A recent article in Bloomberg Markets by Michelle Jamrisko brings welcome news. ‘The gold standard is one of the oldest ideas about money, but the hardest of hard-money hawks sense an opening to breathe new life into it.’ Unfortunately, those in search of information about the gold standard and its supporters will find little of use in the article.
Most obviously, the article omits one item of no slight significance. It never explains what the gold standard is. The closest the article comes to an explanation is this: ‘Decades ago, the amount of cash circulating in a country was often limited by the stash of bullion held in its coffers.’ According to this account, under a gold standard, the government cannot issue an unlimited amount of money: its ability to create money is limited by the amount of gold on hand. Shortly after, Jamrisko says, ‘Of course, full restoration of the system that reigned in the U. S. for a century through the 1970s is almost inconceivable.’ By her reference to ‘the 1970s’, it’s apparent that she is talking about the arrangement in place until Nixon closed the ‘gold window’ in 1971.
I hesitate to shock Michelle Jamrisko, but that system was not the ‘gold standard’ that today’s ‘hardest of hard-money hawks’ want to restore. In What Has Government Done to Our Money?, Murray Rothbard, a foremost defender of the gold standard, characterized it in this way: ‘The total stock, or supply, of money in society at any one time, is the total weight of the existing money-stuff. Let us assume, for the time being, that only onecommodity is established on the free market as money. Let us further assume that gold is that commodity (although we could have taken silver, or even iron; it is up to the market, and not to us, to decide the best commodity to use as money). Since money is gold, the total supply of money is the total weight of gold existing in society.’
This post was published at Ludwig von Mises Institute on May 19, 2016.