Ron Paul’s January 15th talk in Washington and Lee’s Lee Chapel was inspiring, exciting, and overall great for the University. Ron Paul is an exciting speaker and it is easy for a crowd of young students to get caught up in his rhetoric and forget about what is actually being applauded. The crowd clapped for his “protect our borders” and “protect our liberty” points. Sandwiched between all of these points was Ron Paul’s assertion that America needs to go back to the gold standard. The natural knee-jerk reaction was for the students to clap. In that moment, I was disappointed that the crowd did not pause in silence.
The case for returning to the archaic “gold standard” is weak at best. As professor Jim Casey said in environmental econ, “we might as well go to the tree bark standard.” Professor Casey’s reasoning was that gold is an arbitrary good that is purely determined by society’s value of the item. Casey asked what happens if one day the world wakes up and doesn’t like gold? Professor Casey also believes that when we are running low or want to increase the supply, we will just steal gold from other nations (like we do with other natural resources).
I had a similar discussion with Professor Hooks, who echoed Professor Casey’s sentiment. She brought up the issue of people not liking coins. This is likely why the silver dollar coin has failed even though the government has made numerous efforts to implement it into currency. Professor Hooks holds that coins often end up in couches or returned for paper dollars. In fact you can go to Kroger and exchange your coins for paper money and kroger will take 35% of the money.
[the prof: this is not the definition of “money”, which is a means of exchange – we and every other prosperous economy use bank deposits, the amount of which bears little relationship to the amount of coin and paper]
In preparation for hearing Ron Paul I went and did some independent research. It is true that Ron Paul’s “Austrian Economics” holds that paper money backed up by a gold standard is ideal. It is well known that economists rarely agree on anything, (http://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-idea-in-2-charts/261552/) but economists on both the right and the left agree that the world’s worst idea is the gold standard. The gold standard contributed to the Great Depression, as the Fed raised interest rates rather than lowered them to protect gold. In 2008 the Fed was able to increase the money supply by 16 trillion dollars (a point which Ron Paul disagreed with) but most economist believe that the situation would have been much worse without the ability to increase the money supply.
[the prof: we should again be careful with definitions, but that qualitative story of increase remains]
Ron Paul preaches to let markets do the work and have the government stay out of the way of the “invisible hand”. This hands-off monetary policy is one that on the surface economists should support. In contrast, the gold standard, is an ideal that seems incomprehensible to economists, politicians, and voters alike.
[the prof: this is a version of the old “rules” vs “discretion” debate, which even Milton Friedman eventually decided was unworkable]
the prof: I am approving most of the comments, deleting only those that were mere ad hominem attacks
23 Comments
tree bark is in fact better than fiat money, if it is in sufficient quantity to have actual inherent value. It isn’t gold – Ron would actually prefer a fluctuating basket of currencies as suggested by Hayek but the main point is intrinsic value not allowing looting of the savings of those who must save to live on it, through inflation. The Constitution says only gold and silver shall be legal tender, so change the constitution to some other commodity, fine with us.
And the govt went off the pure gold standard in 1913 when the Fed was created, leading to the bubble of the ‘roaring’ twenties and the crash of 1929. Both were much bigger BECAUSE the Fed had charge of the money. you have only grazed the surface, look deeper.
How could those who study economics prefer today’s situation with that which would exist under a gold standard (or tree bark standard for that matter)? The excuse of “what happens if the world wakes up one day and doesn’t like gold” not only attempts to invalidate thousands of years of human history but begs the question: How could a human being try to prove that “NOTHING” will ever hold more value than GOLD?
“We might as well go back to the tree bark standard”, as if that’s clever or means anything whatsoever? Actually, the Fed fiat standard IS the tree bark standard- ironically enough. Unfortunately, you’ve been well indoctrinated by the advocates of state power and the banking cartel- both love the Federal Reserve (as do their house economists). Saying that economists on the left and right agree that the Fed is good and gold is bad, and thus there is no more room for argument is like saying both Bush and Obama (and the leadership of both parties) love drones, the Patriot Act, and military adventurism- therefore, its clearly good and acceptable.
The important question to ask about one’s society is: DO YOU PREFER STATE OR MARKET? If you portend to be a market economy, you need a stable, honest measurement of value- can you comprehend that, Mr. Hatfield? Its not a surprise that the voters and your average representative find a commodity standard incomprehensible- advocates of socialism and the central bank (key plank of the communist manifesto) have worked for decades to portray themselves as absolutely indispensable! In reality, the Fed accommodates the federal government to be the center of society, because only the government is above the law. And at the same time, those big banks (at the center of the banking cartel) will rake in profits when the times are good, but pass on the losses to us when they screw up.
And by the way, your argument about “people bring there coins in for dollars” is obviously about the ease of carrying larger denominations- completely irrelevant to talking about a commodity standard. Kroger charges a (unfair premium) because they are providing you a service. It may be that people prefer carrying paper money rather than coins- that’s obvious. But that would be irrelevant if the money was backed by a commodity, because the paper would be worth more gold than a gold coin, it would just need to be converted at the bank
And what evidence do you have that our current monetary system — and our money is a social contrivance of banks, not the Fed — does not provide stable value? And if you look at the late 19th and early 20th century, do you have any evidence that gold (or in the 16th-19th centuries, silver) did provide stability? I think you’ll find the historical data is pretty clear: gold was not a good idea.
HUH? Since when has gold not been a standard of value? You suggest tree bark. You might as well suggest tulips. Tulips were currency ONCE. Gold has been currency since the time it was discovered.
lmao this guy knows nothing. The gold standard was not perfect becuase the government was involved in it… what a sham you are
My man Ben,
I did not write on this blog claiming to be an expert nor did you pay any money to read my opinion. I am a 21 year-old student of economics. I read, go to class, listen to speakers, and adjust my opinions on a daily basis. It is a process, just like learning skills such as maturity, respect, and how to use sentences that contain punctuation and adult language is a process.
As per the Founders Day speaker, paraphrasing his quote of a leading figure at Oxford in the early 1900s, studying the classics [today, “liberal arts”] is useful because you learn to spot bullshit. My students — or even a PhD’d prof — won’t have the knowledge base to critique the details of more than a portion of what they hear, but the willingness to “adjust your opinions” in the face of reality is the mindset I hope to cultivate as a teacher.
Let me guess… you are a Keynesian? I graduated with honors with an economics degree and not once did I hear about Hayek or Mises. Why is that? Of course, this isn’t a surprise now considering I came across my old Macro notebook and on page 1 from the first day of class is: The Federal Reserve. Spend, spend, spend, and if that doesn’t work, spend some more. Sounds money fits like a glove over the invisible hand. Oh, and until the CPI starts to include the cost of food, the inflation numbers are cooked.
“Casey asked what happens if one day the world wakes up and doesn’t like gold?”
Just a follow up question to this, What happens when the world decides it no longer likes an over saturated fiat dollar?
Good luck with that arguement. My understaning is that Ron Paul believes people can choose whatever they wish to act as the medium of exchange, whether it be tree bark or gold. Let individuals contract with each voluntarily in any form of currency they wish. The documents that formed our government and the “representatives” sweat to uphold establish still that only gold and silver are money. I also believe Mr. Paul thinks gold is money because historically gold has acted as money for the last 6000+ years. Of course this doesn’t mean it will continue to act as money but empirical evidence is difficult to come by in economics. I can’t fault Paul for making a blanket statement such as gold is money based of the historical facts that ALL unredeemable paper currencies have failed…All of them. So it is rational to believe todays fiat currencies will fail as well. Germany today is pulling all their gold out of America. The rest of the world is eyeing the door. Prisoners dilemma.
Wow, what a terrible post. What if people all of the sudden wake up and don’t like gold? Let me ask you…in any point in documented history, thousands of year, has gold become worthless? You would think that you could point to at least 1 time where gold was not valuable in a society. Can’t think of any? Yeah, didn’t think so.
Please do a bit of digging on Ben Bernanke. He actually admitted that it was the Fed that caused the Depression, it was not the gold standard. It was in a talk he gave for Milton Friedman’s ninetieth birthday.
Thanks for attending and reporting. I hope you will keep digging, Ron Paul really is right about this. He also advocates “competing currencies” which is an integral part of his gold standard push – not every currency must be backed by gold.
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