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