Salerno on the Gold Debate
Speaking at Penn State, Joseph Salerno lectured on the gold standard. Here is a report from the student paper:"Even drug dealers have stopped accepting the dollar," Joseph Salerno said during a speech entitled "The return to the gold standard" last night.
Salerno is a professor of Economics at the Lubin School of Business at Pace University and the editor of the Quarterly Journal of Austrian Economics. He presented the speech during an event sponsored by The College Libertarians in 262 Willard.
The point of Salerno's speech was that since the U.S. gave up on the gold standard in 1933, inflation has caused the U.S. dollar to continually lose value.
"Inflation is a secret tax that affects people who don't get new money right away," Salerno said.
Salerno even blamed the length of recent wars on paper money.
"Paper money causes wars to be longer because people don't have to pay higher taxes," he said.
He called the gold standard "golden handcuffs" because governments can't fabricate gold.
"Under the gold standard, prices tend to fall," Salerno said.
Alex Weller, Penn State College Libertarians president, said the current economic system in the U.S. gives too much power to the government.
"It reduces freedom and liberty, and the goal of libertarians is to restore freedom and liberty," he said.
Weller said the College Libertarians are in the process of forming a club called the Austrian Economics Society, which will focus on economic matters that are important to Libertarians, such as returning to the gold standard.
Nicole Ritschel (freshman-political science) is a member of College Libertarians and said she thought the speech was "amazing."
"There's so much trouble with the economy, and mainstream politicians don't have solutions," she said.
Salerno said returning to the gold standard would be difficult but not impossible.
"It's like putting Humpty Dumpty back together again, but we can do it," he said.
Comments (11)
'Salerno said
'returning to the gold standard would be difficult but not impossible.
"It's like putting Humpty Dumpty back together again, but we can do it," he said.'
theres a very easy way that can be achieved at the stroke of a legislative pen. Simply leave the current status quo as it is, but remove the legal restrictions on the use and free trading of gold bullion by and between anyone who wants to.
Then sit back and watch as 2 things happen.
1. Many people will start using gold as the basis for contracting and future debt settlement, ( not necessarily in actual ounces of bullion - it might be .....payment to be made 2 years hence, the USD/GBP/EUR equivalent of 20 ounces of fine gold at the ruling market price on that day),............ freely negotiated between the parties according to their own wishes, and
2. Over time, the fiat currencies that persist will all land up effectively indexed to gold at a range of floating discounts proportionate to their home territory's government propensity to debasement, or inflation.
voila - a de facto gold standard that will have emerged naturally from ordinary economic activity between people doing what seems most sensible to them .
Come to think of it, theres no reason why a range of commodities wouldn't emerge as effective parallell currency standards - platinum for instance - indexed against one another AND against the fiat currencies.
Published: February 28, 2008 8:51 AM
Yea, the Humpty Dumpty analogy didn't work for me. I'd reserve it for putting this nation's finances back together again.
Returning to the gold standard simply requires to let it happen. The US Treasury has for years prosecuted (often with trumped-up charges) anyone competing against the dollar. Whether it be electronic gold grams or silver certificates. We wouldn't have gotten off the gold standard without draconian laws in the first place.
Gold is money, and what we've been using is not unlike the special corporate money which factory workers are paid with and can only be redeemed at their own store, keeping everyone in debt shackles. Until we frame the struggle in those terms, we'll be in those shackles forever.
Published: February 28, 2008 1:43 PM
I was at the speech last night and Dr. Salerno DID mention that it would be easier to just repeal the gold tender laws. The "humpty dumpty" comment was directed towards the other more complicated methods of going to a government backed gold standard.
All in all, great speech by Dr. Salerno.
Published: February 28, 2008 2:42 PM
I believe there is no longer any prohibition on pricing contracts in gold. Today the deterrent to gold based transactions is to be found in the tax law. Changes in the value of gold relative to the dollar are treated as profit. I think if the government exempted gold value fluctuations from taxation the dollar would collapse immediately.
Published: February 28, 2008 3:19 PM
Yes, (legal) futures contracts for gold already exist. Also there exists (legal) companies like goldmoney.com.
Dave hits on the real problem: appreciations (or inflation if you prefer) in asset prices are taxed... although I believe this only happens if the gains are realized through the sale of the assets in question. Please correct me if I'm mistaken.
Published: February 28, 2008 4:29 PM
I apologise in advance for the somewhat rambling nature of this comment.
When we replaced metal-backed paper money with federal reserve notes, who got all that gold and silver? It certainly didn't vanish, and as far as I'm concerned, whoever ended up acquiring it has no true legal claim to it. Although our money is not currently backed by gold, the only reason it has any value whatsoever is because there is demand for it, and the only reason demand exists for it is because the money of the United States was at one time backed by hard money.
Since whomever acquired the gold and silver did so illegally (under natural law), I see nothing unethical about us ceasing this money. And although I see the government as an illegal entity, I see nothing explivitely illegal about the government re-distributing the gold and silver back to us.
Of course, if those that seized the gold and silver from us sold it to a third party, it should not be the third party that is forced to incur the debts, but rather the second party that stole it from us and fraudulenty sold it to the third party.
Although I obviously have no problem with gold and silver bullion being legal, nor any problem with allowing gold to go untaxed (or any problem with abolishing taxation), given what I said previously about the state, I have to wonder if that's the best solution, or rather the only thing we should do. Since the Federal Reserve Notes only have demand and subjective value because of residual effects of there having at one time in American history been a hard-money standard, it would seem that those of us who have worked for money and been given Federal Reserve Notes instead deserve real, hard-money, and that by solely (and nothing more than) getting rid of laws against bullion or tax-codes discouraging the use thereof, we'll leave a lot of people--those who don't know much about hard money, investing, &c.--getting screwed over in the conversion. (This may inadvertantly help the socialists, who will surely claim that libertarian policies help create a gap between rich and poor that is far too wide--when in fact it is the government medling that caused the problem in the first place. Nonetheless, it may turn people off to libertarian solutions and to the free market, as far too few will listen as we try to explain the difference between the free market and state capitalism.) Further, simply changing those laws would still leave the gold and silver, which was stolen from us, in the hands of the looters, thus helping them profit in the coming change-over from their crimes. Surely we don't want that. So we need to have some way to re-distribute the gold and silver back to us, the rightful owners, preferably based in some way on how many fiat notes one currently possesses (again, because the subjective value of those is a residule effect of the former gold- and silver-backing).
The problem for me is that I do not know how--or even who got the gold and silver when it was looted. Nor do I know the history of what happened to that gold and silver once it was looted.
But although I don't know how, I'm sure persons out there, more intelligent than I, will or already have come up with ideas.
I'm rambled enough.
Published: February 28, 2008 10:41 PM
Nelson, you're right but I wasn't referring to gold futures contracts. I was referring to the practice of including gold clauses in ordinary contracts as a hedge against inflation. It used to be common practice to include clauses in contracts requiring payment to be an amount in dollars based on the value of gold. If you borrowed $1000 and the price of gold remained $20 an ounce then in a year you owed $1000 plus a year's interest. But if the price of gold rose to $30 during the year you would have owed $1500 plus interest - enough dollars to buy the same amount of gold. The legal tender laws didn't come into play because everything was transacted in dollars. And no party to the contract needed to actually have any gold.
I believe the only thing precluding this very sensible business practice now is the tax code. Only the interest would be profit, but the tax code would count the inflation hedge as profit also. I think if this aspect of the tax code is ever changed the government will have to stop inflating the currency or face wide spread rejection of the dollar.
Published: February 29, 2008 3:55 AM
But if the price of gold rose to $30 during the year you would have owed $1500 plus interest - enough dollars to buy the same amount of gold.
The problem is gold fluctuates too wildly and this introduces substantial risk costs on both sides. A small predictable (low variance) inflation is safer than a long term average of no inflation with a high short term variance caused by speculators.
Published: February 29, 2008 10:09 AM
theres a very easy way that can be achieved at the stroke of a legislative pen.
Hahaha, good one.
Published: February 29, 2008 4:12 PM
You libertarians have forgotten your nursery rhyme wisdom! "All the king's horses and all the king's men, couldn't put humpty-Dumpty together again!" The inference, that the public sector couldn't do it, leaves you the obvious answer that the PRIVATE sector could do it! As soon as you privatise the medical services, they can perform wonders! I wonder how many other hidden libertarian messages have been instilled in us over the years?
Published: March 3, 2008 10:50 PM
"They are gold," he agreed, "And they are part of me. That does not mean I look at them."
Published: April 10, 2008 1:05 PM