Hard Money

Of all the dumb ideas roiling around in the Tea Party crowd, the dumbest is their obsession with gold and silver. The news from the heartland:

Utah has passed a law intended to encourage residents to use gold or silver coins made by the Mint as cash, but with their value based on the weight of the precious metals in them, not the face value — if, that is, they can find a merchant willing to accept the coins on that basis.

The legislation, called the Legal Tender Act of 2011, was inspired in part by Tea Party supporters, some of whom believe that the dollar should be backed by gold or silver and that Obama administration policies could cause a currency collapse. . . . supporters say that it is just a beginning, that one day soon Utah might mint its own coins, that retailers could have scales for weighing precious metals and that a state defense force could be formed to guard warehouses where the new money would be made and stored.

“This is an incremental step in the right direction,” said Lowell Nelson, the interim coordinator for the Campaign for Liberty in Utah, a libertarian group rooted in Ron Paul’s presidential campaign. “If the federal government isn’t going to do it, then we here in Utah ought to be able to establish a monetary system that would survive a crash if and when that happens.”

Note the sense that the world is under siege by mysterious forces lurking out there in the darkness, coupled with a lack of faith in the institutions that actually keep our world running: the federal government, the Federal Reserve, the banks, the markets. Not that fear of a market collapse is necessarily irrational, as we saw in 2008, but what we also saw in 2008 was that modern governments are strong enough to ride out these crises. One thing that did not lose value in the crash was money, and that goes for pretty much everywhere in the world.

A "gold standard" is not really a pro-liberty policy, because what it means is that the government fixes the price of gold. Since gold markets naturally fluctuate as much as any other markets, a government on the "gold standard" has to keep the price steady by massive interference in the gold market -- which is why we have that huge store of gold in Fort Knox and other places.

I suppose part of what drives the gold obsession is the sense that gold is "real," whereas dollars and euros are fake. But that isn't so. Gold only has value because people accept that it does; if you want something with real value, you should go for oil, wheat, or pork bellies. Yes, our government can (and does) change the value of the dollar by its policies, but given how much gold we own we could do the same thing with gold. Gold as an exchange mechanism safe from the vagaries of government policy and market shenanigans is a fantasy.

Alas all this hard money obsession is having, I think, a bad effect on our real economic policies. The big US budget deficit has helped spread fear of inflation in many quarters, and the Fed has responded by limiting the money supply much more than I think they should. Unemployment is still 9 percent, but instead of pumping up the economy to bring it down we are all talking about cutting spending, and all the fed bulletins are about inflation fears. It's silly.

We are all at the mercy of the worldwide economy and the markets that grease its wheels. If that scares you, the right response is to push for better regulation of the markets and more sensible economic policies. We can't go back to a system of local economies only weakly connected to the world market. Our wealth depends absolutely on the international connections that tie the planet together, and those connections depend on soft money.