Thursday, October 25, 2012

A Gold Standard Can Save Us from Economic Disaster

So says Steve Forbes. It turns out that discussion about the gold standard has entered polite company after all. In his excellent article he notes that
The disasters that the Federal Reserve and other central banks are inflicting on us with their funny-money policies are enormous and underappreciated. An unstable dollar is wreaking havoc on our capital markets, depriving us of money for productive enterprises and future enterprises while subsidizing government debt on a scale never before seen in U.S. history.
A positive step toward a solution would be to adopt a free market gold standard. He says "The gold commission advocated by the Republican platform would be an excellent start."

We should not forget, however, that we had one of these back in the early 1980s and the Commission's majority opinion were against the gold standard. The minority report was authored by Ron Paul and Lewis Lehrman, but the idea did not gain any political traction. Political realities may be different now, however, with massive government deficits and lending financed in large part by new money created by the Fed, perhaps the political time is right for the sort of positive monetary reform we do desperately need.

There is always the danger, however, that politicians will attempt to co-opt the gold standard and turn it into a phony standard that merely masks their inflationary devices. It would be best not to settle for a dollar that is "as good as gold," A true gold standard would be one in which the dollar was gold. For more on this issue, I recommend Joseph Salerno's "Gold Standards: True and False."

At the very least, Forbes notes, the government could allow for the free competition of different currencies or monetary commodities, another idea sponsored by Ron Paul. Forbes' entire essay is worth reading.

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