Sunday, August 17, 2014

It's Not the Gold, It's The Standard.

It's not the gold, it's the standard that is important. Or with apologies to Robert Frost good fences make good legislators.
Whenever the idea of returning or not to some kind of gold standard backing of currency is discussed
both sides seem to focus on the gold (barbarous relic etc) which is in fact a secondary issue.  The critical portion of the debate is the "standard".  The standard merely needs to be a real item of measurable quantity and useful intrinsic quality, it need not be gold. It could be silver, barrels of oil, bushels of corn, or tons of iron. Gold just has some useful advantages.
But the important part is an unambiguous value for the standard. Paper or fiat currencies have many conveniences but ultimately must rely on the integrity of the governing authorities. Unfortunately the governing authorities have inevitably failed this task. Throughout history failed every time, I repeat, every time.
The standard acts as a fence or boundary reining in abusive fiscal behavior. Governments grow and assume more power when unchecked, apparently this is just part of human nature. When the public users of a currency have the ability to express concerns about excessive spending and currency creation by turning in the paper and demanding the promised standard (gold, corn or whatever) it acts as an important brake on bad governing behavior.
Paper currency and legislators are like an un-fenced yard full of puppies. Sooner or later something shiny is going to draw them into the street.
Good Fences Make Good Currencies too.

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