed following) leads, over time (and with a regularity indicating the inevitability of a “law of nature,” whether or not that is the case–on which I have no opinion whatever) to “breakdown,” most frequently merely of the monetary system gone awry but, potentially, of the entire productive apparatus and system integrated through the use of the troubled or defunct money. My own thesis
is that, the greater the integration–the division of labor on which peaceful interhuman relationships are necessarily based, meaning, therefore, the very basis of civilization itself–the more calamitous the destabilizingeffects to be experienced. The failure of Economics is that, at best, it only tells us what cannot achieve certain aims; if there are solutions to the problem, they (or it) must be at least partly political (in order to survive introduction) but, since nonexistent at present, must depend, in large part, on as-yet-unknown invention and entrepreneurship.
Thanks for elucidating your views, Gene. I agree with much of what you said. I don’t think that the state should be legislating a gold standard because that is a move backwards, not forwards. Why should we expect things to work out differently this time around, and why should we expect central banks to suddenly become angels, when they have been referred to as the devils? A gold standard should never be mandated by law any more than fiat should be.
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How can a gold standard be somehow market-based if it is mandated by law?
And don’t you get an impression that Zoelick and other fascist hacks are actually about imposing another form of government money on you, clueless “libertarians” and assuring continuity of rule and profit for their banker friends?
I don’t know why you’re so angry, panika, but for this I think you’re right. It’s pretty bad to see so-called austrians and libertarians to inadvertently be shills for the central bankers!
perhaps if a govt adopted gold/silver as tax payment from previous market initiatives.
Bernanke and Sebelius and Fiat Dollars
Geithner and Bernanke (both members of Hillary’s shadow government) plan to continue their insane orgy of spending and looting our economy for their cronies and special interests pals. Bernanke’s move to flood the world market with another $600 billion in fiat money will further depress the value of the dollar. And bring massive inflation and cause unemployment to sharply rise, not fall. Read what economist Robert Higgs says about Obama, Geithner, Bernanke, Greenspan and the puppeteers that control these swindlers.
Instead, to lower unemployment (9.5%) and underemployment (18%), we could do, oh so easily, by:
• Repealing Obamacare, post haste….why spend a trillion dollars to buy health care for the 32 million Americans who are currently receiving it for free right now?
• Give current Medicaid and Medicare recipients vouchers and let them purchase whatever health insurance fits their needs…this would cut the cost of these corrupt programs by an amazing 70%. Enforceable deductibles and co-pays would return Medicare and Medicaid patients to the real world medical marketplace! And would simultaneously cut the cost of commercial health insurance by 50%.
• Issue a federal mandate that would allow patients to cross state lines, in order to purchase more competitive health insurance….in other words, break up those BCBS monopolies, like the BCBS scam that Kathleen Sebelius and her trial lawyer cronies ran in Kansas, for years and years.
• Scrap the wind farm and gasohol programs that our corrupt politicians and their flim flam puppeteers have forced down our throats. These programs are not, and never will be, cost effective. Just another Obama pipe dream that will never pan out.
• Tell OPEC where to get off by imposing an adjustable energy import tax. The less you charge us, the less we tax your products. And vice versa.
• Structure gasoline and diesel road taxes so as to encourage the use of our abundant natural gas resources for surface transportation.
• Remove all unions from all mass transit in America. Tell these people that efficient, privately run mass transit, free of unions, is a matter of national survival.
• Get the hell out of Iraq and Afghanistan right now! And begin the public trials of those politicians who corruptly got us into these hell holes.
Do these things and bingo, our economy rights itself almost overnight. But continue to follow Greenspan, Geithner and Bernanke….continue as these swindlers have been leading us, and we will continue our ever accelerating national slide into the dark abyss.
To learn more about Sebelius’ role in Hillary’s corrupt shadow government go to http://www.sebeliuscoverups.com or just search:
George Meredith MD Comments
George Meredith MD
Virginia Beach
Your half-way measures assume that you will get enough support from the very people perpetuating the things you are fighting against. Good luck with that.
panika 2008,
From your profile, it’s seems to me that you are from Poland or Czech Republic. The private property rights were largely abolished and economies nationalized during the Communist era in your part of the world (my origins are also from the Eastern Europe). Would you then consider the reestablishing of the private property rights and privatization as an awful authoritarian experiment? Who gave the license to Vaclav Klaus and Leszek Balcerowitch to privatize the state owned enterprises? Or to impose by the government fiat the strict bankruptcy laws? Maybe the “free”, hippy-happy evolution of the society would produce something else and more sexy?
The same holds true for the gold standard – just as private property, contracts, bankruptcy, gold also was not a state invention but the long established market institution. Gold was not imposed by the government fiat as a “standard”. It was established on the market as a superior commodity money. So, even its reimposition would not be an act of social constructivism, but the natural transition, like privatization in the Eastern Europe.
You say:
“Free market-based monetary/banking system is about letting it go and let the market choose what currency/currencies are used.”
That’s exactly how gold became a currency. Do you really think that governments all over the world conspired to impose it? As far as I can see, governments only conspired to abolish it. So it is not necessary at all that government impose gold as the only currency; it would be sufficient to abolish the legal tender laws and return the plundered gold which Roosevelt had nationalized to the people. The problem with the current system is not that it does not privileges gold, but that it does not allow to gold to compete. All that the proponents of gold standard require is that government should abolish the legal tender laws. Gold would reestablish itself as a dominant currency within weeks.
Is the gold that Roosevelt stole actually stored somewhere or is its existence like that of the Social Security Trust Fund?
It’s owned by the Federal Reserve Bank. It was handed over in exchange for fiat money.
is it stored somewhere??
Calculators are too fruit of free market. By your logic, because calculators are such fine at what they are doing government edict stating that for calculations we may use only calculators produced by government and absolutely nothing else is fine. It does not matter that these very calculators are expensive and return inflated results when calculating taxes. Idea of calculator is fruit of free market after all! Implementation is insignificant you say.
Today as an effect of free market we have much more powerful calculator called computer which ablities are simply amazing and magical compared to hand calculators and open new possibilities never possible before (like mises.org for example).
You shallow logic and lack of imagination is astounding.
You are wrong on your simplistic idea how gold came about to be currency of choice. Look up what Isaac Newton did when he took over Royal Mint. Currency reform my ass
So yeah, in a sense governments all over the world DID conspire (or rather they were inspired by the British Empire’s actions) to make gold THE privileged money. After all, if it wasn’t, what else do you think the Gold Standard Act of 1900 would be for?
Yes, I’m from Poland. BTW, don’t spell Balcerowicz’s name as BalceroWITCH
Why was my comment taken down?
There was no reply button after the post from which this is excerpted,
So here it is at the bottom…..
@ Mushindo
‘Speculating wildly now, if this was to come to pass, I have no doubt that within a few years, we would see a variety of privately-issued gold-backed notes circulating’
What would Gresham think of this?
Possibly, we would still have mucho FRN’s circulating, and the gold-backed money hoarded, and isn’t that functionally equivalent to GLD ETF’s??
if any issuer started fractional reserving (which is also OK in my view despite Rothbards unseemly enthusiasm for making laws to proscribe that choice), his notes would fall in value relative to those whose notes remain fully backed. And if he goes too far as to recklessly lend without sufficient reserves, he will go out of business. Those which earn a reputation for prudence and sound liquidity management would come to dominate the market, which is as it should be.
Gresham’s law is a consequence of State fiat, its not a fundamental to economic market interaction. It only works in so far as the ‘good ‘ and ‘bad’ money is declared to be equivalent by force of law. That creates the incentive to hoard the good and pass on the bad. Take away that law, and different forms of money will float at market-determined exchange rates. Creditors would refuse to accept ‘bad’ money, other than at a discount relative to the ‘good’. Presto, Greshams law evaporates.
aha.
Got it
Thanx
It is in my opinion unlikely that the notes would be significantly discounted if they were emitted and redeemed successfully long enough by a large and generally trusted institution. The (quite weak, I admit) proof of this is that historically notes of different banks holding different amounts of currency as reserve circulated at par as long as the banks successfully cleared on the interbank market and redeemed notes for base money for the general clientele.Gresham’s law (governing preference for hoarding) is a fundamental law of market interaction. It can be seen on the free market every time for example silver and gold both circulate as currency, irrespective of whether there is a fixed exchange ratio; of course if the ratio is somehow fixed, the law operates very visibly and extremely quickly. Nevertheless, it is visible even without manipulation and even somewhat today.
was greshams law real?? when was it first put forth??
When was the law of gravity put forth? When was the law of natural selection put forth?
Gresham’s law is one of the few nearly perfect and absolute economic observations.
well you didnt answer my question. no problem. i dont see where its perfect though. if its even a real law.
That would be the responsible thing to do, when have they done that? I’ll believe it when I see it.
UPDATE 1-W.Bank chief says no gold standard, but its role key
Wed Nov 10, 2010 4:04am GMT
“I don’t believe you can return to a fixed exchange rate system and that is the gold standard,” he later told the Foreign Correspondents Association.”
“Markets are already using gold as an alternative monetary asset because confidence is low…it is saying we have a problem that needs to be fixed.”
http://af.reuters.com/article/metalsNews/idAFSGE6A904Z20101110
Back to the The New Push for a Global Currency perhaps?
http://mises.org/daily/4620
What Is Money?
Part 7: Gresham’s Law
There were two gold standards: the gold coin standard and the gold exchange standard. In a gold coin standard, a bank issues paper money: banknotes. A banknote is a legal IOU. Each piece of paper promises to deliver an ounce of gold upon presentation of the paper.
In a free banking system, the government does not check to see if a bank has enough gold to meet all demands. In a 100% reserve system, it would. In a free banking system, rival banks and a bank’s depositors serve as the executioners. Ludwig von Mises favored free banking. Murray Rothbard favored 100% reserves.
Gresham’s Law, properly understood, is a real phenomenon. When a government threatens violence against currency traders for daring to make an exchange at a rate not mandated by the government, there will be a glut of the overpriced currency and a shortage of the underpriced currency in that jurisdiction. The result will be decreased trade across borders. There will be shortages of goods on both sides of the border. Most people’s wealth will decline as a direct result of reduced trade.
Gresham’s Law for centuries was observed in action, but it was not analyzed in terms of the economics of price controls. This was true in the pre-Nixon era. The discussion of fixed exchange rates by those favoring fixed rates was never discussed in terms of the controls’ legal status as price controls, any more than a tariff is ever discussed by its proponents as a sales tax on imported goods and, necessarily, as an export restriction. The problem with people’s incomplete understanding of Gresham’s law is that they treat money as arising from government rather than from the free market. They imagine that there is a failure of the free market: “Bad money drives out good money.” There is no failure of the free market. There is a failure of a government-imposed price control. People see government as sovereign over money. It is not. Here is why bad money drives out good money: a bad law forces people into capital-defense mode.
http://www.lewrockwell.com/north/north771.html
In the late 1970′s, with gold’s dollar price hovering just under $200, up from $38 only a few short years earlier, the U.S. Treasury announced that it was embarking on a sustained effort to terminate once and for all “the international monetary role of gold.” Its plan was to sell off the nation’s gold reserves through continuing monthly auctions, thereby depressing its value and proving gold was no longer needed as a backing for the almighty dollar. Along with those sales Treasury conducted a p.r. campaign of verbal assurances to a presumably gullible worldwide public that gold’s role as money was an anachronism, a thing of the past with no future whatsoever in the brave new world of fiat money and powerful central banks.
Foreign private banks in particular were not fooled. They bought up those auctioned ounces at a feverish pace so that few American investors were able to successful bid for their own nation’s gold. Within nineteen months, as gold continued to increase in value to just under $400 in the teeth of the government’s effort to suppress the price, a thoroughly chastised Treasury canceled its auctions and backed off it idiotic scheme, although there have been subsequent indications and accusations that Treasury and/or the Fed have continued to manipulate the gold market though secretive sales. Attempts to learn of any such illegal (any market manipulation in the US is a crime) activities by the Fed through FOI requests have been thwarted by the Fed’s claim of immunity from FOI for its management of the nation’s money supply. (http://www.gata.org/node/8052)
In 1949 the nation’s gold reserves, bolstered in 1933 by Roosevelt’s illegal confiscation of private citizens’ gold, stood at over 700 million ounces. It then fell to under 270 million ounces as the government inflated the supply of dollars, and foreigners wisely traded their depreciating dollars for Treasury gold at $35 per ounce. Meanwhile, during most of those years, US citizens were prohibited from owning gold. Of the 430 million ounces wasted supporting the dollar, a total of merely 3600 ounces–that is, one ounce out of every 134,375 ounces–went to private Americans. Most of the rest went into the hands of foreigners. Today those 430 million ounces would be worth $602 billion.
how do you know what it would be worth today??
Correction: In the last paragraph, private Americans should have read “individual Americans,” as some American banks were successful bidders.
So what? The point is that gold is money, and no human law nor statist action can suppress its use as money for long. Gold money is as natural as Gresham’s law. Right now, with an ounce of gold being exchanging for over 1400 one-dollar, federal-reserve notes, it seems that more and more people throughout the world are trading their dollars for gold as quickly as they can to ensure that their money keeps its value during the hours, days or weeks that they may hold it. In other words, they are keeping their cash balances in gold instead of deposited as dollars in banks. For most of the last ten years, keeping one’s cash balance in gold has been a smart money management practice.
Yes, what the World Bank has in mind is another deliberate fraud of the “Bretton Woods” kind.
what deliberate fraud??
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