On the Gold Standard

During my state senatorial campaign last year I had the privilege of meeting some really great people from all around the political spectrum.

One of the most interesting is Wayne Richard who ran for the Texas House from Plano. While he did not get his party’s nomination he has parlayed his run into a successful radio show, Stand with Wayne, which is broadcast Saturday mornings at 10am on KVCE 1160 AM here in Dallas.

Earlier this week Wayne posted what he called an editorial on Fiat Currency. Wayne calls himself a conservative not a Libertarian, so it is interesting in that this is one issue where I part ways with most Libertarians and, in this case Wayne.

While I am all in favor of auditing the Fed, I do not think we need to a) end the Fed and b) go back to a gold standard. What we need is to reduce regulations that would allow more competition for the Fed, i.e., private money. Some of this can be based on gold, but not necessarily.

The problem is that the gold standard (or any other metal based currency) is based on some false premises.

First, that the metal itself has intrinsic value. It does not. Many astronomists believe that most gold on the planet resulted from impacts of meteors, either as a delivery system or a result of the violent impact. Ask yourself this, if a giant all-gold meteor where to impact the Earth, would we suddenly become wealthier? No, those of us that might survive would not care about gold anymore. Gold has value because we mutually agree it has value, in other words for the same reason fiat money has value. Milton Friedman spoke eloquently about this in his series Free to Choose.

Second, metal monetary standards promote the idea of wealth being a zero-sum game because there is only so much gold we have discovered. This is wrong, but it is also dangerous. Wealth is a human construct. Wealth and money, for that matter, are spiritual goods. Note, not religious, but spiritual, they are based on a belief system. For more on this idea, I highly recommend Rabbi Daniel Lapin’s book – Thou Shall Prosper.

In all, I agree with Wayne’s distrust and diagnosis of the poorly run government run monetary policy, but I disagree with his implied prescription of returning the United States to the gold standard.