Posts tagged with: gold standard

Roberty P. Murphy at the 2014 Acton Lecture Series

Roberty P. Murphy at the 2014 Acton Lecture Series

On this edition of Radio Free Acton, we talk about sound money with economist and author Robert P. Murphy. What is money? Why does it have value? What happens when a government detaches the value of money from gold or other commodities? We look at these questions, find out what our dollars are really worth, and look at ways to restore the value of our money.

You’ll recall that Murphy was a guest of Acton a few weeks ago and delivered an address as part of the 2014 Acton Lecture Series. You can check out the video of his talk at that link, and listen to the Radio Free Acton podcast via the audio player below.

On Tuesday, Acton welcomed economist and author Robert P. Murphy to the Acton Building’s Mark Murray Auditorium as part of the 2014 Acton Lecture Series. He spoke on the topic of The Importance of Sound Money, providing a solid lesson in the history of currency in the United States and other major countries, and an overview of the problems that have resulted from our government’s abandonment of sound monetary policy.

Murphy’s presentation is available for viewing below.

Acton’s director of research Samuel Gregg is up at Public Discourse, with a piece titled “Monetary Possibilities for a Post-Euro Europe.” With his usual mix of sophisticated economic analysis and reference to deep principles, Gregg considers European countries’ options should the eurozone fail. If that happens, he says, “European governments will have a once-in-a-lifetime opportunity to rethink the type of monetary order they wish to embrace.”

One such scenario is a three-way monetary division within the EU that reflects the differing political commitments and economic priorities of different nations. Germany and the more fiscally responsible eurozone members such as Austria, Finland, and the Netherlands could, for instance, decide to reconcile themselves to being the only ones with the necessary fiscal and monetary discipline to maintain a common currency.

Alongside this bloc would be two other groups. One would consist of those EU countries such as Britain, Sweden, and Denmark that have maintained their own monetary systems because of reservations about the euro’s implications for national sovereignty. Another group would include EU nations such as Greece, Portugal, and Italy that are simply unable or unwilling to embrace the disciplined monetary and fiscal policies required by a common currency; these nations would consequently find themselves outside the eurozone and reverting to their national currencies.

A more radical monetary opportunity for a post-euro EU would be currency competition. This was once proposed by Britain’s Margaret Thatcher as an alternative to the present common currency. Contemporary proposals for currency competition, such as that advanced by Philip Booth and Alberto Mingardi, involve the monetary authorities of different countries authorizing the use of currencies alongside the euro in domestic settings other than their own. Consumer choice rather than state sovereignty would thus ultimately determine which currencies were used.

Yet another option would be the embrace of what might be called a European gold standard. In the 1950s and 1960s, the German economist Wilhelm Röpke argued that European monetary integration could occur via a nucleus of countries agreeing to adhere to a gold standard, much as had happened somewhat spontaneously in the nineteenth century through a process of unilateral decision-making by individual countries. Once this had occurred, adherents of such a gold standard would have to insist upon all members maintaining monetary discipline as well as freedom and stability in foreign exchange markets.

The stability of the European currency would be assured not by EU bureaucrats, but by the gold standard itself, and by allowance for the expulsion of countries that abuse their big-boy privileges.

Britain just rejected an EU treaty because the Conservative Party decided Brussels was trying to capitalize on the Mediterranean crisis by grabbing more power. The three proposed currency models, Gregg argues, would maintain countries’ freedom by yanking monetary power from central bureaucrats who exercise political power. He reflects further on the composition and history of the eurozone, on the countries’ political and economic freedom, and on what Röpke would have to say in the rest of the piece.

In the Wall Street Journal, Acton Institute President and Co-Founder Rev. Robert A. Sirico looks at the recent “note” on economics released this week by the Vatican. The document, titled “Toward Reforming the International Financial and Monetary Systems in the Context of a Global Public Authority,” was published with an eye toward the upcoming G-20 meeting in Cannes, France, on Nov. 3-4. This 18-page document has, Rev. Sirico observes, “been celebrated by advocates of bigger government the world over.”

But what’s missing from the popular analysis is that the Vatican document “embraces a sound economic theory concerning the cause of the world financial crisis: the breakdown of the postwar Bretton Woods monetary system and the unleashing of fiat currencies and central-bank printing presses.”

Rev. Sirico:

We went from a hard-money regime, in which there were restrictions on the power of central banks and financial institutions to create money and credit, to one where money became purely paper. There were no restrictions remaining on the power of governments to finance unlimited debt. Banks could create credit seemingly without limit. Central banks became the real power in the world economy.

None of this was true under a gold standard. That system limits the expansion of credit by an indelible physical fact. There was a limit, a check, a rule that went beyond the whim of financial masters and politicians. The Vatican seems to understand this.

But discerning the disease and finding the cure are very different undertakings, and here the document falls short. It imagines a new world central bank and political authority that will rule without “any partial vision or particular good” but rather seek “the common good.” Its decisions should “be made in the interest of all, not only to the advantage of some groups, whether they are formed by private lobbies or national governments.”

Somehow, with an intelligence never before discovered in government bureaucracies, these proposed global authorities would create “socio-economic, political and legal conditions essential for the existence of markets that are efficient and efficacious.”

Read “The Vatican’s Monetary Wisdom” on the website of the Wall Street Journal (may require registration).

The extent and persistence of the global economic and financial crisis has caused many people to start asking if there is any alternative to the current monetary system of fiat money overseen by central banks which enjoy varying — and apparently diminishing — degrees of independence from politicians who seem unable to resist meddling with monetary policy in pursuit of short-term goals (such as their reelection).

Most arguments about the respective merits of fiat money, private money, or the gold standard are couched almost entirely in terms of economic efficiency. Over at Public Discourse, however, Acton’s Research Director Samuel Gregg has penned an article outlining the principled case for a return to the classical gold standard. Gregg draws upon economic history and ethical analysis to argue that there is a strong more-than-economic case for the classical gold standard that rarely receives much attention. As Gregg writes:

There were several economic advantages to the gold standard. . . . A number of principled considerations were, however, also operative. The gold standard placed a high premium on economic security by reducing the uncertainty and risk that flows from fluctuations in the value of money that have nothing to do with the relative valuation of different goods and services. . . .

Another commitment at stake was the conviction that stable money meant greater economic prosperity for increasing numbers of people. Greater monetary certainty spurred productivity and investment, not least because many long-term contracts benefited from a confidence that prices would remain relatively constant over time. Then there were the ways in which the gold standard bolstered the economic well-being of particular marginalized groups. Monetary stability helps, for example, those who lack the financial sophistication to navigate the shoals of inflation, or who are on fixed incomes (e.g., the elderly and disabled).

At the same time the gold standard also encouraged governments to promote the common good instead of narrow sectional interests. Within nation-states, for instance, the gold standard diminished opportunities for the state to manipulate monetary policy in order to favor those with an interest in inflationist policies.

Likewise, the gold standard also generated a commitment on the part of governments to promoting the international common good. As the German economist Wilhelm Röpke once wrote, the gold standard relied upon the unwritten agreement of central banks and governments “to behave in matters of monetary and credit policy in such a way that this fixed and free coupling remained an undisputed permanent institution, irrespective of trade fluctuations”. This required central banks and governments to prioritize the global economy’s long-terms needs over the short-term exigencies of national economies. It also entailed a willingness to resist popular pressures to revert to a type of monetary nationalism in the face of the fluctuations in employment and growth sometimes generated by the gold standard’s adjustment mechanisms.

There is, Gregg notes, bound to be considerable opposition to any move away from fiat money. It’s hard to imagine, for instance, politicians, central banks, or Keynesian-inclined economists being very willing to give up a tool that — or so they believe — is a vital element of macroeconomic management. Gregg points out that there are also plenty of groups with a vested interest in the type of easy money policies (what’s euphemistically called “quantitative easing” these days) which are always an option under fiat money regimes.

Despite this opposition, Gregg says that going back to gold is certainly worth a second look — if only because no one seems especially satisfied with the present system.

For more from Gregg on this subject, see The Gold Standard: A Principled Case.