Noutheo writes:

I’ve been reading a lot of works by the late economist Murray Rothbard, and he’s turned me into a proponent of money backed by commodities. “What Has Government Done To Our Money” was especially interesting as he explored the history of money and the gold in the USA. So I was wondering what your thoughts were on the gold standard and whether or not we should return to it (or some other commodity).

First, allow me to explain in simple terms what a commodity standard is. Simply put, it means that the value of money is legally based on the value of a particular good or set of goods. Therefore, a gold standard mandates that the value of money is linked to the value of gold. A commodity standard is distinct from a fiat standard. A fiat standard means that money’s value is not linked to the value of any particular good or set of goods. Fiat money is backed by government mandate; it is valuable because the government says so. The US dollar has been pure fiat currency since 1971.

This is a topic that used to be quite near and dear to my heart. My college honors thesis dealt with the gold standard, and at least one of my college profs was a gold bug.

I haven’t read Rothbard’s writings about gold in a long time, so I can’t comment directly on him. Send me some links to the particular articles you’re reading because I’d like to look at them.

I’ve spent several days trying to figure out a clear way to respond, but haven’t had much success. So allow me to ramble via bullet point a bit before answering your question directly.

1. I don’t believe that inflation is inherently worse than deflation, or that inflation of X% over a given timeframe is inherently worse than deflation of X% over an equal period.

2. That doesn’t mean that using gold, which is usually deflationary, is as good or as bad as using fiat paper, which is usually inflationary.

3. I’m not convinced that a gold standard would bring discipline to monetary or fiscal policy. Governments find workarounds, whatever standard you’re on. In my opinion, our currency standard is pretty low on the list of problems with our government that need to be fixed ASAP.

4. You do not have the right to have the monetary value of your stuff remain constant relative to other stuff. In other words, you are not entitled to have your stuff’s monetary value increase via deflation or decrease via inflation.

So, should we return to a gold standard or some other commodity standard? If you’re interested in reversing inflation and tending towards deflation, then yes, using a gold standard would accomplish that, though it would not be a panacea.

But if you’re interested in optimizing human liberty, and given your email I assume you are, then no, we shouldn’t have a gold standard, or a commodity standard, or a fiat standard. We should have a free market in money.

If you accept money backed by gold, or silver, or land, or oil, or any other commodity, and other people will accept it in trade, good for you. If you accept money that I just drew on a piece of paper, and other people will accept it in trade, awesome. If the government prints money backed by nothing but faith in the US government, and you accept it, and others accept it in trade, great. If Bitcoin works out in the long run, then yippee! And if Gene Roddenberry’s vision comes true and we just plain stop using money (never mind all the different types of money that get mentioned all the time in Star Trek) and people are happy with it, then so be it.

I don’t think anyone should be punished for using anything as money, so long as buyer and seller agree to the exchange freely, without fraud or force. So, in the interest of advancing liberty, we shouldn’t have any official monetary standard.

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P.S. A cobalt-iodine dirty bomb would not render gold radioactive for anything close to 58 years, so don’t get any ideas.