Everything Still Turns to Gold
Brian Doherty | February 25, 2008, 10:45am
Ron Paul associate, old libertarian movement hand, and retired coin dealer Burt Blumert is profiled at the San Francisco Chronicle's website. An excerpt:
Precious-metal prices tend to increase in times of economic uncertainty and a weakened U.S. dollar. And this inverse relationship is key to understanding Blumert's reference to gold dealers' dismal view of the future. To a philosophical goldbug, when the price of their commodity increases, it's a sign that the global economy is tanking. Inflation is proof that the fiat money system is an illusion — and an affirmation that, in the portentous, Arthurian terms of a recent book by Nathan Lewis, gold is The Once and Future Money.
But — and here's the paradox — for the goldbug's worldview to be finally vindicated, the fiat money system has to collapse. "Many of my clients would like to be standing in the rubble of our society saying, 'I told you so,'" Blumert says. "And there was a time when I did want collapse — when I was young and excited about my view. But the older I get, personally I can't deal with rubble anymore. I don't want to see a collapse, to be vindicated and say, 'See, I was right.'"
My reason interview with Nathan Lewis, mentioned in the above excerpt, on gold. Recent goldblogging from Matt Welch.
kevrob | February 25, 2008, 3:55pm | #
John,
I've been influenced by Mises, but also by Friedman and others usually considered "free market" economists. I don't want a monopoly currency that can be manipulated by politicians. I don't want the money supply artificially inflated. Neither do I want it artificially contracted. I want market forces, rather than the government, determining the price level. Note what
Graphite said:
The issue is often confused by the fact that Austrians use these terms to refer to changes in the supply of money & credit, while most others use them to refer to changes in the level of prices.
This is like saying that one's height would be "shrinking" or "growing" if the government habitually redefined the length of the foot and the inch, when in fact you still top out at the same 6' you did before they started monkeying with the tape measure. Now, if you actually had grown to 6'1" in "old inches," that wouldn't be "height inflation," but a secular increase in your height.
It was Friedman, not the Austrians, who said
...inflation is always and everywhere a monetary phenomenon, BTW.
I would have been quite happy if the provision in Article I of the Constitution, giving Congress the power
...To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures
had been merely a one-time grant of authority to define what standard of weight would be used when the government made and accepted specie payments. Congress could have declared what an "American dollar" was, and left it to private enterprise to supply the country with coin, bank notes and whatnot. I could do entirely without legal tender laws, frex.
The natural response to a deflation in a commodity-money environment is entrepreneurial activity to deal with scarcity of the medium of exchange. New sources of the relevant metals are sought, more efficient uses are invented, and substitutes are developed. Eventually a new equilibrium is established. Compare that to the record of politically controlled fiat money, or even to government monopoly coinage that is debased as a matter of policy. Part of the
a little inflation is a good thing meme we owe to Keynes' followers actually depended on the public's economic illiteracy.
(They won't notice that half their 2% annual pay rise is being eaten away by the 1% yearly increase in the CPI. Yes, we are cheating them, but we must guarantee that demand doesn't slack.) The levels of "good inflation" contemplated were well below those the U.S. experienced during the Korean and Viet Nam wars, let alone during the Ford/Carter stagflation period. There is no natural barrier to money creation in a fiat money environment, and not much of one with fractional reserve banking. In theory, money creation will be in line with GDP growth, but if even the sainted Greenspan could have let the subprime mortgage debacle happen, what hope can we place in lesser mortals? :)
Kevin
