Jan

31

What is precisely the problem with the discussions of the gold standard?

Almost all of them use the term "gold standard" to refer to a world in which coordinated central banking already existed. A few discuss the periods before the adoption of the Federal Reserve Act, but none discuss the Constitutional origins and history of the standard and its relation to banking and legal tender. All the discussions take it for granted that "money" and the near-monies of credit are effectively the same thing. The Mishistas think this is a bad thing and that credit - i.e. fractional reserve banking - should be abolished (isn't it interesting how often Libertarian thinking ends up asserting the monopoly power of the sovereign). The faculty wizards think the unification of money and credit is a good thing - much the way the Unitarians thought abolishing that messy business about the Trinity would set us all free.

What Washington and Grant understood is that the gold standard can only function if trade sits on a 3-legged stool:

(1) A national Treasury that holds the government's savings, borrows money on the national credit and collects the taxes (2) A clearing house for exchanges and transfers of money and credit (3) A constitutional bank that issues the currency, redeems demands for specie by drawing against the reserve

The flaws of the Federal Reserve Act are that it merges (2) and (3) into a single entity. The result is a national accounting that effectively abolishes the Cash Flow statement.

The purpose of the gold standard was straightforward:

(1) It was to be a regulator of the invariable tendency of legislatures to start wars and make other "investments" that the government's revenues cannot pay for. (2) It was to allow credit to exist independent of the constraints of legal tender laws (3) It was to make the currency an accounting standard only, not a commodity/money/medium of exchange to be speculated in

It is hardly surprising that the people who want the government to spend more than it can reasonably earn and borrow more than it can repay literally despise the gold standard. It is equally predictable that believers in the kabalistic powers of economic calculation spent nearly endless amounts of time debating what the particular standard should be while ignoring the central requirement that the standard itself be immutable.

What is surprising to this Listista is that the appeal of Unitarian thinking remains as powerful as ever in matters of money while in matters of faith it has found its proper obscurity.


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