Dr. Eamonn Butler has posted an article on the Adam Smith Institute Blog, and is looking for responses from Austrians. The topic is the feasibility of a return to the gold standard.
Here is the link:
http://www.adamsmith.org/blog/tax-and-economy/a-question-for-followers-of-mises/
My modest thoughts on that.
“You certainly don’t want to use the stuff itself – it’s heavy, and it wears down. Better to use notes that are completely exchangeable for bits of it”
As a mater of fact its easy to see that silver and gold coins could very easily supplant paper money. They are infinitely easier to count (just put the bunch on a weight-scale, no need to count the zeroes), take up less space, are aesthetically superior (by far!), are the ‘real deal’ and are light due to having a very high value per gram. I truly believe that actual gold/silver would be exchanged in 90% of transactions. But let assume, for our purposes, the premise…
“Indeed, whole countries with small currencies and large gold reserves would become instantly rich, while those with big currencies who’ve sold off their gold reserves (thanks, Gordon), would be made poor.”
So what? Why would it be unfair that the Swiss finally reap the benefit of their curtailed inflation though the decades, and the brits finally get what their lose monetary policy got them? If the mechanism applies (it will not) than the countries that have performed better from their own citizen’s point of view will grow richer, those which pillaged more will grow poorer. Just like firm that satisfy need grown, and those which don’t fail. What does a purported follower of the free market find objectionable here? But let get back to reality and stop conceding that any such thing would happen…
Do not equate currency with wealth. Heavy gold influx in XVI century did not make Spaniard richer, rather poorer. If every single gram of Swiss gold would be lost the Swiss would still be rich because they would still have the capital stock and training to participate in the international division of labor. On the other hand, give all the gold on earth to, say, Ruritanians and then its price will instantly plummet back to its use-value. It shall be demonetized. Thus, no such mechanism of automatic wealth redistribution will take hold.
“And the supply of gold fluctuates too, so prices will still change.”
Let anyone come up with some more stabile currency. Hardly a point of content in times of fiat currency!
“Moreover, the Russians have far too much of the stuff, so they could use it as a political weapon, as they do oil.”
How much is ‘far too much’? The Russians are able to use oil as a weapon only because their partners accommodate them: the Europeans prefer to deal as states, and have taken on themselves to ‘solve’ (make worse) the energy ‘problem’. A sensible German government, to make one example, would tell GazProm to go screw itself and leave the market to sort out whatever repercussions any foolish Russian action might have.
“Mises himself thought that such political realities would rule out a return to gold any time soon.”
I don’t think these where the kind of difficulties he found. Rather he could have had in mind popularity issues.
But I must confess; I do not agree with Mises on gold reform. His (and Rothabrd’s) plans to return to gold do not make sense (for other reason, not these ones) to me. I find myself in full agreement with Hayek on this one: abolishing Legal tender and really privatizing Central Banks would be much, much better as a policy. Indeed, it would be the only policy that could work.
I have to wonder why we get into discussions on the feasibility of a return to the gold standard, or lack thereof. The issue at hand is whether the current monetary systems are feasibily sustainable. We could soon reach the point where individuals choose the new medium of exchange via the market, and that may or may not be gold.
It’s because the pain of switching back is relatively easy to foresee, whereas how we got here by deviating from a commodity standard and that the subsequent pain of transitioning back is actually teh fault of all those who bastardized the system in the first place, that gets lost on most people. Understandably too. It’s not like the government would ever go back to an actual gold standard worth a damn. And even if it did, the process itself would likely be used to screw people just as the process of inflation is used to screw people.
Great point.
From what I’ve noticed, critics of the Austrian view tend to focus on the supposed idea that they claim gold and silver de facto to be the medium of exchange.
I think it’s productive to focus on the point that, if left alone, the market ultimately chooses the money. This is what people mean by saying gold and silver are “real” money. The fact that they have a long history of being used as such. It however does not mean that they will be in the future.
Fiat money would be fine if its supply wasn’t manipulated at the whim of central bankers.