Freedom New Mexico
Gold could help stabilize monetary system. The suggestion was somewhat indirect and conditional, but it is nonetheless fascinating that the head of the World Bank should bring up the idea of using gold to help stabilize the international monetary system. Robert Zoellick was far short of calling for a return to the gold standard, but he did say that the “system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values. Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today.”
To be sure, Zoellick is not specific as to just how gold should be used. Before the United States in 1971 abandoned the post-World War II Bretton Woods system by deciding not to sell gold at the fixed price of $35 an ounce, that guarantee had provided some currency stability. But what politicians and speculators tend to prefer is not stability so much as flexibility to hide the true cost of government by inflating the money supply. Tying currency to gold in any way reduces such wanton flexibility. So the tendency is to call the gold standard a “barbarous relic” of a backward period in history.
Anybody who remembers when candy bars were a nickel knows that, whatever the official statistics say, inflation has been rampant since the 1960s. The virtue of a gold standard, with money pegged to the price of gold, is that it reduces the flexibility of central banks to inflate the money supply. A true gold standard would eliminate the necessity or desirability of having a politically controlled central bank like the Federal Reserve System. But the idea of subjecting political authorities to the kind of economic discipline a gold standard would provide gives most modern politicians a severe case of the heebie-jeebies.
For those and other reasons, Zoellick’s talk of using gold to help stabilize international currency markets may well come to nothing. But if it only leads to a serious debate on the use of gold or even a return to the gold standard, that would be healthy.
Our current crisis demonstrates that government manipulation of the economy has arrived at something of a dead end, a situation in which almost any government action is likely to make matters worse rather than better. It’s time at least to consider more freedom-oriented alternatives.