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For your reading

The Federal Reserve Bank of Richmond's Econ Focus interviewed Richard Timberlake earlier this year and somehow I missed it, (Here is George Selgin's post on Dick's book Constitutional Money and here is my appreciation of Dick on his 90th birthday, two years ago.) The first question and part of Dick's answer to it follow.

EF: Let’s start with a unifying theme of your work: Your support of a gold standard. Several great neoclassical monetary theorists — Marshall, Walras, Wicksell, Fisher, and Keynes — argued that a rules-based fiat money could outperform a gold standard. Why do you disagree?

Timberlake: Let me say first of all that I am not a “gold bug.” Nonetheless, the fact is that an operational gold standard works to promote a free society, and no other monetary policy seems able to do so.

The key word in your question is “could.” But the policymakers won’t allow it to. The reason they won’t is found in public choice economics, which argues that the policymakers, like all other human beings, have a stronger motive to further their own self-interest than to promote sound public policy — not only at the Fed, but everywhere.

And now for something much different. If, like me, you are interested in free banking as a subset of the wider phenomenon of voluntary exchange, you may derive some instruction from these anthropological works:

Keith Hart (London School of Economics and University of Pretoria) and Horacio Ortiz (Centre de sociologie de l’innovation, Paris), The anthropology of money and finance: from ethnography to world history (essay).

Charles J. Opitz, An Ethnographic Study of Traditional Money (a book that catalogs hundreds of different forms that money has taken; the result of the author's years of work collecting many of them).

  • Paul Marks

    I do not like the term gold "standard" in that I think it confuses the issue about what actually is the money – the physical gold, or something else?

    As for being a "gold bug" – I would be quite happy with physical silver (and so on). I suppose I am what some Germans used to sneer at as a "metalist" (although I am quite happy with non mental things – such as gems). I want something I can actually touch – not a claim on something that I suspect (strongly suspect) is not really there.

    Yes I am one of those "paranoid" people who suspect that the international gold and silver market (and much else) is a massive fraud.

    As for lending – it must be from real savings (actual sacrifice of consumption) or the capital structure is distorted. No credit-money expansion – whether under the mask of a gold "standard" or any other way. And certainly not the fiat money printing press of the state.

    An increase of money is not an increase in real prosperity.

    • Kurt Schuler

      I have addressed the question of the standard before here:
      Economists find it a useful concept because, for instance, in the early 20th century, gold was the ultimate unit of settlement for many international transactions but for domestic transactions shared that role with central bank balances in many countries, and the volume of hand-to-hand transactions was greater in silver than in gold in a number of countries, because gold coins were so valuable that they were not commonly used. Was gold "actually the money" if it was little used in practice? Without a concept of the standard it is easy to neglect similarities and differences important for understanding how monetary systems work.

      • Paul Marks

        Up to the First World War (indeed later) most British coins of any value were made of gold or silver – and few people used "White Fivers" (the Five Pound notes produced by the Bank of England).

        For most people (including my own father – Harry Marks) the gold was indeed the money. They were rather shocked (to put the matter mildly) when suddenly, in 1931, they were told it was not.

        In the United States the actions were more radical – with Federal Reserve notes coming in 1913 (but everyone being told that they represented gold – which, supposedly, physically existed in the vaults of the banks) and the private ownership of monetary gold actually being banned in 1933 (which it was not in Britain, those who had gold could keep it – it was just those who trusted the paper of the government and the banks who were cheated in 1931). Although suppopsedly the Federal Reserve system and the United States government had gold for the Dollars (it would just only let overseas governments, not ordinary Americans, have this gold). This was exposed as a fraud as recently as 1971 – only then was admitted that the United States Dollar was actually fiat.

        As Paul Johnson says in his history "Modern Times" what existed in the late 19290s was a "not in front of the children" monetary system – where the Bank of England and the Federal Reserve system claimed to have gold to cover their notes, but where really backing a massive monetary expansion (the great boom-bust of M. Norman and Benjamin Strong that came crashing down in 1929).

        If this is what you mean by a "gold standard" I doubt anyone will be in favour of it.

        Physical gold as money certainly. Indeed any commodity that buyers and sellers really want to use as money. But, please, no fraud based "standards".