So, last week I said nice things about George Will, but today he was back in usual form, pontificating about economics without even the cover of having a last name that might make not well informed folks sort of take him seriously, as some of his WaPo colleagues sort of do. Anyway, there he was, visiting the Richmond Fed and getting all worked up about a 401.75 troy ounce bar of gold on public display, worth about $14,000 in 1952, but now supposedly worth "about $642, 800.00." He makes not entirely idiotic or ignorant remarks about the role of Richmond Fed prez, Jeffrey Lacker, as leading dissident to recent Fed decisions. One can disagree with Lacker's views on the near term dangers of inflation (as I do), but while Will quotes him extensively, it appears that he never actually spoke with Lacker during his visit, or if he did, Lacker somehow failed to provide any specifically juicy items for the Great Will to bloviate about after quoting.
And I am not surprised, as Will falls into something that I am sure Jeffrey Lacker has no interest in encouraging, namely gold buggery. Indeed, I am unaware of a single living professional economist who advocates a return to the gold standard, even though physician Ron Paul was for it. I am thinking of such possible candidates as my friend Larry White of George Mason, one of the leading advocates of the Austrian Hayekian free banking theory that supports shutting down central banks and letting the private banks create currencies on their own. Indeed, Larry supported the recently shot-down proposal in the Virginia legislature for a study of a possible Virginia currency. While Delegate Robert Marshall, who introduced this bill, clearly would like VA to issue gold coins as the Commonwealth currency, the bill was only to study this, and Larry very carefully did not support the idea of gold coinage but only a study of a competing state currency. Lest any of you think this is merely some rightist fantasy, I note that another friend of mine, Post Keynesian MMT theorist Mat Forstater of UMKC, has in the past supported the issuance of separate currencies by Argentine states.
In any case, not only do neither Larry White nor Mat Forstater support a return to the gold standard to the best of my knowledge (either of them or their friends can correct me if I am wrong in this assertion), neither even remotely does Jeffrey Lacker, a student of Tobin's student Don Hester at Wisconsin, who continues to praise his student, something he most certainly would not do if he suddenly started spouting truisms of William McKinley as the guide to monetary policy. Not only do no professional economists support a return to the gold standard, neither does any government on the planet, nor even any faction within any government on the planet that I know of, including even most notably in nations that produce and export gold, such as South Africa and Russia. Hell, if this was a big deal that authoritarian jerk Putin would be playing this card, but as someone who knows some of his top economic advisors, I can assure everybody that this is not even remotely near being on his plate of annoyances to bother others with.
So, after all this we have the ever-pompous George Will telling us at great length about the changes in the price of gold over time, as if this mattered one damned hoot. Without a shred of support from anybody at the anti-inflation Richmond Fed, he sneers at the upcoming centennial celebration of the Fed: "So, before blowing out the 100 candles on the Fed's birthday cake, consider the perverse result of current Fed policy: Although money is promiscuously printed to keep interest rates low, credit is tight as money flows toward high-return assets. Such as gold." Really. That is what he wrote.
I shall simply note that if one cherry picks say 1952 and compares the price of gold then to it about a year and a half ago, wow! But the price of gold peaked at over $1900 an ounce back then and is now down to under $1600, with Will noting its current value, while somehow failing to note that this is a significant decline from recent heights. So, sure George Will, companies may not be engaging in large scale capital investments that would raise employment more rapidly, but it is not because they have been putting their money into gold so that it could fall from $1990 an ounce to $1600. No way.
Barkley Rosser
PS as of afternoon 3/1/13: Larry White corrects me in Comment 3. Briefly, he supports a return to a gold standard within a free banking setup. He says other academic economists also supporting it are Steven Hanke of Johns Hopkins and Joseph Salerno of Pace.
Hmm! I make a lot more than I did when I was 16 years old. Maybe my salary is the cause of our economic woes.
ReplyDeleteI have had private comments from both Larry White and Mat Forstater. Larry tells me that he does support a gold standard version of free banking, which he will elucidate further somewhere or other.
ReplyDeleteMat tells me that he views the Argentine state currencies as "complementary" rather than "competing" with the national currency. In this I suspect he differs from White, particularly allowing state-based currencies, wheras Larry really wants private banks providing the currencies.
I suspect, however, that both of them would be sympathetic to local and spontaneously developed alternative currencies such as Ithaca Hours, which also appeal to my anarchist/utopian side that likes worker-managed co-ops and all that. However, I do not see such currencies as serious general alternatives to national currencies.
Barkley, I am in fact on record recommending a return to the gold standard. As you note, Hayekian free banking theory "supports shutting down central banks and letting the private banks create currencies on their own." Because the monetary standard (medium of account and redemption) is a network good, something else would take that role over from the fiat dollar. (I could be wrong, but I don't think Hayek's idea of competing private irredeemable currencies would pass the market test.) The gold standard is a plausible candidate with a good track record before central banks started mucking it up.
ReplyDeleteAnyone interested in my arguments can see my three pieces linked on this page that have "the gold standard" in the title.
http://www.cato.org/people/lawrence-white
Or Google for my paper "Recent Arguments against the Gold Standard".
Granted, it's a small minority position, but there are other professional academic economists in favor of a gold standard. One is Steve Hanke of Johns Hopkins University (http://www.thegoldstandardnow.org/press/docs/pdfs/Gold-Based-Currency%20Board,%20Please-May-2012.pdf)
Another is Joseph Salerno of Pace University (http://mises.org/document/5827/Money-Sound-and-Unsound).
Part of the problem here is what "support" means. My preferred monetary system would be one of competing private fractional reserve banks, with the reserve commodity a commodity bundle rather than a single commodity. But by that criterion—do you consider a gold standard the best possible monetary system—you would have a hard time finding an economist interested in such matters who supports the present system, since any such economist probably has ideas about how it could be improved in one way or another.
ReplyDeleteBut if the question is "would the world be better off if it had remained on a gold standard instead of countries switching to pure fiat money," I think the answer is that it probably would be.
The disadvantages of the gold standard are that it ties up real resources and that the price level depends on exogenous forces mostly outside of government control. The advantage of the gold standard is that the price level depends on exogenous forces mostly outside of government control. The history of the 20th century, including hyperinflations that would have been impossible under a gold standard, suggests that the advantages may well outweigh the disadvantages.
You can find a fuller account of my views on money in an old piece of mine on the Cato site.
http://www.cato.org/pubs/pas/pa017.html