In Part I, I described items of history that lead me to question popular conceptions about interest rates, inflation, the appropriateness of “printing of money,” etc… Since having posted it, I received the following comment from “SMS marketing now” that leads me to think that I was not clear enough:
Monetarism is the same macroeconomic bullshit as Keynesianism. They all believe that the state should mess with the money in order to “improve” the functioning of the market.
I subscribe to MM theory because it is the practical answer for what we have today. If all choices were equal, I’d advocate for free banking and bank-issued notes; and I would do so because I would prefer that government not have a monopoly on money. It could be argued that in the absence of the Fed, in a system of free banking, the Great Depression and the Great Recession would not have occurred. But that isn’t the world we live in; and all choices regarding the architecture of the monetary system at this point in time are not equal.
Choosing to accept an alternative that is not necessarily compatible with one’s political philosophy is sometimes required, and it is well worth considering whether the ideological cure would be worse than the disease – or if the proposed cure is even ideologically consistent. In the case of the Great Recession, given that multitudes of people have been impacted in a very negative way and need relief now, it is likely the best choice to fix what is broken with the current system first. If one can walk and chew bubble gum at the same time, then one can easily advocate their system of choice simultaneously, presenting well thought out roadmaps for how to get from the current state to the desired state and what each step would mean for the average participant in the economy.
I am not bothered by the bubble fear mongers, gold bugs, or inflation nutters as long as their arguments are presented in intellectually honest ways. But that isn’t what has been happening. Instead, there are endless reams of propaganda floating around that lacks context or basis in monetary theory with many of the proposed actions being worse than the disease. Much of it is completely disingenuous and very harmful to identifying what needs to happen on the first order and how to accomplish subsequent reform.
Going back to a gold standard today would not “improve” the functioning of the market. It would, in fact, be highly disruptive. And contrary to what most of its advocates proclaim, there is nothing libertarian about it. They seem to forget the price-fixing required and settlement of accounts problem that requires government. Instead, a gold standard would require even more government than what we currently have. But no one talks about that because it’s one of those inconvenient details that none of the proponents bother to recall from all of the other iterations of the gold standard that have been tried in the US over the last 130 years.
Other things that seem beyond recall are that the gold standard that banned bank fiduciary notes that was tried from the inception of the Fed lasted only 15 years before it went belly-up and resulted in one of the greatest humanitarian disasters ever to occur on US soil. And all I ever seem to find are deniers that gold had anything to do with it with plenty of evidence around that soaring gold prices had a huge role in it, and those who forget that when major economic distress of that sort comes around the government will get involved whether we like it or not. That’s just one consequence of families being ripped apart and people starving to death in alleyways en mass.
Fiat money gets around most of the major complications of a fixed system and requires much less government oversight regarding what people are doing with their money. From my perspective, it is entirely a practical matter when it comes to choosing between paper money and humanitarian disasters; and it is more ideologically consistent than any of the other proposals I’ve heard. I’d rather not risk playing Russian roulette with atom bombs; and there is not one person on this earth who can change my mind.