In a discussion about a gold standard/gold as money with my Keynesian flatmate, my opponent dismissed the whole idea by saying something like:
But then there would be no monetary policy
I responded by saying that then there would be no government debasement of currency and that getting government out of the money business is the entire point of the system.
Is there anything I can add to the argument to convince him, keeping in mind I’m debating a Keynesian?
A gold standard would be a monetary policy.
To allow competing currencies (bank notes, gold, silver, platinum, palladium etc.) is a monetary policy.
To enforce legal tender laws and paper currencies is a monetary policy.
It is like saying laissez-faire capitalism is a system with no policies. Laissez-faire literally means “allow to do”. That is not a lack of policy, it is a deliberate policy advocated by someone enlightened enough to realize: “I cannot know what is best, so I allow the people that do know to do it instead.” The trouble is that it requires a lot more insight to realize why you shouldn’t do something than to do something. This runs counter to all emotions and intuitions. The broken window fallacy teach us so.
Thus, a laissez-faire monetary policy is indeed a policy.
I know this probably wasn’t the answer you were looking for. However, to any person convinced of the necessity of an interventionist monetary policy, this person cannot be convinced otherwise, I think, if you do not explain whereto his style of policy leads us. Hence you cannot advocate the laissez-faire approach, but rebut his instead. And this is the real problem, because he will try to rebut your’s, not defend his own. He can always employ the post hoc, ergo propter hoc fallacy, i.e.: “My way of thinking is still in use, so it must be good for something, while your way has never existed, and so it must be crank science.”
There would be a monetary policy. The thing is that it would be a free market voluntary monetary policy. I mean, compare this with “energy policy,” a creation of the 70s. Why do we even need government dictating that we use more expensive domestic energy when we can be importing much cheaper energy from abroad? If it were up to the free market, speculation would allow alternative fuels to develop while oil prices remain relatively stable. Imagine all the cheap, clean energy we would have if it weren’t for government regulations limiting the use of nuclear and corporate and capital gains taxes limiting the investment in alternative fuels!
Likewise, in a free market, the monetary policy would be one that most people agree to. It would probably be based on some metals or another source that cannot be easily inflated. My prediction would be a system based mainly on silver and copper with some gold since most transactions are small and wouldn’t require gold. A hard market currency would be far more preferable to a government fiat system, since it would also automatically help to balance the balance of payments and the supply and demand of money during various periods of economic growth. Of course, there is also ABCT which would point towards using a nonfiat system, but first you’d have to convince your Keynesian friend of its effectiveness.