David Frum — former Bush speechwriter, ambitious author, American Public Radio commentator, and all-around guru — has been lecturing Ron Paul supporters about the gold standard. After three such lectures (a National Review Online blog post, an NPR commentary, and finally a National Post article) I decided to throw my hat in the ring and defend the gold standard in this article. Frum responded in a quite confident blog post, unfazed by my arguments and in fact further convinced that he is surrounded by friggin idiots. In the present article I’ll try one last shot at defending the gold bugs. FULL ARTICLE
Source link: http://archive.mises.org/7610/rejoinder-to-david-frum-on-the-gold-standard/
Rejoinder to David Frum on the Gold Standard
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I understand why this type of refutation is required. However, from another perspective, it is a sad commentary on the state of economic and historical learning that an individual of the knowledge and intelligence of Mr. Murphy needs to spend his time refuting the fallacies of Mr. Frum, fallacies which previously have been advanced many times by other individuals.
Or maybe I am being too charitable towards Mr. Frum. His erroneous arguments may just be an attempt to preserve the monetary status quo, and the benefits it confers to vested interests.
Frum seems particularly dumb. How is requiring dollars to be exchangeable for gold a ‘price control’? In fact, how is the Fed meddling with the interest rate not the actual price control here?
Dennis,
You have nailed it, because once net exporters start coughing politely when asked if they’ll accept payment in dollars, then US taxpayers are going to wonder why they should foot the bill for being Policeman Of The World while everybody else gets to spend their tax dollars on cushy welfare states. And shortly after that realization, a certain little sandpit in the Middle East with no exports is going to get awful lonely in the middle of a billion Arabs with all the oil.
Frum tells us that, “The Federal Reserve tries to emit enough money to meet the needs of the US and global economies, with minimal inflation.”
They just don’t get it, do they? The question is why should there be ANY inflation, even if it’s minimal? To re-iterate what Murphy said, the gold standard was a limit on government increasing the money supply. Murphy also mentioned a better limit: get government out of the money-printing business. Then consumers can decide if a gold standard is a good idea or not.
There are three fundamental things we want a money to do. … 1) We want money to maintain a stable domestic price level.
Uh … no.
Maybe by “we,” he means “the government.” Governments LOVE to manipulate prices.
I would prefer that prices were left to themselves, so that they would better signal us as to economic realities.
But, then again, people like Frum have never been much in favor of acknowledging economic reality.
Excellent post Mr. Murphy. You hit the nail on the head when you highlight the importance of having accurate prices, not stable ones! Why on earth would anyone think that prices must remain constant? As subjective valuations change over time they need to be reflected in the marketplace via changes in exchange ratios. Sure, the supply of gold may not be fixed, but the stock of gold changes quite slowly, something that cannot be said of the CB fiat currencies with the printing presses running at full speed…
Excellent rebuttal! As Murphy points out, the beginning of Frum’s Fallacies is his three goals for money:
1.We want money to maintain a stable domestic price level.
2.We want money to maintain a stable relationship against other currencies.
3.We want money to be freely convertible into goods, including other moneys.
As Murphy points out, we do not want #1 and #2. Those are the whole point of problem, aren’t they? Frum’s Fallacies demonstrate that he doesn’t understand the questions.
What we want are honest prices, exchange rates and interest rates so that entrepreneurs can make fewer mistakes in planning.
I had a chuckle when Frum wrote that ‘we’ want three fundamental things a money to do.
Stable prices?? bah..”I hope everything goes down to a nickle”
Rick Henderson of Reason Online reviewed Frum’s 1994 work Dead Right. He found Frum advocating for limited government in a way that was terribly at odds with the idea of natural liberty. Here is an excerpt:
“What’s a conservative to do? Frum advocates slashing subsidies and abolishing agencies. Unfortunately, as he tries to make the case for a Coolidge-sized federal government, Frum can’t help taking a gratuitous shot at libertarians, his natural allies.
Associating himself with English political theorist Edmund Burke, he writes, “It is not to maximize liberty as an end in itself that conservatives have advocated minimal government. They have advocated it because they admired a certain type of character–self-reliant, competent, canny, and uncomplaining–and minimal government was the system of government under which the character they admired flourished best.
Many libertarians are equally concerned with maintaining the character of a free people, of course. In part, Frum’s problem seems to be discomfort with the somewhat anarchic American tradition of natural liberty–the notion that, as P.J. O’Rourke has put it, “There is only one basic human right, the right to do as you damn well please. And with it comes the only basic human duty, the duty to take the consequences.” Frum the self-styled Burkean omits O’Rourke’s second sentence. And Frum the Canadian may simply be suffering mild culture shock. His native country’s motto is, after all, “peace, order, and good government,” a far cry from life, liberty, and the pursuit of happiness.
…You get the impression that, like the moralists, Frum believes that government must affirmatively encourage or prohibit every type of social interaction. Frum’s view seems to be that “there ought to be a law” defining everything from friendships to commerce to living quarters to conjugal relations. His nascent communitarian vision is hardly consistent with his campaign for limited government.â€
Frum = owned.
Not that it was very hard to do, of course. Still, thank you Mr. Murphy.
@Inquisitor:
Presumptively, there’s only one kind of person who would aver that a fixed ratio, backed up by enforcible contract, amounts to a “price control:” someone who thinks that an enforcible contract of any sort is ‘coercive’.
Let me introduce y’all to Mr. Frum’s late mother – a 1980s star of the news division of the government-owned Canadian Broadcasting Corporation. You might even see a family resemblance:
http://archives.cbc.ca/IDD-1-74-368/people/frum/
One more general comment: from what I have seen, Canadian left-libs tend to base their snoots upon the monumental fact that they can read. I know this sounds odd, but that’s what they do. This habit of theirs can be considered amusing when they bump into a hard book whose conclusions they don’t like – then we hear the ‘simplistic’ squawk. Along with ye auld argumentum ad hominem tu quoque when they’re challenged on the latter ground.
I want to be careful in not accusing Mr. Frum of pulling that old straphanger’s dodge; I merely note that his maw’s colleages were full of that sort of snoot. His brand of neoconservate pride might very well be, “I manfully thought my way out of left-lib sophistries.” In the above comment, I’m pointing out what could be considered a residuum of them.
A note on the price stability thing: Yes, Robert_P._Murphy is right about how it’s important that prices be *correct*, but this doesn’t contradict the preference for price stability. It simply means that it’s a good thing for the *correct* price of everyday goods, as denominated in the prevailing currency, is stable. The claimed advantage of fiat currencies is they can accomplish that, and do so by managing the *money* rather than the goods that it buys.
Can fiat currencies exist without the state? It seems plausible to me. For example, what if one type of ETF shares became widely enough traded enough to be a currency? Think about it.
Did I miss something? Since when did the fiat currency regime lead to “stable” prices? Is he actually mistaking a relatively stable inflation rate with stable prices?
With the exception of the War of 1812 and Civil War inflations when the gold standard was suspended, the price level was extremely stable under the gold standard. On the day the Fed was founded in 1913 the price level was basically the same as it was in 1800.
The complaint by those who wanted an “elastic” currency against the gold standard was always that it DIDN’T allow inflation. This just shows that either Mr. Frum has no idea what he is talking about or he is trying to twist the facts to win an argument. Maybe both.
Personally, I believe the real problem with the money system is not that the currency is not tied down with gold. That is just the solution. The real problem is that the banking system can take a dollar from the average man, pay him a pitiful amount of interest, turn it into nine dollars and make a huge amount of interest by loaning it to those it deems worthy. This creates an unlevel and uncompetitive playing field that ends up giving all control of the economy to the banking system.
This is where the debate should be but Frum will never debate that issue because then the people that read him might get an education and revolt. If you thus do not want tired old retorts from the bought banking system lackeys then focus on the problem and they will be quiet as mice.
this dialogue is intersting because libertarians and neocons do tend to have many simlarities on financial matters. moreso than libertarians and , say, paleos usually do as anyone who reads the american conservative knows.
I’m not a neo con expert but I believe their roots are in the chicago school, particularly where Strauss I think taught there at the same time as Milton Friedman and all those guys.
If I were a cynic i would say that guys ilke Frum see free markets as an engine for their world chess game ideas (ie wars). and are actually not all that comfortable with free markets. which is amazing considering their prominence at the wall street journal and, of course, the american enterprise institute, which is ostensibly an economic think tank of sorts.
Lester,
The contradictions in neocon thought could fill volumes. Allen Meltzer, neocon AEI’s central banking guru, once remarked:
“Capitalism without failure is like religion without sin. Bankruptcies and losses concentrate the mind on prudent behavior.”
Freemarket, right?
But Meltzer has again and again stated his support for the Federal Reserve while acknowledging its status as a massive cartel.
Not so freemarket!
Meltzer is more concerned with who controls a cartel. If it is workable into the neocon agenda, then it is good. He supports the IMF and other centralizing structures and once wrote per 1990′s Asia:
“I applaud the IMF for urging structural reforms to increase competition and reduce local
cartels supported by government.â€
well, chicago school is pretty pro state aren’t they? by and large
occasionaly their economic and political ideas clash. Jim Lobe had a piece at antiwar a while back about how the corporate financial backers at AEI were livid about frank gaffney’s attempts to get people to boycott companies that deal with iran. Of course, virtually all of these companies are connected to elites in this country. not surprisingly, the $$ ruled the day and we haven’t heard much about the boycott since
http://youtube.com/watch?v=JKAJklUA4ks
Check it out.
Bob, did Frum ever reply to this article?
Here is another item he just published (it’s very short) that I’d love to see you critique:
http://frum.nationalreview.com/post/?q=Y2Q4NDUyYzI0Mjk1N2U5MTk1ZGEyYmQwOTBiMGYwNWY=
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