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Goldbugs at the Heritage Foundation

By Matthew Yglesias on August 31, 2010 at 10:44 am

"Goldbugs at the Heritage Foundation"

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I’m consistently surprised by the continued hold of superstitious belief in the merits of a gold standard and the evils of “fiat money” on the part of rightwingers. Here, for example, a Heritage Foundation report on the fundamental economic principles of America explains:

Due in large part to these difficulties and the subsequent economic turmoil caused by manipulation of money by both state and national governments during the 1780s, there was a strong demand for an end to government-issued paper money. The remedy was to be a return to the gold and silver standard. The U.S. Constitution therefore specifies that the states may not “coin money; emit bills of credit; [or] make any thing but gold and silver coin a tender in payment of debts.”[50] Emitting bills of credit was not on the list of powers given to Congress. “Fiat” paper money (bills of credit), issued by the U.S. government (and every other government in the world) since the 1930s, was precisely what the Framers of the Constitution were trying to prevent.

As a descriptive claim this may or may not be accurate, but the fact of the matter is that late-18th century notions about monetary policy were simply wrong and the gold standard is a terrible idea. Paul Krugman’s “The Gold Bug Variations” is the best explanation of the problems with the system. But part of what’s curious is that I don’t even understand what’s supposed to make this a “free market” view. Don’t ask me, ask Milton Friedman:

I do believe that every individual should be free to own, buy, and sell gold. If under those circumstances a private gold standard emerged, fine—although I make a scientific prediction that it’s very unlikely. But I think those people who say they believe in a gold standard are fundamentally being very anti-libertarian because what they mean by a gold standard is a governmentally fixed price for gold.

Ironically, as Friedman also lays out here by clinging to gold standard orthodoxy during the 1930s, rightwingers managers to largely discredit their entire ideological project since (just as Barack Obama is learning today) when you preside over poor economic conditions, people tend to turn against your ideas willy-nilly. At any rate, to make a long story short if the problem with “fiat money” is that political authorities may mismanage the money supply, nothing about shifting to gold solves this problem. Banking and monetary conditions were demonstrably less stable in the pre-1932 era than they’ve been in the past 75 years. Many people appear to have a deep-rooted desire to posit the existence of some lost golden age of liberty and nostalgia for gold convertability has gotten mixed up in this.

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