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Source link: http://archive.mises.org/8682/return-to-gold/

Return to Gold

October 2, 2008 by

It’s a bit late to be talking this way but mainstream liberals like Roger Cohen are talking about the need to change the system toward a gold standard.

The Bretton Woods system of monetary management collapsed in 1971. Since then the dollar’s been the primary reserve currency. Now, we’re reaching another point where a rethink of the foundations for a global economy is needed.

Global trade and capital flows are essential to prosperity. But it’s illogical to have a global system with no global reserve as insurance. Perhaps the trillions of Gulf and Chinese surpluses could be used to fund that. Or perhaps it’s time for a return to the gold standard.

{ 15 comments }

Jay D October 2, 2008 at 11:00 pm

Is this what it would have felt like if there was an internet in 1971 when Nixon closed the gold window?

I wasn’t alive yet, but I get the idea that Americans pretty much slept through that crisis without really knowing how precarious it was.

Darren October 2, 2008 at 11:19 pm

Interesting. Let’s see how long it takes before the rest of the mainstream shoots him down as talking like a ‘crackpot libertarian.’ I suppose it would be too much to ask for someone who moves in those circles to even mention the possibility of free banking without their head instantly exploding.

nicholas Gray October 3, 2008 at 2:06 am

Here’s a thought for the Libertarian Party.
The environmentalists don’t use their ism to describe themselves, but use a much better approach, by appropriating a colour- The Greens.
Why not do the same, with GOLD? This would give you an attractive colour to use, which could also symbolise what you stand for- metal currencies, like gold and silver.
Every time someone talks about the need for nonfiat money, they’d be advertising your party! To all Libertarians, and metal-moneyists- Go for Gold!

Inquisitor October 3, 2008 at 6:14 am

Nice idea Nick. :) The market anarchist colours are already black and a yellow meant to stand for gold.

kid mercury October 3, 2008 at 6:31 am

great marketing idea, nicholas!

though i don’t favorite a return to a gold standard. i think the future is in fiat currencies that are more democratically managed. this of course would require a public that is more interested in maintaining the value of their money than they are in american idol. sadly, i think we need a wake up call in the form of a depression.

Eric October 3, 2008 at 7:20 am

It always seemed to me that, since libertarianism espouses the correct stances from both the red and blue ideologies, that our color should be purple.

Danny October 3, 2008 at 9:01 am

Kid Mercury

“though i don’t favorite a return to a gold standard. i think the future is in fiat currencies that are more democratically managed.”

The most democratic institution is the free market, and the free market in money is one that the free market selects — could be gold, shells, or leaves…although history seems to favor gold. So called “democratically managed” markets result in what we have today. This can’t be what you hope for, can it?

Stanley Pinchak October 3, 2008 at 12:26 pm

Danny,
thanks for putting things into perspective.

YerMawm October 3, 2008 at 12:34 pm

Little logic here…

Since the free market, and it’s money selection process is democratic. Hoping for a “democratically managed” market/money, is really just hoping for the market, and whatever money it chooses :)

Crosbie October 3, 2008 at 5:54 pm

If the U.S. government annually demanded $3 trillion taxes in gold backed currency, what would that do to the gold market? Even a much reduced state which spent ‘only’ $1 trillion dollars could cause havoc with the price of gold.

My point is that so long as taxation exists, there can be no free market in money. A U.S. government decision to demand payment in gold would have as little to do with free markets as the current paper money system.

This is true whether or not one regards taxation as a good thing.

Mike Sproul October 3, 2008 at 8:28 pm

The gold standard didn’t end in 1971, or in 1933. What happened on those dates was that physical convertibility of the dollar into gold was suspended for an indefinite period. One kind of convertibility was suspended, but many other kinds remain. For example, convertibility can be at the option of the customer, or at the option of the fed. Even though customers can’t bring dollars to the fed and demand gold, the fed can choose to sell gold for dollars. The fed also stands ready to use its bonds to buy back dollars. As long as the fed stands ready to use its assets to buy back the dollars it has issued, customers should be indifferent to receiving gold itself, or something else of equal value.

When people say we should return to the gold standard, they only mean that instant physical convertibility into gold, at the option of the customer, should be restored. The economic effects of such a restoration would be negligible. Of course, some people go further, claiming that money should only be issued by banks that hold 100% gold reserves. Those people have no business associating themselves with believers in freedom.

Stanley Pinchak October 5, 2008 at 12:08 am

Mike Sproul,
the market should be free to choose 100% reserves if it wants. Any fractional reserve institution which does not express its nature on its contracts and on its media of exchange is acting fraudulently. Fractional reserve institutions which do not clearly indicate their features perpetrate a fraud on third parties who accept duplicate receipts unknowingly. I don’t think that the market would accept fractional reserve money if banks were forced to reveal their true nature and lost their protection from the state. It seems doubtful that people cognizant of the fact that the money that someone is trying to pawn off on them is not backed by real assets, but is created ex nihilo, would still accept it as payment. I don’t see fractional reserve banking surviving outside of its state protection.

Peter October 5, 2008 at 5:44 am

Fractional reserve institutions which do not clearly indicate their features perpetrate a fraud on third parties

Oh, not this again! It’s no less fraudulent if they do “indicate their features”, since the feature in question is a logical impossibility.
And please don’t feed the Sproul-troll.

Mike Sproul October 5, 2008 at 11:54 am

Stanley Pinchak

Fractional reserve banking has been nearly universal for centuries, under situations that have ranged over a wide spectrum of government regulation. One of the few exceptions was the Bank of Amsterdam (1609), which long ago ceased 100% reserve banking. Anyway, it is hardly necessary for modern banks to continually remind people that they operate on fractional reserves. We already know.

I have $5000 in the bank right now (at WAMU, interestingly enough). I am perfectly aware that the bank (normally) holds $500 in cash and $4500 in IOU’s against my $5000. I also understand that the interest the bank gets on the IOU’s is what allows the bank to pay me interest, as well as cover its cost of operations. Furthermore, I know that a bank that holds all of its assets in cash is more vulnerable to robbery than one that holds most of its assets in IOU’s. Lastly, I understand that, were it not for the (fraudulent and unnecessary) FDIC, I would be at risk of losing my $5000 if the bank should fail. Big deal. The value of my house fell by a hundred times that much in the last two years. The convenience of having a bank outweighs the loss I would suffer if the bank went under.

Roger Lignugaris November 17, 2010 at 3:35 pm

There was a reason we went off the gold standard in the first place. Other than to destroy monetary policy completely, what value would returning to this medieval system provide?

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