Saturday, August 26, 2006
Who wants a Gold Standard?
It's been over 30 years since the United States shed its last ties to the gold standard by dropping out of the Bretton Woods agreement, but nostalgic gold bugs are still alive and kicking.
Some of their enthusiasm is easy to understand. Indeed, there are some real advantages to having a gold standard; the most popular benefit being long-run price stability. But we can't forget that there some major disadvantages we should consider.
Perhaps the most important disadvantage would be the fact that removing government's discretionary monetary policy options could make the nation's economy more vulnerable to aggregate demand and supply shocks, resulting in greater short-run instability in output and prices. This prediction conforms with the experience of the United States during its gold-standard experiment (see here).
Of course, keeping the government away from business cycle management is exactly what many gold-standard supporters want. But what about other costs? Milton Friedman estimated that the resource costs of discovering, mining, and minting gold coins under such a standard could be as high as 2.5% of GDP. Aren't there cheaper ways to keep the Fed out of demand management?
The fact there is a trade-off here shouldn't suprise anyone. The real question is whether the trade-off is worth it. Comments are always open for answers or opinions.
Some of their enthusiasm is easy to understand. Indeed, there are some real advantages to having a gold standard; the most popular benefit being long-run price stability. But we can't forget that there some major disadvantages we should consider.
Perhaps the most important disadvantage would be the fact that removing government's discretionary monetary policy options could make the nation's economy more vulnerable to aggregate demand and supply shocks, resulting in greater short-run instability in output and prices. This prediction conforms with the experience of the United States during its gold-standard experiment (see here).
Of course, keeping the government away from business cycle management is exactly what many gold-standard supporters want. But what about other costs? Milton Friedman estimated that the resource costs of discovering, mining, and minting gold coins under such a standard could be as high as 2.5% of GDP. Aren't there cheaper ways to keep the Fed out of demand management?
The fact there is a trade-off here shouldn't suprise anyone. The real question is whether the trade-off is worth it. Comments are always open for answers or opinions.
Comments:
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I thought "Mellon Collie and the Infinite Sadness" was an awesome album by the Smashing Pumpkins. I shaved my head, and looked a good bit like Billy Corgan. He wore a black T-shirt with the word a silver "zero" printed on it.
I didn't like the "zero". I had a black shirt with a silver "ONE" printed on it. I'm thinking of having another one made sometime soon. This time I'll print on the back, "Don't aggregate with me." (Perhaps I'll put "You're a Pagan" in small font parenthesis underneath this.)
I'm not a zero, and neither am I greater than anybody else. I am one, an individual. I refuse to be amassed within a collectivist aggregate.
As far as the use of a gold standard goes, I don't know. I'd rather see money supplied privately somehow.
I see supply shocks and instability in the market as essential elements of the market process. We are not after stability, we are after Liberty.
The desire for stability seems to emanate out of an "us vs. them" mindset about the US economy. We ought not to want the US economy to grow in relation to other economies, rather we ought to desire that all individuals, wherever they might be, have expanded opportunities and wealth.
The "us vs. them" mentality is where Conservatives are today.
The "us giving to them, or us for them" mentality is the patronizing attitude of the left.
We walk a higher road that says, "me for me, and you for you, and trade for both."
Nathan
I didn't like the "zero". I had a black shirt with a silver "ONE" printed on it. I'm thinking of having another one made sometime soon. This time I'll print on the back, "Don't aggregate with me." (Perhaps I'll put "You're a Pagan" in small font parenthesis underneath this.)
I'm not a zero, and neither am I greater than anybody else. I am one, an individual. I refuse to be amassed within a collectivist aggregate.
As far as the use of a gold standard goes, I don't know. I'd rather see money supplied privately somehow.
I see supply shocks and instability in the market as essential elements of the market process. We are not after stability, we are after Liberty.
The desire for stability seems to emanate out of an "us vs. them" mindset about the US economy. We ought not to want the US economy to grow in relation to other economies, rather we ought to desire that all individuals, wherever they might be, have expanded opportunities and wealth.
The "us vs. them" mentality is where Conservatives are today.
The "us giving to them, or us for them" mentality is the patronizing attitude of the left.
We walk a higher road that says, "me for me, and you for you, and trade for both."
Nathan
I thought "Mellon Collie and the Infinite Sadness" was an awesome album by the Smashing Pumpkins. I shaved my head ten years ago, and looked a good bit like Billy Corgan. He wore a black T-shirt with the word a silver "zero" printed on it.
I didn't like the "zero". I had a black shirt with a silver "ONE" printed on it. I'm thinking of having another one made sometime soon. This time I'll print on the back, "Don't aggregate with me." (Perhaps I'll put "You're a Pagan" in small font parenthesis underneath this.)
I'm not a zero, and neither am I greater than anybody else. I am one, an individual. I refuse to be amassed within a collectivist aggregate.
As far as the use of a gold standard goes, I don't know. I'd rather see money supplied privately somehow.
I see supply shocks and instability in the market as essential elements of the market process. We are not after stability, we are after Liberty.
The desire for stability seems to emanate out of an "us vs. them" mindset about the US economy. We ought not to want the US economy to grow in relation to other economies, rather we ought to desire that all individuals, wherever they might be, have expanded opportunities and wealth.
The "us vs. them" mentality is where Conservatives are today.
The "us giving to them”, or “us for them" (actually it is: “us, including you, giving to them, whom we choose, whether you like it or not.”) mentality is the patronizing attitude of the left.
We walk a higher road that says, "me for me, and you for you, and trade for both."
Nathan
I didn't like the "zero". I had a black shirt with a silver "ONE" printed on it. I'm thinking of having another one made sometime soon. This time I'll print on the back, "Don't aggregate with me." (Perhaps I'll put "You're a Pagan" in small font parenthesis underneath this.)
I'm not a zero, and neither am I greater than anybody else. I am one, an individual. I refuse to be amassed within a collectivist aggregate.
As far as the use of a gold standard goes, I don't know. I'd rather see money supplied privately somehow.
I see supply shocks and instability in the market as essential elements of the market process. We are not after stability, we are after Liberty.
The desire for stability seems to emanate out of an "us vs. them" mindset about the US economy. We ought not to want the US economy to grow in relation to other economies, rather we ought to desire that all individuals, wherever they might be, have expanded opportunities and wealth.
The "us vs. them" mentality is where Conservatives are today.
The "us giving to them”, or “us for them" (actually it is: “us, including you, giving to them, whom we choose, whether you like it or not.”) mentality is the patronizing attitude of the left.
We walk a higher road that says, "me for me, and you for you, and trade for both."
Nathan
Travis,
I really don't have a problem with the system we have now. Unlike Nathan, I don't feel like my liberties are being infringed by the government exercising its constitutional powers.
Of course, thinking the goverment serves any purpose at all makes me a rarity on this board. ;)
I think if you are really worried about misuse of money creation, we could try something like inflation targeting, which would make Fed policy more transparent.
I really don't have a problem with the system we have now. Unlike Nathan, I don't feel like my liberties are being infringed by the government exercising its constitutional powers.
Of course, thinking the goverment serves any purpose at all makes me a rarity on this board. ;)
I think if you are really worried about misuse of money creation, we could try something like inflation targeting, which would make Fed policy more transparent.
# posted by 
: 6:40 AM
: 6:40 AM
For starters, we should probably all read Rothbard's What Has Government Done to Our Money?, but I can't tell whether it assumes that government will supply the gold, or just let prospectors turn gold in to be coined at a vast profit to themselves. If the latter is the case, it might not require 2.5% of GDP to accomplish.
I am, by the way, very much in favor of a return to the gold standard, if not to private money entirely. I still need to read more on this, however.
I am, by the way, very much in favor of a return to the gold standard, if not to private money entirely. I still need to read more on this, however.
My rant was more directed at the concepts of aggregation and stability/security, in response to the original post.
Concepts like inflation targeting are fine for anyone without a standard. If we are just looking for what "works best", or "whatever seems necessary" we are no better than fascists, not having a foundational philosophy to base our actions upon.
Nathan
Concepts like inflation targeting are fine for anyone without a standard. If we are just looking for what "works best", or "whatever seems necessary" we are no better than fascists, not having a foundational philosophy to base our actions upon.
Nathan
Jenna,
Good idea. I'm flipping through the web version right now. I have a few questions I would like to put out when I get the time.
I would also recomend everyone read the second article I linked to in my post. I think it presents the issue and the history in a nice concise manner.
There's a paper somewhere by current Fed Chairman Bernanke on the Gold Standard, deflation, and the great depression. I will see if I can find it.
Nathan,
Wow. So gold is the "moral money"? And anyone that doesn't support a return to the gold standard is a facist without a moral compass?
Damn. Harsh words.
Good idea. I'm flipping through the web version right now. I have a few questions I would like to put out when I get the time.
I would also recomend everyone read the second article I linked to in my post. I think it presents the issue and the history in a nice concise manner.
There's a paper somewhere by current Fed Chairman Bernanke on the Gold Standard, deflation, and the great depression. I will see if I can find it.
Nathan,
Wow. So gold is the "moral money"? And anyone that doesn't support a return to the gold standard is a facist without a moral compass?
Damn. Harsh words.
# posted by : 12:50 PM
: 12:50 PM
I didn't mention the gold standard, I was specifically referring to the inflation targeting. Why should a 2% target be accepted? It's arbitrary. There's no philosophical reasoning behind it, merely utilitarian reasoning.
Anyone that acts without a philosophical foundation reacts. He allows his morality to be determined by his circumstances. He is not immitating anything. There is no virtue.
Nathan
Anyone that acts without a philosophical foundation reacts. He allows his morality to be determined by his circumstances. He is not immitating anything. There is no virtue.
Nathan
# posted by : 1:00 PM
: 1:00 PM
Nathan,
Well, utilitarian reasoning is still philosophical reasoning, just not a flavor you particuarly like. :P
But I seriously don't think we will ever come up with a morally "just" inflation rate.
Besides, the price level is a nominal variable anyways. No one would really care about inflation unless it had effects on real variables.
So we are back to asking questions about government using the money supply to manage the business cycle. I was hoping to have a primarily economics discussion on the topic, but if you want to come up with moral argument for or against intereventing, i'd be willing to hear it.
Well, utilitarian reasoning is still philosophical reasoning, just not a flavor you particuarly like. :P
But I seriously don't think we will ever come up with a morally "just" inflation rate.
Besides, the price level is a nominal variable anyways. No one would really care about inflation unless it had effects on real variables.
So we are back to asking questions about government using the money supply to manage the business cycle. I was hoping to have a primarily economics discussion on the topic, but if you want to come up with moral argument for or against intereventing, i'd be willing to hear it.
# posted by : 6:22 PM
: 6:22 PM
The ethical discussion always creeps into economics. Such is the nature of "social" sciences. I suppose the Austrian method receives some of its criticism because many in its camp recognize the moral element and use it as a starting point, which seems "unscientific" to many.
I haven't had a chance to read to 70+ recommended pages on the Austrian business cycle yet. Perhaps we can come back to this discussion later.
Nathan
I haven't had a chance to read to 70+ recommended pages on the Austrian business cycle yet. Perhaps we can come back to this discussion later.
Nathan
This segueys with the above discussion, "would you still be a libertarian if..."
and our discussions about the releveance of "rationality".
Is something more true if it is scientifically true, or if it is philosophically true?
Why do we believe in property rights? Just because they work?
I appreciate that Austrian economists use good scholarship and avoid normative arguements. It is important to work at that level to answer the academy. But where does the desire for an anti-statist approach come from if not from a normative love of liberty?
Part of the reason we find it so hard to convince our statist foes of the relevance and legitimacy of Austrian principles and approaches is that they are blinded by a love of security or some other motivator that causes them to look to the state. Intellectual persuasion will only take us so far with these true believers. What will be required is a conversion experience from love of state to love of liberty.
Nathan
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and our discussions about the releveance of "rationality".
Is something more true if it is scientifically true, or if it is philosophically true?
Why do we believe in property rights? Just because they work?
I appreciate that Austrian economists use good scholarship and avoid normative arguements. It is important to work at that level to answer the academy. But where does the desire for an anti-statist approach come from if not from a normative love of liberty?
Part of the reason we find it so hard to convince our statist foes of the relevance and legitimacy of Austrian principles and approaches is that they are blinded by a love of security or some other motivator that causes them to look to the state. Intellectual persuasion will only take us so far with these true believers. What will be required is a conversion experience from love of state to love of liberty.
Nathan
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