12A011 Non-Standard Gold by Jim Davies, 2/25/2012    

The current race for the Republican Presidential Nomination has brought some useful revelations, of which the most interesting for me has been the crystal clear evidence that when the mainstream media ignore a pro-freedom spokesman, it's no accident. Their exclusion or marginalizing of Ron Paul's remarks has been unmistakably deliberate. Whatever the reason, the MSM bitterly opposes freedom.

The same is true of Conservatives, or at least some of them. Paul uses both terms to describe himself, and I've written at length about why he falls short in terms of real freedom, but the gap between him and his conservative rivals is immense. There is a savage attack on him in, for example, the National Review; a journal founded by Bill Buckley and usually seen as the bellweather of conservative opinion. The article focused on Paul's fine understanding of economics, and was expertly demolished last week by Robert Wenzel on LewRockwell.com.

I want to improve, however, on one of Bob's arguments, about NR's attempt to ridicule the gold standard. Scroll down it about 60%; it begins

"The drawbacks to a gold standard are well known. If industrial demand for gold rises anywhere in the world, the real price of gold must rise – which means that the price of everything else must drop if it is measured in terms of gold. Because workers resist wage cuts, this kind of deflation is typically accompanied by a spike in unemployment..."

Bob dismantles this by quoting Hazlitt as you'll see, but he doesn't point out what to me is its weakest aspect: the flaw it alleges relates only to a gold standard, not to free-market money. There's a big difference. Any "standard" is set by government; a decree is issued, that only gold shall be used as money, and that coins shall be minted in certain quantities and denominations, and shall bear the stamp of a US Mint, or whatever, and all that brings massive inflexibility. Money could change to some other form only after the machinery of committee reviews and congressional votes had cranked into action. Quite probably, by the time it disgorged its decision, circumstances would have changed again.

The National Review argument is interesting, for a key benefit of using gold as money is that government can't print it. So it's true, if demand for the metal should suddenly outstrip supply, prices will fall - there will be deflation - and that should include wages. People don't like having wages lowered, even though the smaller number of units will buy the same amount to useful stuff. So what will happen in that event in the coming zero government society? - which will probably choose gold as money, but not by decree - for there will be nobody to write decrees.

Answer: whatever the market decides, in its unrivaled wisdom. It will favor gold, I think, but will not be limited to gold. If gold becomes scarce, it may be supplemented by some other medium of exchange; silver, perhaps, or hard-to-counterfeit Walmart certificates, or anything else people trust. Or, indeed, the market may stick with gold because a small change in its purchasing power is inevitable anyway, as more or less is mined in a year (or converted from jewelry to coinage or vice-versa) or as production grows by varying degrees from year to year. Remember: the use of gold or any other medium cannot guarantee fixed prices, for those reasons; it can only guarantee that prices will not fluctuate because of artificial factors such as a government wish to wage a war or to favor political clients or even to pay down some of its debts - which have destroyed about 98.5% of the purchasing power of the US dollar in a single century. I think there will not be a wholesale flight from gold until the day someone discovers a mountain of it; not impossible, but quite unlikely.

The unfettered market - and the market alone - is well able to absorb unexpected events with the least possible disruption. It can and does turn on a dime... especially if the dime is made of silver.

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