We posted a somewhat controversial video a couple weeks back of Sandeep Jaitly commenting on what in his opinion were mistakes made by Austrian School economist Von Mises on the Max Keiser show. He made a number of other comments, the upshot of which was that he resigned from the Gold Standard Institute. We’ve since read a couple of opinions and didn’t quite know what to make of it. We’ve also now read a brief comment on the subject by Phillip Barton, president of the Gold Standard Institute which seems pretty to the point. See below:
Mountains Out of Molehills
Let’s not make mountains out of molehills. Sandeep Jaitly tweeted and then appeared on the Max Keiser show. He seemed to needlessly go out of his way to offend students of both Mises and Rand – both supporters of free markets and logical friends and allies of The Gold Standard Institute. Subsequent efforts to back-pedal were too little too late.
This unprofessional conduct cast TGSI in a poor light.
Based on this, and some prior incidents of a like nature, it was entirely obvious to me that Sandeep’s relationship with TGSI should cease.
TGSI stands for a positive value – the unadulterated gold standard – not negative attacks, picking fights, etc.
All sorts of people are now leaping in with unfounded speculation and conspiracy theories, and something remarkably simple is starting to appear complicated. It isn’t. The truth is that these pundits have no idea what happened and none of them contacted me to find out before going to print.
TGSI is a single-issue organisation and is not interested in debate with all and sundry. It must and will conduct itself professionally and with decorum. It will continue to focus on its mission.
The Gold Standard Institute
Having met everyone involved, and having learnt something from all of them, it is a shame that news like this is what is making headlines. Rather than the fact that pretty much all players involved agree on similar broad principles of sound money, free markets and limited government. The Gold Standard Institutes decree is after all Liberty Prosperity Peace.
Anyway this got us thinking more broadly, just what do we all think of when the term “Gold Standard” is bandied about?
Especially when we hear that the US Republican party is calling for another Gold Commission “to set a fixed value for the dollar.” Just what is meant by this?
200 Years of Monetary History
There have been a number of monetary systems in place in the past 200 years. And the below infographic from GoldMoney gives a visual representation of how the global monetary system has operated and differed for the last 2 centuries.
[Click image to enlarge]
The classical gold standard sometimes referred to as the gold coin standard is in our opinion the best of the government instigated gold standards of the past 200 years. You could cash in your paper money for defined amounts of gold. Click the image above to read a full description of it and other systems.
The Unadulterated Gold Standard
The classical gold standard is perhaps also most similar to what The Gold Standard Institute (TGSI) refers to as the “Unadulterated Gold Standard”. Although not strictly one and the same. Rather we’ll leave it to the TGSI’s Phillip Barton to explain one of the chief benefits of the unadulterated gold standard:
[The unadulterated gold standard] means either circulating gold (or silver) coins, or that circulating banknotes are redeemable for gold (or silver) coin upon demand – 100% backing. It is only the unadulterated Gold Standard that can permanently constrain the excesses of government. With gold in use as money, the government loses its most coveted yet destructive tool – the ability to inflate away the value of the people’s money. The unadulterated Gold Standard means that all government expenditure has to come out of taxation.
Paper money that is not wholly backed by gold allows politicians to inflate the money supply and, by this means, covertly pay for their vote-buying largesse. This encourages people to vote for the politicians who promise to spend the most. Inflation is not possible under the unadulterated Gold Standard, and people understand that all government expenditure can only be funded by an increase in their own personal taxation. This encourages the far healthier reverse vector of people voting for the politicians who promise to spend the least. The revenue raising limitations of the unadulterated gold standard also ensures that it is very difficult for governments to put the country into debt by borrowing.
(By the way, you should head over and sign up for TGSI Journal now which is full of good content each month).
The Trouble With Any Gold Standard
The issue with putting in place a gold standard of any type is that most people only see this as being possible via governments. The problem with a government system, even one as effective as the classical gold standard, is that there is nothing to stop governments leaving it when it serves them. This is exactly what occurred during WWI when the handbrake on government spending that was the gold standard was removed to fund the war.
So how can we get the benefits of a gold standard without the downside of the ability of governments to renege on it when it suits them?
Other Options Than a Government Defined Gold Standard
The only answer would be to remove the government monopoly on money – a very far out thought for most people today!
This is what Austrian Economist Friedrich Hayek, referred to as the denationalisation of money. US congressman Ron Paul also has been calling for this for sometime. Whereby we’d see a system based on private coinage and currency that would compete with government-issued money. Dr Paul has stated we don’t need to get rid of the dollar just let private money compete with it. Of course, he knows full well that if private money was allowed to circulate alongside government money, a couple millennia of monetary history shows private gold and silver coin would win out over fiat currency before very long.
The problem is how to get there? The founders of the Gold Standard Institute believe it is through education. That we must make people as aware as we can of the options, so that when it all falls down, we can be sure to pick up the right pieces when we put things back together.
What Do We Think About The Gold Standard?
We believe technology shows us that the free market knows best. In a world of constantly rising prices, what industry has seen prices doing the complete opposite year after year? Consumer technology of course. Computers, TV’s and more recently smartphones and tablets have shown they can get constantly smaller, faster and more powerful all while falling in price.
It’s no surprise that this is also an area with the least amount of government intrusion! There is not a government regulatory body required to stipulate that all computers must have a USB port to allow connection of peripheral equipment. Or that TV’s should all have HDMI plugs so that components from different manufacturers will work together. The free market has determined which technology worked best and they have eventually become widely used, until superseded by something better. All the while we consumers get better equipment for a lower price.
How would money without the “Stamp of Government” work?
We believe money could work just the same. We don’t need national currencies. If the free market was left to decide we believe money would be weights of silver and gold for the reasons a guy by the name of Aristotle outlined a couple of years back. That is money must be durable, portable, divisible, consistent, and have intrinsic value of itself. And gold and silver have proven to be the only elements to date which satisfy all these criteria.
Paper money could well exist too but these would be certificates redeemable 100% in gold and silver.
And having mentioned technology already, if the free market was left to it, technology would likely play a major part in free market money too. We wouldn’t all necessarily carry around gold and silver coins, or even paper certificates, instead perhaps the likes of GoldMoney and BullionVault would evolve into gold banks and payment processors? But you wonder, what would stop these new gold banks from doing just as governments have done? Perhaps other entities would pop up to monitor them? Perhaps nothing would stop them and people would have to learn how to keep a check on where their money was held, instead of blindly trusting that it was safe as we currently do?
We certainly don’t profess to hold all the answers, but we are sure there must be a better way than what we experience now. But also a better way than simply returning to the past too.
So rather than a return to a gold standard perhaps we can dream of an evolution to free market money – likely gold and silver money. Not a step back, which is what we mostly see written about when it comes to the gold standard in the mainstream. Perhaps we can learn from the past and improve upon it like Apple, Samsung and the like do with technology. The only question – is society up for it when it comes to money?
What do you think? Could free market money work? Leave your opinion below…