Wednesday, July 31, 2019

What a Sound Gold Standard Would Really Look Like

I continue to see economic commentators write that President Trump's likely nominee to the Federal Reserve Board of Governors, Judy Shelton, is in favor of the gold standard. This is incorrect. Her version of the gold standard is about as sound as Gideon Gono monetary policy.

To understand what a sound gold standard would look like, we need only turn to the 1978 Henry Hazlitt book, The Inflation Crisis and How to Resolve It:
This brings us to gold. It is the outstanding merit of gold as the monetary standard that it makes the supply and the purchasing power of the monetary unit independent of government, of office holders, of political parties, and of pressure groups. The great merit of gold is precisely that it is scarce; that its quantity is limited by nature; that it is costly to discover, to mine, and to process; and that it cannot be created by political fiat or caprice.
This is not what Shelton wants.
She wants a "managed" monetary system. Hazlitt had something to say about that in his 1960 book, What You Should know About Inflation:
 This is what "monetary management" really means. In practice it is merely a high-sounding euphemism for continuous currency debasement. It consists of constant
lying in order to support constant swindling. Instead of automatic currencies based on gold, people are forced to take managed currencies based on guile. Instead of precious
metals they hold paper promises whose value falls with every bureaucratic whim.
And this further in the book:
Fifty years ago practically every economist of repute supported the gold standard. Most of the merits of that standard were clearly recognized. It was, for one thing, international.
When the currency unit of nearly every major country was defined as a specified weight of gold (previous to 1934 the American dollar, for example, was defined as 23.22 grains
of fine gold), every such currency unit bore a fixed relation to every other currency unit of the same kind. It was convertible at that fixed ratio, on demand, to any amount,
and by anybody who held it, into any other gold currency unit. The result was in effect an international currency system. Gold was the international medium of exchange.
This international gold standard was the chief safeguard against tampering with the currency on the part of politicians and bureaucrats. It was the chief safeguard against
domestic inflation... 
In short, it is precisely the merits of the international gold standard which the world's money managers and bureaucrats decry. They do not want to be prevented from inflating
whenever they see fit to inflate. They do not want their domestic economy and prices to be tied into the world economy and world prices. They want to be free to manipulate their own domestic price level. They want to pursue purely nationalistic policies (at the expense or imagined expense of other countries), and their pretenses to "internationalism" are a pious fraud.

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