Gold gibberish
6 March, 2013 at 13:22 | Posted in Economics | 5 CommentsEighty years ago Keynes could congratulate Great Britain on finally having got rid of the biggest ”barbarous relic” of his time – the gold standard. He lamented that
advocates of the ancient standard do not observe how remote it now is from the spirit and the requirement of the age … [T]he long age of Commodity Money has at last passed away before the age of Representative Money. Gold has ceased to be a coin, a hoard, a tangible claim to wealth … It has become a much more abstract thing – just a standard of value; and it only keeps this nominal status by being handed round from time to time in quite small quantities amongst a group of Central Banks.
Ending the use of fiat money guaranteed by promises for currencies once more backed by gold is not the way out of the present economic crisis. Far from being the sole prophylactic against the alleged problems of fiat money, as the “gold bugs” maintain, a return to gold would only make things far worse. So yours truly – just as Keynes - most certainly reject any proposals for restoring the gold standard.
Why would anyone want to reinstate a gold standard? Duncan Weldon may have the right answer:
Economically, the case for the gold standard simply does not stack up and yet it still finds very vocal supporters. Fundamentally the case is political rather than financial. Gold bugs want to see golden handcuffs restraining the ability of central banks to intervene and states to spend, they want to remove any vestige of political control of the monetary system and fix it an arbitrarily chosen shiny metal in order to let free market forces take over. It is therefore no surprise that most gold bugs are to be found on the libertarian right.
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There does not exist any economic rational why the amount of paper money in circulation in an economy should not have a 1:1 relationship with government collateral (some valuable asset ie gold). Government debt is not collateral.
Comment by marc— 6 March, 2013 #
As an Austrian School advocate for 40 years, it is always heartening another Keynesian like yourself and Mr. Weldon without the slightest familiarity with even basic Austrian concepts or analysis.
http://mises.org/media/2773
How do you people think the debate will turn out when the Austrian position is no longer completely suppressed? Isn’t it academically unethical to constantly misrepresent opposing economic theories?
In February, 2011, the American Economic Review (specifically Kenneth J. Arrow, B. Douglas Bernheim, Martin S. Feldstein, Daniel L. McFadden, James M. Poterba, and Robert M. Solow) named its top 20 articles of the last 100 years. Included therein was:
Hayek, F. A. 1945. “The Use of Knowledge in Society.” American Economic
Review, 35(4): 519–30.
http://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.101.1.1
The “knowledge problem” is real and it ought to be understood. It is at the core of Austrian School analysis but Keynesian and other inflationist schools recoil from having even a basic familiarity with such a core concept. It is clear that neither you nor Mr. Weldon understands it.
You are losing the debate in a rout. Nevertheless, purposeful misrepresentation of your opponent’s theories is still unethical.
Comment by Bob Roddis— 6 March, 2013 #
Hayek’s The Use of Knowledge in Society is a great article. On that we agree. But I don’t really see what that has got to do with my post.
Comment by Lars P Syll— 6 March, 2013 #
With the title of your post and your link to the Weldon article, you give the false impression that no one in the “gold bug” camp ever thought about things like falling prices, bank panics during the period of the “gold standard’ or the non-existent “long depression”.
http://wiki.mises.org/wiki/Long_Depression
https://mises.org/daily/5174
http://mises.org/books/historyofmoney.pdf
Further, Weldon wrote:
A gold standard means that monetary policy and interest rates are set to defend the value of a currency against a metal rather than to reflect economic conditions in the country./i>
Wrong. A “gold standard” means that there is no monetary policy and rates are set by market actors.
Hayek was awarded the Nobel Prize (such as it is) for his work on the Austrian business cycle theory, the essence of which is that business cycles are CAUSED by Keynesian monetary policy due to the relative price distortions which further distort the investment and capital structure. These distortions also occur under a “gold standard” as the result of fractional reserve banking. The post and article imply that this essential analysis (and which is completely devastating to Keynesianism) does not exist.
Further, as Hayek pointed out in 1977 in this video, going off a “gold standard” and then trying to get back on a “gold standard” is always problematic due to the distortions of the price, investment and capital structure that are inevitable during the funny money regime. Austrians have always understood these mechanisms and processes. Keynesians are too cowardly to directly engage Austrian analysis and find it necessary to invariably present a false caricature such analysis.
Comment by Bob Roddis— 9 March, 2013 #
Professor Randall Wray:,why not goin back to gold standard is not a good idea,etc
https://www.youtube.com/watch?v=T6JZuPaljKo
Comment by Jan Milch— 7 March, 2013 #