David Frum on the Gold Standard
David Frum is on the warpath. In a National Review Online blog post, then an NPR commentary, and most recently in a National Post article, Frum has mercilessly ridiculed the gold standard. But as with most modern critiques of the "bad old days" of the laissez-faire 19th century, Frum's analysis is fraught with theoretical and historical problems.
Frum's main objection is that the gold standard is allegedly rigid, preventing the economy from smoothly adjusting to various shocks. Although Frum naturally doesn't say it explicitly, the only "cushion" that unbacked fiat money can provide is that it allows politicians to literally paper over crises, limping along from one to the next. Rather than having strong growth punctuated by acute — but quick — adjustments to new information, instead we have monotonous, sluggish growth. FULL ARTICLE
Comments (45)
Ron Brown
What exactly is meant by "...limping along from one to the next. Rather than having strong growth puntuated by acute - but quick - adjustments to new information, instead we have monotonous, sluggish growth." Are you saying we would still have booms and busts, but they would just be much shorter? If so, why?
Published: December 31, 2007 9:54 AM
Ty
Well at least he shows his ignorance in writing. Most writers just call the gold standard foolish and move one.
I really believe it would be impossible to remove the FED and return to the gold standard because there are too many people like Frum.
Having a legal competing currency is the only workable option. Then people will see for themselves what works best.
Published: December 31, 2007 11:05 AM
Michael Smith
In a free economy, on a gold standard, those who make foolish economic decisions pay for their mistakes -- and they have no power to harm others who did not participate in the economic foolishness.
By contrast, with a fiat money supply in the hands of welfare-statists, those who make foolish economic decisions generally do NOT pay for those mistakes -- and instead those who did NOT participate in the economic foolishness are made to pay in their place.
For example, consider the current mess with "subprime loans". Banks have made some terrible economic decisions -- loaning money to people clearly not qualified to repay, loans secured by property that is grossly overvalued. Now that those individuals are beginning to default, what SHOULD happen, if justice is to prevail, is that the banks who made the bad loans should have to suffer the losses, and the unqualified individuals should have to lose their homes.
But here comes the fiat-money fueled Federal Reserve to see to it that this mechanism is not allowed to fully work. To keep the incompetent financial institutions solvent, the Fed injects billions in new money. To keep the unqualified home owners from losing their homes, the Federal government "encourages" those institutions to "renegotiate" the terms of the loans.
So what happens? All this new money simply decreases the value of OUR money, the money of those of us who did NOT participate in the economic foolishness. Thus one group is made to pay for the consequences of another group’s actions -- which, incidentally, is the very definition of INJUSTICE.
Published: December 31, 2007 11:17 AM
Michael Smith
By the way, as far as "booms and busts" are concerned, the gold standard does not guarantee human rationality -- people still possess volition and thus will be free to make mistakes. The gold standard simply keeps people from pushing the financial consequences of their actions off on other people.
Published: December 31, 2007 11:22 AM
Paul Marks
As has often been pointed out, the problem with the Gold "Standard" was not that it was "rigid" it was that it was NOT "rigid".
It was not the case of gold-as-money, it was the case of gold-and-government-notes-and-bank-credit-as-money. Which is a wildly different thing.
If one wants to stop a bust (such as that which happened in 1929) one has to prevent the credit-money boom that created it. One has to keep to that "old women" principle that ALL borrowing must be financed one hundred per cent from REAL savings (not book keeping tricks designed to "lower interest rates").
The credit money boom of the late 1920's was created by Ben Strong of the New York Federal Reserve (just as the credit money boom of the last few years was created by the money supply expansion of Alan Greenspan).
Mr Strong wanted to prop the artificially high exchange rate of the British Pound - so he inflated the Dollar credit-money supply to achieve this objective.
And sooner or later every credit money boom leads to a bust - and the more credit money that is pumped into the system to delay the bust (as is now happening) the more distorted the structure of the economy becomes.
However, not every bust leads to a Great Depression.
For example, the 1921 bust (the bust of the World War One credit-money bubble) did NOT lead to a great depression - this was because the government allowed prices and wages to adust to the bust. So the economy was in recovery after about a six month slump.
Contrary to the myth Herbert "The Forgotten Progressive" Hoover and Congress did not react to the bust of 1929 by doing nothing - on the contrary they were hyperactive.
They were hyperactive in trying to prevent such things as wages adjusting to the bust (and in doing other things - such as increasing taxes on imports).
Thus the bust of 1929 turned into the Great Depression - with mass long lasting unemployment.
As for the New Deal "ending the Depression" - of course it prolonged it.
David Frum could clearly do with some basic education in economics and in history. Although, sadly, most universities would simply make his misconceptions worse.
Published: December 31, 2007 11:39 AM
billwald
For the last 6000 years the world has been on gold standard in one form or another and the stable economic position for most of that time has been maybe 5% stinking rich, 15% middle class professionals and tradespeople, and 80% working poor, slaves, and serfs. It has only been since WW2 that the bulk of the population has had a chance to join the middle poor.
Yes, in the 1800s many people "went west" and made their fortune stealing land and assets from the Indian People. In the 1900s American corporations exploited South American "banana republics" but the natives are catching on and there is little left to steal.
Our primary problem is that the Depression generation has mostly died off and 80% of the American population has never seen a day of real hard times. Neither I, my kids, or the grandkids have ever unintentionally missed a meal. The majority of the movers and shakers in the USofA have no concept of hard times and are unable to contemplate any consequences of hard times returning.
Published: December 31, 2007 12:09 PM
Grant
I really don't understand why so many people on Mises.org push for a government gold standard. The government ignored it whenever possible when we were on it, and I don't see anything to suggest that it wouldn't just ignore it in the future.
Really the only solution I can think of is getting the government the hell out of money.
Published: December 31, 2007 12:44 PM
DS
I thought National review was a "conservative" publication? Mr. Frum has parrotted the standard "liberal" position on the Gold Standard. That could have been written by any Democrat of the last 100 years. I thought "conservatives" were supposed to be about dismantling the New Deal, not defending it. I think the old saying is "there's not a dime's bit of difference between Democrats and Republicans".
There is a lot of economic tomfoolery here but I think it needs to be pointed out that since the founding of the Federal Reserve system the United States has been in recession one out of every 3.5 years. In the last 25 years the time between recessions has been longer, but so have the periods of stagnation accompanying them. I will admit that on balance in the last 25 years the system has been managed better than the previous periods due to "better" management of the printing press (until recently), a reduction in regulated industries and taxes. But this is simply a matter of degrees. Given the productivity improvements of the 1990's we should have seen a mild, healthy deflation in consumer prices, instead they rose at 3% a year.
But growth rates during the 19th century were significantly higher in times when the country was on the gold standard (that excludes 1861-1879) with much fewer ups and downs. But after 1862 the "National Banking System" was hardly a laissez-faire gold standard period, it was simply a central banking system with a central bank to create unlimited currency when the whole system over-extended itself.
I don't think anybody would claim the laissez-faire capitalism without of central bank would result in completely steady economic growth, but it is undeniable that central banks are consistent de-stabilizing institutions. The "shocks" that Fed is supposedly so great at combating are usually caused by the same institution.
This illustrates the single biggest challenge facing libertarians every where: Most of the failures of government-regulated capitalism have been mistakenly blamed on laissez-faire capitalism. Until we set the record straight, people like Frum will be able to hoodwink the public into ever more government.
Published: December 31, 2007 12:46 PM
Inquisitor
I agree with Grant, but I must wonder...
"What the gold standard really is, fundamentally, is a rule that the nation's monetary stock should be determined, not by central bankers, but by miners. Why that should be regarded as an improvement by anyone, I cannot understand."
Is Frum an economics illiterate? Would he trust central planners in control of any industry? Maybe, perhaps due to an ignorance of the calculation problem. Yet I fail to see why someone directly engaged in a line of production should be any less qualified and any more pernicious than some Ivory tower ignoramus central 'planner'.
Published: December 31, 2007 12:54 PM
Inquisitor
DS, you say 3%, but isn't this according to misleading government statistics? What is the actual rate of inflation?
Published: December 31, 2007 12:55 PM
Joshua Katz
I don't think too many people here push for a government-mandated gold standard. However, gold functions as a shorthand for free market money, since any time that people are free to choose, they choose gold and silver.
As for Mr. Wald, you are aware that feudalism is not a free market, correct? To claim that poverty - over 6000 years - is a result of the gold standard is preposterous. First, it is natural that each generation, left in peace, will be more propserous than the last, because inventions and production do not disppear. So there is no reason, absent government interference, for a generation today to suffer from the kind of poverty that you describe. Second, I could just as ignorantly proclaim that for the last 6000 years, men have had government, and there has been inequality. That argument would be just as ignorant as yours.
By the way, most countries today still live in the conditions you describe, and most have never had a free market. Some countries do not - and they have had relatively free markets. Your claim that it is only inflation which allows us to escape poverty would strike a resident of Zimbabwe as odd, I think.
Published: December 31, 2007 1:01 PM
fundamentalist
The standard neo-classical econ line on business cycles is that shocks happen. They are random and have no discernable cause. The Fed stands around waiting for shocks to happen and then runs to rescue the economy by changing interest rates. Of course, neo-classical (mainly Keynesian) econ dominates the press and is backed by academia. So why would we expect anything else from Frum? Until more people think like Austrians, we'll get more of Frum's kind of stupidity.
Dave Barry writes that the dollar has lost value against all major currencies and most brands of toilet paper. My hope is that OPEC gets tired of the dollar and switches to pricing oil in gold. I doubt they'll opt for the Euro because they're afraid of rumors that the Euro won't last. OPEC pricing oil in gold would be the best thing that could happen to the economies of every country in the world.
Published: December 31, 2007 1:51 PM
Matt
Lets face it folks, do we want dishonest money
i.e. money created out of thin air that benefits most those closest to the creators; this is theft!.
Or money that is tied directly to gold which cannot be created by the stroke of a pen or a click of the mouse.
It's a question of morality. Is theft OK?
Theft means taking from someone without their consent. Well folks that's what we have today,
no matter how it is disguised. The morality of Self Sacrifice drives this injustice, unfortunately the majority of the public is in agreement, therefore theft will continue. Oh how glorious for those in the counterfeiting drivers seat. Or so it seems.
Published: December 31, 2007 2:03 PM
Adam Knott
As libertarians, why argue for a gold standard rather than arguing for allowing individuals (who want to) to issue and to purchase the currency of their choice?
Why assume a monopolistically dictated currency standard, and then define libertarianism as the choosing of the "correct" standard?
This all results from the prevalent conception of libertarianism as but one form of political control over a geographical area, with the inevitable resulting conception that libertarian values (such as the gold standard) are to be coercively imposed on all others.
I for one, do not want to be told what standard the currency I choose to utilize must be based upon, and certainly not by a libertarian.
Published: December 31, 2007 2:07 PM
Grant
Joshua Katz,
When was the last time a free currency market selected gold? Gold was a government-backed currency in the USA since 1789. 30, 50 or 100 years ago I might agree that gold would be the thing to use. But nowadays, who knows?
Published: December 31, 2007 2:13 PM
fundamentalist
Grant: "I really don't understand why so many people on Mises.org push for a government gold standard."
It does seem to be a waste of time. Nothing will change as long as most people are Keynesian. I try to focus on making money from the business cycle that the Fed causes. The ABCT should help people time the market, and possibly know which stocks or other assets to hold at different points in the cycle in order to get superior returns. That seems to be what Mark Skousen advocates.
That may be a way to promote Austrian econ, too. If investors realize that they can make more money with Austrian econ, they'll want to learn more about it.
Published: December 31, 2007 3:06 PM
fusgerm
Adam Knott, you confuse libertarianism with anarchy.
Anarchy does NOT increase liberty. Anarchy is a system of coercion by the biggest bullies.
Asking for a government-mandated gold standard does not diminish liberty any more than asking governments to rigorously enforce private contracts. On the contrary, it defines the framework within which liberty can best flourish.
David Frum condemns the "inflexibility" of the gold standard. Well, contract law is also "inflexible". Governments can eliminate bankruptcy at a stroke by simply mandating an indefinite moratorium on all debt-repayments. That kind of "liberty" would be the harshest tyranny.
Published: December 31, 2007 4:52 PM
DS
"DS, you say 3%, but isn't this according to misleading government statistics? What is the actual rate of inflation?"
Sorry, I was being lazy. I was being conservative by using the governments own narrow definition of consumer inflation, a number that is skewed low for a variety of reasons. My inadvertent point was that even by the government's number that I believe understates the real amount of inflation in the economy, the inflation rate was way higher than it should have been given the long term economic trends previling during that time.
The real inflation rate at any given point in time or any given time period warrants a discussion all it's own. I would love for somebody to come up with a comprehensive, objective inflation rate that takes into account all possible prices (consumer items, producer prices, exchange rate, commodities, assets, etc) in the economy, properly weighted. But I'm not sure that there is one number, since every person and business experiences inflation differently. Some benefit, some are hurt, how do you express that in one, universal statistic?
But I digress....
Published: December 31, 2007 5:20 PM
Curt Howland
So long as there is a government, it must have some basis for calculating taxes. That is why a "value" must be placed on _something_ by government. "To coin money and regulate the value there of."
A completely free market in money cannot exist as long as there is taxation, because whatever it is that government requires taxes be paid in will have value as, if nothing else, a payment for taxes.
Published: December 31, 2007 6:53 PM
Inquisitor
'Anarchy does NOT increase liberty. Anarchy is a system of coercion by the biggest bullies.'
Whereas statism is just one bully, prohibiting anyone else from participating in their game, and pretending to be moral and just on top of it. Yes, very libertarian indeed.
Published: December 31, 2007 6:54 PM
Grant
fusgerm,
I believe Adam Knott is quite aware of the distinction between minarchism and anarchism. You are correct in that a government-enforced gold standard doesn't necessarily restrict liberty as long as the government's money is not forced on anyone or favored over free-market money in any way. However, governments throughout history have forcefully monopolized currency when they've had the chance to do so. Totally denationalizing money would make this much less likely to happen.
Published: December 31, 2007 6:55 PM
Black Bloke
Now do an article on Megan McArdle.
Published: December 31, 2007 8:01 PM
TLWP Sam
As it was pointed out before in a gold coin economy gold inflation would at the whim of miners. Yet the view here is that most gold not has onl been mostly mined, but, presumably, most gold was probably mined in ancient times such as Greece and Rome when the gold to dirt ratio would make modern gold miners envious. Yet here are graphs showing gold production over the years:
http://www.goldsheetlinks.com/production2.htm
Published: December 31, 2007 8:30 PM
Niccolò
It seems that Frum certainly is on the war path as he has included a new blog in response - checking the blog posts for Mises.org frequently. I would reply directly to him if his blog allowed comments, but seeing as he must be away on his computer reading us as we speak like a nervous adolescent waiting at the phone for the call from that attractive young girl at school, I'm sure he'll receive the message - unlike the younger Frum with the high school cheerleader!
http://frum.nationalreview.com/post/?q=Njc3YWJjNzU4NzA4Nzg4OTEzZGIzOWRiOTE1YjIxOWU=
Don’t worry, Murphy, this guy seems like a chump with the understanding of a third grader. Not much to worry about, but I thought I’d write this just for fun.
In Reply to David Frum:
First, I'll remark quite candidly that I am not a Ron Paul supporter as Frum assumes everyone here is. If you were to read my blog at, http://catholicmarketanarchy.blogspot.com, you would see that I make no mistake in claiming my intent to persuade people away from the likes of Ron Paul, as well as the whole damned rape-orgy called "politics" in general. Furthermore, I do not consider myself to be a pure Austrian, but rather much more an Austrian eclectic with significant favorability for orthodox Walrasian economics. With that being said, I hope I've cleared something up, mainly that the "goldbugs," as the confused and apparently illiterate Frum would call us, are not in a chorus of agreement on as much as he would so foolishly portray it.
A Critique of the Three Commandments in Frum’s Monetary Propositions:
Or, How Economists are Dumb
Reading Frum's blog I can understand why he appears so confused by a different perspective on monetary policy not reflecting the establishment paper and cotton standard. After all, knowing that the current field of academia in universities are rather skimpy on monetary issues - assuming all has been found that needs to be found and the magical Bernanke will take care of us like Dumbledore at Hogwarts - his understanding of economic phenomena may well be based in his own accusations against the Austrians, "like any muscle, the mind only grows when it encounters resistance." Yes, old chap! You're correct! The mind only learns when it experiences a degree of resistance, and so given the current air of modern discourse on markets, monetary policy, and political economy pervading the irksome atmosphere of Negligible Review Online, it would seem apparent that the application of this quaint remark lies more properly on Frum's side.
Starting the article's body with Frum's Three Commandments of Money, he assumes, with his great talent at writing predictably, predictable articles, the mantra of the Keynesians, Orthodox, Chicago, and New, that as a proper facilitator of economic discourse money - Shalt stabilize prices domestically, Shalt stabilize currency-per-currency ratios, and Shalt also maintain the ability to exchange for goods and other currencies.
Two things off the bat strike me as indicative of Frum's extreme and embarrassing ignorance of a realist-causal understanding of economics.
In the context of a gold standard, as Frum applies his Thou Shalts to the 19th century "gold standard," currencies would not have been considered in the same light of modern currencies measuring the ability to exchange X for Y at a different price so much as they would have been mere banknotes representing X and Y's WEIGHT in gold with no real reason to trade currencies other than to facilitate familiar exchange with foreigners in another nation.
Aside from his misinterpretation of the nature of currency in the 19th century to its nature today, we can see that Frum's commandments, among other things, are blatantly redundant. Proceeding with the desire for money to maintain a stable relationship with other currencies in the second commandment and then proposing that one currency should possess the ability of exchange for the currencies in the third commandment, Frum seems to believe that there represents a real difference between the two suggestions in the context of the gold standard, thus indicating he either neglects to follow up on the facts or he is simply too incompetent to dig much farther past the pavement. The two issues here described are issues, at a logical conclusion, that mirror each other perfectly as identical in nature and thus undistinguishable as policy suggestions. The only difference I can conceive between gold possessing a "stable relationship" with... er... other golds (I believe these golds are found on the Forbidden Planet) and the ability to exchange that gold for... er... those other golds, lies only in the addition to the third commandment being the question: Does it act as a media of exchange? Outside of this, however, Frum seems to be mistakenly applying the nature of money under a gold standard to money under a fiat standard.
Under a fiat standard, yes, the competition of one currency’s “value” to another currency does exist, however, under a gold standard all currency falls under the same umbrella of representation in gold thus making it so that no competition between currencies can really exist – though private banks can always compete. Likewise, with no deviation in money standard from gold, one can not really buy other units of gold money for other units of gold money. Though all of this will seem rather nitpicky, however, the importance in understanding the nature of money under gold and the nature of money under fiat must be considered a requirement to be taken seriously on monetary issues. In either willfully neglecting or being incapable of fully understanding the rudimentary definitions, terms, and formulas associated with monetary phenomena, Frum essentially cancels himself out as any kind of authority on the nature of money, monetary policy, and most certainly as a critic or responsible adult capable of making educated and intelligent recommendations for the economy.
Aside from the issue of the two redundant commandments forged through the stone of Frum's uninspired misunderstanding of economics, he also commits the gravest error of modern economics more common to his profession being the value of money, the nature of money, the position of money, the flexibility of money, and the price of money. In fact, Frum presents so many amateur mistakes I am continuously wrestling with myself which pedestrian viewpoint to attack first.
First, let me address the issue of the stabilization of prices in a historical perspective, as this seems to be the only language Frum is willing to speak in - though with what level of comprehension is another question. The written dogma concerning the desire to stabilize prices does indeed spread far throughout the academic sphere of economics. Looking from Friedman to Schwartz, I can not help but see the answers to the question on why economics is such a dismal and pathetic science. After all, it would be expected that after a policy is attempted once and fails so miserably as to cause the greatest depression in economic productivity known, why would it be attempted again only on the eve of one century later? I am of course here referring to the Federal Reserve's policy in the 1920's promoting the same price stabilization and pure-quantity theory of money policies that Frum touts as delectably divine and precisely the correct ingredients for a stock market not yet reaching its full potential, but merely shaking off those lunatic fringes.
As indicated statistically, during the 1920's the actual price level and the number of "dollar bills" in the economy remained fairly stable; contrary to these events, however, during a time of economic productivity seen in the 1920’s the prices of goods should have actually been in a gentle decline matching the efficiencies developing in the economy. To discover the reasoning behind these peculiar and economically distorted events, one should look to the policies of the Federal Reserve influenced by the price stabilization doctrines presented by Irving Fisher, Ralph Hawtrey, and Gustav Cassell. Presenting a course of policy advisement contradicting the necessary flow of the market, these policy advocates are to blame for the distortions in the economy with a stable price and dollar bill level during a time where credit expanded by 61% from 1921 to 1929. The toxicity of this increase, with an artificially generated stability in prices as an indicator of inflation accompanying the economic understanding of the day, caused a mismatch within the economy skewing consumption and capital production causing a wide array of malinvestments sucking resources and capital from the economy into unstable and unprofitable roundabout projects. Given the history of artificial stabilization in prices, it is a wonder why Frum adds this as a commandment, but without his understanding of the relationship that the real pool of capital possesses with the business cycle, one can make a successful guess.
Though of course, the history of an event can always be correlative and not causal, any objection to the history of price stabilization theory will speak volumes of the flaws associated with the current practices and methods espoused within Frum’s own line of academics. Due to the fact that history can not be proven without logic and reason, let me explain the theoretical flaws within the modern fiat hegemony and their justification for existence.
As an "economist" it seems that Frum's level of understanding and interpretation of historical figures reaches no farther than a quick click to wikipedia.com and a cut and paste job from his favorite inflationist rambling on about the horrors of falling prices - *gasp* my productivity is increasing at the efficiency so that I can charge LOWER prices for MORE people and still earn a PROFIT, oh no!
Indicating his naivety about the monetary effects of a gold standard - never mind the implementation of gold as a money now; if Austrian monetary theory is too hard for him, he'll never understand the complexities and sophistication of what this website is supposed to be devoted to changing in terms of social and worldwide impacts - Frum looks at historical examples blindly and with no ability to explain what they truly mean like a child capable of spelling nominal, figures, don’t, represent, and reality but still so feeble minded as to point to declining prices in the late 19th century as a sign of the apocalypse that only the creature from Jekyll Island could abort.
In a quote Frum expresses his true incapacity to understand the issue, "gold is a commodity. Like all commodities, its price is highly volatile. A money fixed to gold must be highly volatile too. Signing up for a true gold currency would be signing up for an unending monetary roller-coaster ride."
First of all, Frum gold as a commodity-money is different from a "commodity" in the sense that you are using. Like a standard commodity mediums of exchange are indeed capable of trading, but only as a medium of exchange for represented use. This representative nature of money should not, however, be meant to confuse people on how prices are formed and the relationship money has with the formation of those prices. This seems to be the number one problem men like Frum possess in understanding the economics of monetary phenomena. Indicating his ignorance or neglect for the finer points of monetary assets and the influence those assets have on the prices of goods through the promotion of artificially established "price stabilization mechanisms," Frum merely regurgitates a common tenant among most inflationists and monetary crackpots: That the increase in the money supply has a direct, proportional, and constant effect on the prices of goods and that through stabilizing the price level one can adequately plan out the economy.
The common aspect here for most men like Frum focuses on a type of given equation for the price of money and the price of goods. Due to the prevalence of simplex graphs and math equations as helpful to economic understanding as games of sudoku, the Frums of the world take the graceful movements of the monetary sphere for granted, misrepresenting the price of goods through assumed constant levels in the supply and demand for money in relation to the supply and demand for a good. For example, say I demand a pig and at a ceteris paribus level in the money supply/demand, the price of the pig would equal $10 given the pig farmers supply of pigs. Is this the actual price of the pig? No! Prices are much more complex than that and though they do take into account the demand for the pig to the supply of the farmer, they also take into account the supply of my dollars and the demand the farmer has for more dollars, not to mention the external demand/supply for money given whether monetary intervention exists or not. This process, however confusing in text, works perfectly on the market, just not perfectly within the artificial equations and nominal figures presented by “economists” like Frum. In the free market economy without government, money fluctuates perfectly with other goods on both an individual and social basis so that as Benjamin Anderson explained in his great treatise entitled, The Value of Money, as the supply and demand for goods never remains at a constant level causing prices of goods to forever fluctuate, so to does the supply and demand for money, only here with money the prices represented by its supply and demand tend to fluctuate along with the supply and demand for goods thus leading to a situation of dynamic stability, or real stability not seen in the nominal text glorified by the old, inadequate, deceptive establishment “economists.” The free market economy does not thus develop into a special form of chaos due to “deflationary trends,” but rather it evolves and fluctuates in the terms of real prices for dynamic stabilization and uninterrupted growth promoted with the perfection and grace that only the free market can obtain. The free market proponents contrasting to “economists” like Frum deceptively promoting nominal data and misinterpreted views of history lessons from wikipedia in the place of reality thus approach the situation of economic reality from a causal comprehension not understood by pedestrian viewpoints on theoretical economics represented in the pathetic light of current establishment beliefs making the dismal science so very dismal.
Rejecting the planned economy applauded by bumbling, mumbling, crumbling Frum and looking at economic reality with something more than a 1980’s supply-sider education as impressive and sophisticated as a 1980’s hairdo, one can understand why Frum’s Three Commandments are representative of a man out of his league with real economic theories capable of holding more than Canadian beer. Unprepared for the theoretical education that the establishment’s opponents in the realm of economic philosophy have been honing, I personally suggest that Frum and his pals from the dismal and intellectually stagnant 20th century go back to the cocktail napkins and figure out a new line of work – because to repeat a cliché, the future is now, and these guys are way over their heads.
Published: December 31, 2007 8:52 PM
Inquisitor
Mining and printing paper is not the same thing...
http://www.classroom.mises.org/daily/2771
Published: December 31, 2007 9:14 PM
L.R.
Haha. Ditto on Megan McArdle. Half her posts are unusually thoughtful, half are her talking out of her ass.
Then do one on the New York Times' Week in Review article this weekend about the housing market. The housing market is way too complicated for ordinary people to figure out...but it's not too complicate for the federal government to envelop the industry in regulations.
We live in troubled times for anything approximating reason...
Published: December 31, 2007 9:27 PM
TLWP Sam
The point of the link was . . .? Perhaps government intervention might be a good thing. If gold mining becomes unprofitable then there's no threat to existing gold stores and Peak Gold has arrived and the price of gold can only rise . . .
Published: December 31, 2007 10:01 PM
Francisco Torres
For the last 6000 years the world has been on gold standard in one form or another and the stable economic position for most of that time has been maybe 5% stinking rich, 15% middle class professionals and tradespeople, and 80% working poor, slaves, and serfs.
"The world"? Nope - only a few societies used gold as a medium of exchange until (almost) recently. What drove people out of poverty was not fiat money, as you have tried to imply for so many years since I've visited this website, but rather free(er) capital investment and division of labor. There is no relationship between poverty and the use of gold as money.
Published: January 1, 2008 4:30 AM
Inquisitor
The point of the link was . . .?
For you to get a clue about what mining actually involves. My grandfather was in the mining business for years as a foreman, and the article more or less mirrors his experience. It is nowhere as easy as just printing money. Miners 'controlling' the money supply is largely a red herring.
"Perhaps government intervention might be a good thing. If gold mining becomes unprofitable then there's no threat to existing gold stores and Peak Gold has arrived and the price of gold can only rise . . ."
It is never good.
Published: January 1, 2008 8:43 AM
TLWP Sam
The only real way new gold wouldn't inflate would be if the amount of monetary gold was a pretermined size and newly mined gold was not allowed into this pile but rather find its way into becoming jewellery. After all, if monetary inflation is simply more notes being printed then gold stock is inflated with newly mined gold. To say there are gold coin hoarders and people who own gold jewellery and this cause stability or even deflation, you could say that there are people who hoard cash and wallpaper their rooms with notes. But all the gold is still there somewhere. However, a big question is for the risks of mining how is it mining companies can keep bringing in more gold and feel confident they can keep brining in more gold in the future? A second is if this statistic is true - 80% of all gold ever produced was produced since 1900 - shows that gold is best recovered with methodical extraction and is not the pot luck of people with picks and shovels and pans in ancient times.
Published: January 1, 2008 9:59 AM
Inquisitor
And why would this inflation be anywhere near the level caused by printing paper money, when gold is much, much harder to extract?
Published: January 1, 2008 10:11 AM
Richard
How else to control the avarice/greed inherent in use of fiat currency than THE GOLD STANDARD?
Regarding America's steep financial/economic decline, read my essays in here:
Corporate America: What Went Wrong?
http://corporateamericawhatwentwrong.blogspot.com/
P.S.
Why isn't there a class-action suit developing for all those ARM holders, in light of the fact that Allen Greenspan had CRIMINALLY violated his chairmanship duties at the Federal Reserve when he publicly advised prospective home-buyers TO TAKE OUT ARMs; that is, any information related to the housing market coming out of Greenspan has tremendous weight, regarding whatever INSIDE INFORMATION the chairman may possess, so that any of his comments which might influence how prospective home-buyers purchase their mortgages makes him - and the Federal Reserve - liable if home-buyers are damaged by his advice (by the way, when Leslie Stahl interviewed Greenspan on 60 minutes recently, she had asked him about whether or not he had had a conflict of interest in routinely visiting the White House during Bill Clinton's second presidency, to which question Greenspan had DECEPTIVELY answered: "We are one government," and which response Leslie Stahl failed to remark to him that the Federal Reserve is a private, share-holding concern---NOT A U.S. GOVERNMENT AGENCY).
Published: January 1, 2008 10:36 AM
Michael A. Clem
I would think that the point of commodity-based money, like the gold standard, is that the amount of the commodity is the limit to the amount of currency that can be printed. While the commodity can certainly increase, it still increases much less than fiat money and the printing press.
In any case, the real solution is to get government out of the money business. A difficult task, I realize, but that's the only way we can be sure of monetary stability. Governments going on a gold standard would be better than the current system, but why only do a half-measure?
Published: January 1, 2008 10:37 AM
lester
what is it that the neo conservatives DO know about? they 've admitted most of their ideas about foreign policy did not come from "on the ground" experience, which they feel is "overrated" or that's what Bill Kristol said in 03.
pottery? field hockey? is there ANY area in which mr david Frum is something resembling knowledgeable? what purpose do these supposer-gadfly's serve?
Published: January 1, 2008 1:05 PM
Geof Narlee
Frum's latest makes the observation that prices had larger year/year swings during the gold standard period. Clearly, during the civil and first world war, there was great inflation. I know Lincoln circulated greenbacks. I know that the Sherman Silver act of 1890 I guess took us off the gold standard? Not sure exactly what happened in WWI. Do we know to what extent government intervention "took us off" the gold standard in the interim periods as well? Murphy says something about "bank holidays."? Is that the same?
Published: January 1, 2008 7:17 PM
fundamentalist
Frum is simply doesn't know any history. He just makes it up as he goes. The lates time period we had a serious gold standard was the 19th century, and much of that time gold backing was ignored and paper money flooded the economy. All of the financial crises of the 19th century were caused by explosions and contractions of paper money, not gold. In the 20th century, the US was on the gold standard in name only. Paper money dominated and the Fed had no concern for the value of the dollar in terms of gold. Thanks to the Fed, the 20th century enjoyed both the lowest interest rates and the highest (the greatest volatility) of any previous century. And guess what? The highest rates occurred in the 1980's because of record price increases. The 19th century never saw such sustained price increases, just temporary blips due to war. The Fed blessed us with huge price increases for almost two decades during peace time! What a record!
Published: January 1, 2008 7:29 PM
jeffrey
The core of Frum's problem (judging from his reply to Murphy) is his longing for a "stable" price level. 1) There is no such thing absent price controls, nor should there be in a market in which prices movements are specific to trades and radically disaggregated; 2) There is nothing wrong with a general decline in prices over time, since it only means rising purchasing power; in a free market, the experience within the computer and software industries over the last 15 years would be the norm.
Published: January 1, 2008 8:17 PM
Geof
Dear Fundamentalist,
Could you suggest a source that catalogues or tracks 18th century government interference w/price occillations? Thanks. I suspect the problem is more that than gold-standard/not gold-standard.
Published: January 1, 2008 8:26 PM
lester
Geof- I'm a rank amateur on these issues but Ron Paul's book on the gold standard covered the monetary issues of the 1800's in as much depth as i've ever seen. and earlier.
Published: January 2, 2008 9:41 AM
fundamentalist
Geoff, I don't know of any book that covers the the 18th century, or the whole of the 19th century. A good place to start is Rothbards book on the panic of 1819 and any of Rothbards histories. I have picked up what I know from bits and pieces of other books.
Published: January 2, 2008 1:21 PM
fundamentalist
Geoff, "A History of Interest Rates" by Sydney Homer has detailed info on interest rates for the US for 2 centuries and some pricing data. But he uses Keynesian explanations for changes in prices. Also, go to http://eh.net/hmit/gdp/ and you can type in the years 1800 and 1900 in the boxes at the bottom of the screen and get price indexes for those years. You can put those in Excel and get a graph of price changes for the 19th century.
Published: January 2, 2008 1:36 PM
lester
I think Frum is grasping for an oprah-fied / dumbed down way of writing off one of Ron Pauls main selling points. I answered my own question: THAT is what the neo cons have their expertise in.
Published: January 3, 2008 10:06 AM
Edna Netzke
One of the reasons people are buying gold is to prepare for My2K in five years. I don't really believe it will be the end of the world. But it will be somewhat like Y2K.
Published: January 4, 2008 7:08 AM
Geof
Thanks, guys. Will check out those sources. I usually find that the facts bear out libertarian propositions. Too bad facts have little influence on popular opinion.
Published: January 13, 2008 12:54 AM
Dai Jones
I like the cut of Fundamentalist's jibb, so would like to pose a question. What do you believe would happen to various asset values and currencies if Russia were to revert to a gold standard? They woud appear to have the wherewithall to do so.
Published: October 2, 2008 4:16 PM