Tag: gold standard

At Cato Unbound: The Private Digital Economy

What if money were private?

One very correct answer is, simply: Money already is private. Sure, there’s the old familiar legal tender of the U.S. government, but the idea of money, and the practices that surround it, are not necessarily tied to the greenback. We all know how money works, and other things can certainly be used in the dollar’s place – if a buyer and a seller agree. From there, if more buyers and sellers agree, the items they use may become a medium of exchange – a class of things held with the intention of passing them along in the market rather than using them directly.

As most of you probably know, that’s exactly what’s happening right now with bitcoin. But is bitcoin sound money? For that matter, what is it that makes a thing sound money? Gold wasn’t sound money just because of its inherent goldiness; it had (and has) distinct, identifiable properties that make it a pretty good money – properties that, say, land, automobiles, or hydrogen conspicuously lack.

How does bitcoin stack up? Will an all-digital private currency one day supplant fiat money? If so, will it be bitcoin or something else? There are alternatives, and some of them are quite successful, albeit less highly publicized in the West. 

Cato’s own Jim Harper discusses these issues in his lead essay for July 2013’s Cato Unbound. Coming up we have essays by Internet security consultant Dan Kaminsky, tech policy analyst Jerry Brito of the Mercatus Center, and Ph.D. candidate Chuck Moulton, who is writing his dissertation on transitions from unsound to relatively sound monetary systems. 

The Case for Gold — Again

In the New York Times, Floyd Norris reminds us:

The 1980 presidential election was fought by a Democratic incumbent weakened by a poor economy amid worries that the United States had lost its ability to compete in the world. Gold prices had risen to unprecedented levels as the election approached, and the Republican nominee hinted he might propose a return to a gold standard.

That Republican, Ronald Reagan, won the election and soon appointed a commission to study the role of gold in monetary systems.

And now:

Last month, Newt Gingrich, seeking to widen his support in the days leading up to the South Carolina primary, promised that he would appoint a new gold commission. “Part of our approach ought to be to re-establish something Ronald Reagan did in 1981 and that is to have a commission on gold to look at the whole concept of how do we get back to hard money,” he said in a speech.

Whatever the likelihood of Gingrich’s ever being in position to appoint a presidential commission, the minority report of the U.S. Gold Commission, by Rep. Ron Paul and Lewis Lehrman, still makes for worthwhile reading. And conveniently enough, it’s available right here at the Cato Institute. Download a pdf or epub here.

For a more recent analysis, read “Is the Gold Standard Still the Gold Standard among Monetary Systems?” by Lawrence H. White.

Libertarianism Hits the Big Time

Michael Crowley, late of the New Republic and now with Time magazine, writes thoughtfully about Ron Paul, Rand Paul, and libertarianism. Crowley notes that Rand Paul, “more politically flexible than his father,” has plenty of unlibertarian positions. But both of them are tapping into a real strain in contemporary politics:

But he, like his father, also knows well that a genuine libertarian impulse is astir in America…. polls show an uptick in both social permissiveness and skepticism of government intervention….[Ron Paul] has already waited a long time — and it appears the country is moving his way.

This is a current trend, but it’s also deeply rooted in the American political culture. As David Kirby and I wrote in “The Libertarian Vote”:

It’s no surprise that many Americans hold libertarian attitudes since America is, after all, a country fundamentally shaped by libertarian values and attitudes. In their book It Didn’t Happen Here: Why Socialism Failed in the United States, Seymour Martin Lipset and Gary Marx write, “The American ideology, stemming from the [American] Revolution, can be subsumed in five words: antistatism, laissez-faire, individualism, populism, and egalitarianism.”… Richard Hofstadter wrote: “The fierceness of the political struggles in American history has often been misleading; for the range of vision embraced by the primary contestants in the major parties has always been bounded by the horizons of property and enterprise. However much at odds on specific issues, the major political traditions have shared a belief in the rights of property, the philosophy of economic individualism, the values of competition; they have accepted the economic virtues of capitalist culture.”… McClosky and Zaller sum up a key theme of the American ethos in classic libertarian language: “The principle here is that every person is free to act as he pleases, so long as his exercise of freedom does not violate the equal rights of others.”…

Some people recognize but bemoan our libertarian ethos. Professors Cass Sunstein and Stephen Holmes complain that libertarian ideas are “astonishingly widespread in American culture.”

Much political change in America occurs within those guiding principles. Even our radicals, Lipset and Marks note, have tended to be libertarian rather than collectivist. America is a “country of classical liberalism, antistatism, libertarianism, and loose class structure,” which helps to explain the failure of class-conscious politics in the United States. McClosky and Zaller argue that many of the changes of the 1960s involved “efforts to extend certain values of the traditionalethos to new groups and new contexts”—such as equal rights for women, blacks, and gays; anti-war and free speech protests; and the “do your own thing” ethosof the so-called counterculture, which may in fact have had more in common with the individualist American culture than was recognized at the time.

In a broadly libertarian country most voters and movements have agreed on the fundamentals of classical liberalism or libertarianism: free speech, religious freedom, equality before the law, private property, free markets, limited government, and individual rights. The broad acceptance of those values means that American liberals and conservatives are fighting within a libertarian consensus. We sometimes forget just how libertarian the American political culture is.

And of course American politics and policy deviate a great deal from those fundamental principles, which leaves libertarians feeling frustrated, even angry, and seeming extreme or radical to journalists and others. But as Conor Friedersdorf just wrote in Time’s longtime rival, Newsweek, the media have a bias toward the status quo and establishment politicians, even when current policies and the proposals of elected officials are at least as extreme as libertarian ideas:

If returning to the gold standard is unthinkable, is it not just as extreme that President Obama claims an unchecked power to assassinate, without due process, any American living abroad whom he designates as an enemy combatant? Or that Joe Lieberman wants to strip Americans of their citizenship not when they are convicted of terrorist activities, but upon their being accused and designated as enemy combatants? In domestic politics, policy experts scoff at ethanol subsidies, the home-mortgage-interest tax deduction, and rent control, but the mainstream politicians who advocate those policies are treated as perfectly serious people.

And Fareed Zakaria, the editor of Newsweek International, made the point a dozen years ago in a review of Charles Murray’s book What It Means to Be a Libertarian (in the Public Interest, not online)

The reason that libertarians seem extreme and odd is not that they are a furious minority, angry at a world that seems to have passed them by, but rather the opposite. They are heirs to a tradition that has changed the world. Consider what classical liberalism stood for in the beginning of the nineteenth century. It was against the power of the church and for the power of the market; it was against the privileges of kings and aristocracies and for dignity of the middle class; it was against a society dominated by status and land and in favor of one based on markets and merit; it was opposed to religion and custom and in favor of science and secularism; it was for national self-determination and against empires; it was for freedom of speech and against censorship; it was for free trade and against mercantilism. Above all, it was for the rights of the individual and against the power of the church and the state….

The reason that libertarianism seems narrow and naive is that having won 80 percent of the struggles it has fought over the last two centuries, it is now forced to define itself wholly in terms of the last 20 percent. Extremism in the defense of liberty is no vice if you were in Prussia in the 1850s, but in America in the 1960s? Libertarianism has become extreme because the world has left it no recourse.

Now, I don’t feel furious, angry, or extreme. I think that libertarianism is the philosophy of the American revolution, the basic ideology of America, and indeed the foundation of Western civilization. The concept of personal and economic freedom – giving people more power to pursue happiness in their own way by restricting the size, scope, and power of government – is not extreme. Nor is it reactionary. In fact, it is the direction in which civilization has been heading, with many digressions and blind alleys, since the liberal revolution of the 17th century. I am a progressive. I believe that the simple, timeless principles of the American Revolution – individual liberty, limited government, and free markets – are even more powerful and more important in the world of instant communication, global markets, and unprecedented access to information than Jefferson or Madison could have imagined.  Libertarianism is not just a framework for utopia, it is the indispensable framework for the future.

Time to Think about the Gold Standard?

Back in 2007, presidential candidate Ron Paul generated a lot of talk, especially among libertarians, about monetary policy, the Federal Reserve, and the gold standard. As a longtime believer in sound money, I was surprised to discover how many smart young libertarians thought that talk of the gold standard was nutty. And perhaps more surprised to discover that they thought it was unnecessary now that the problem of central banking had been solved. As two of them wrote when I asked about their objections,

“The gold standard is the solution to no actual problem that is of concern to anyone. I think it’s a mistake to take a relatively professional and independent central bank for granted, but we have one. Inflation is low and predictable. The monetary climate is stable and amenable to savings and investment, etc.”

“What’s the beef with the Fed?  By my estimation, it’s been one of the most effective, restrained government agencies over the last twenty five years.  They’ve dramatically reduced the volatility of the business cycle while achieving low, reasonably constant inflation.” 

Well. How’s that confidence in central banking looking now? I’m reminded of Murray Rothbard’s comment in 1975 about what the era of Vietnam, Watergate, and stagflation had done to trust in government:

Twenty years ago, the historian Cecelia Kenyon, writing of the Anti-Federalist opponents of the adoption of the U.S. Constitution, chided them for being “men of little faith” – little faith, that is, in a strong central government. It is hard to think of anyone having such unexamined faith in government today.

Partly in response to such criticisms of the gold standard, in February 2008 Cato published a paper by Professor Lawrence H. White, “Is the Gold Standard Still the Gold Standard among Monetary Systems?” White argued:

The gold standard is not a flawless monetary system. Neither is the fiat money alternative. In light of historical evidence about the comparative magnitude of these flaws, however, the gold standard is a policy option that deserves serious consideration.

In a study covering many decades in a large sample of countries, Federal Reserve Bank economists found that “money growth and inflation are higher” under fiat standards than under gold and silver standards.

A gold standard does not guarantee perfect steadiness in the growth of the money supply, but historical comparison shows that it has provided more moderate and steadier money growth in practice than the present-day alternative, politically empowering a central banking committee to determine growth in the stock of fiat money. From the perspective of limiting money growth appropriately, the gold standard is far from a crazy idea.

And he quoted a devastating line from an essay (p. 104) by Peter Bernholz:

A study of about 30 currencies shows that there has not been a single case of a currency freely manipulated by its government or central bank since 1700 which enjoyed price stability for at least 30 years running.

In February 2008 White’s study didn’t get much attention. Most people still thought the Greenspan-Bernanke Fed was doing a great job, so why talk about alternatives to fiat money? But now, after the crash of 2008 and the growing realization that Dow 14000 was the product of a cheap-money boom that led to the inevitable bust, maybe it’s time to think about the gold standard or other constraints on politicized money creation.