I have in my hot little hands a copy
John Larry White’s paper Recent Arguments against the Gold Standard. It is published on Cato Policy Analysis letterhead; and the assumption I am making with without really understanding their branding process is that the Cato Institute agrees with the content.
The paper is quite good from the perspective of having persuasive arguments. The overall message that I got from it is that the gold standard in itself isn’t particularly harmful; it’s the policy choices revolving around it that governments selected that are harmful. Mr. White and, by extension Cato, appear to believe that the best way to do a gold standard is to abolish the Federal Reserve and adopt a free banking system based on gold.
While I think there is more than a grain of truth to the general assertions in this paper, I also think they are the strongest arguments against contemplating adoption of a gold standard that will remain strong arguments for likely an eternity because we do not live in a world where government will keep its hands off the monetary or banking systems. One doesn’t have to look far to notice all of the market and financial system regulation going on today, with compliments of things like Sarbanes-Oxley and investor paternalism. The urge for governments to “keep people safe” is entirely overwhelming, and they still do things that we regret regardless of the warning labels attached – in many cases they do so without so much as an ounce of accountability, successfully blaming deflationary issues on capitalism. And it goes even farther than that to the point of real world issues that lead to one of White’s main points regarding the cause of the Great Depression – the need to leave the gold standard in the years of WWI and subsequent resumption.
The lingering question in my mind is that if having a gold standard is something that needs to be temporarily suspended because it doesn’t lend itself to certain necessities of defense or other things for which government would need to increase expenditures, why would we want to have it if going back to it is so painful? And if we would choose a gold standard now, if we adopted a policy of making it permanent, how would our economic world change? There are tradeoffs involved and the public should know what they are if we are to have an honest debate.
And this takes me back to the overall justification for why we should undertake a resumption that has been very much lacking in the recent debates about gold. I have not seen any convincing arguments as to the benefits, why it would be better than what we have; assuming that the main one is “putting a straightjacket on government” when history proves, even here in White’s paper, that it does not accomplish that, but rather we ultimately inflict untold and unnecessary financial pain on the public instead.
From an individual perspective, I would love to live in a world apparently envisioned by White, where government doesn’t interfere in economic activity beyond necessity. But that is not the world we live in, and adoption of a gold standard would not alleviate that because it is not the money system that is the enabler, it is politics that is the enabler. If we cannot place gov-zilla back in its cage politically while having a fiat money system, and even the fiat money system is poorly managed to the misery of all, a gold standard will not change that fact while multiplying the painful consequences.