And Now for Something Completely Different
November 28th, 2010 - 4:05 pm
Finally, a sensible plan from for the Fed. Read Lawrence Hunter’s modest proposal:
The real challenge is to remove both the Fed’s mandates and its discretionary monetary authority along with them, and replace them all with a simple statutory directive to calibrate dollar liquidity so as to maintain the dollar price of gold within a narrow band around a statutory gold price that defines the dollar. Any other legislative “solution” simply exonerates the Fed from responsibility and gives them more cover to fail. Indeed, diverting attention from the real problem and the real solution is a classic instance of playing the useful idiot on behalf of the real culprit.
The objective is simple and straightforward: Save the dollar, not the Fed.
Please?
Hooray, a currency system based entirely around maintaining an artificial price for a random mineral. Surely, this is sound basis for monetary policy.
The gold standard is awful. Bloody, irredeemably, awful. I’ll take Helicopter Ben over a gold standard any day of the week – even a bad economist is better at setting monetary policy than a bunch of miners. If you want to build your monetary system around maintaining price stability for goods, base it around a sane basket of goods, not a single item that most people don’t transact with more than a few times in a lifetime. CPI, GDP deflator, a couple other less well-known methods, all fine. But goldbugs are just wrong in every meaningful way.
What Alsadius said. I don’t understand why people think gold is so useful as a store of value. All it has going for it is tradition, plus its scarcity and physical robustness (i.e. it doesn’t tarnish, it’s hard to counterfeit, etc.) You can’t eat it, and its engineering applications are limited when compared with, say, iron or copper.
Gold is far from perfect, but it’s almost universally considered valuable by people on this planet and there are significant constraints on expanding the supply. The notion that “a bunch of miners” can manipulate supply arbitrarily is simpleminded nonsense. Additional gold is found and mined on a continuing basis, but not in quantities capable of creating massive fluctuations.
There is no perfect benchmark of value and exchange. The advantage of gold (and certain other commodities) over various fiat methods is that the latter are, at the end of the day, nothing but a bunch of numbers derived from a spreadsheet or database using numbers supplied by and formulas created by political appointees. And political appointees will always (I know, you’re shocked – shocked!) inject political whims into the calculations.
Personally, I’ll take the standard that’s reasonably stable and more difficult to manipulate. If someone has a better one, I’m open to suggestions…
There has never been a fiat currency that didn’t inflate away into nothing.
Ever.