Wednesday, June 02, 2010

the gold standard: nugget of idiocy

Apropos of my apparently ongoing diatribe against libertarianism is this wonderful refutation of the gold standard argument by Matt Steinglass posted in, of all places, the comment section of one of his blog posts.

The upshot: value is intangible, and therefore money is intangible. It is no more inherent to gold nuggets than it is to nickel currency or electronic pulses in an online stock exchange. There is no more of an imperative on people to admit the value of a gold nugget than to agree to the value of a government-backed sheet of denim with George Washington's face printed on it. To insist that one must always be equal to another just adds a pointless level of complexity while tying the value of the dollar to the vagaries of the gold market.

This quote from Paul Krugman at the link Steinglass provides is absolutely brilliant:
The legend of King Midas has been generally misunderstood. Most people think the curse that turned everything the old miser touched into gold, leaving him unable to eat or drink, was a lesson in the perils of avarice. But Midas' true sin was his failure to understand monetary economics. What the gods were really telling him is that gold is just a metal. If it sometimes seems to be more, that is only because society has found it convenient to use gold as a medium of exchange--a bridge between other, truly desirable, objects. There are other possible mediums of exchange, and it is silly to imagine that this pretty, but only moderately useful, substance has some irreplaceable significance.

The rest of the Krugman article, while dated, is also very useful.


Feynman and Coulter's Love Child said...

To be fair, the libertarian rationale for tying money to gold is to take 50,000 government levers out of the manipulation of currency at once. Lesser of two evils sort of thing.

The ultimate deconstruction of Midas, of course, is David Mitchell's offhand note that creating a glut of gold is not a good system for increasing its value.

el ranchero said...

I'm reading this before my morning caffeine, so I may be missing something here, but I think recent events have shown that taking government levers out of the manipulation of currency is not, in fact, a lesser evil. Countries like Ireland and Greece, for instance, have been unable to dig themselves out of their current mess in part because they lack the ability to devalue their own currency.

In a sense, the same argument most frequently used for keeping one's sovereignty over their own currency similarly discredits this thesis in support of the gold standard. Stripping one's own country of the ability to use monetary policy to its advantage is just daft.