I’m coming to the end of the third year of my journey into Austrian economics. At times it has become almost obsessive as so much of what I believed before has been turned on its head.
Its been a bit like playing a new golf course — one which has been cunningly designed with all sorts of traps and hazards — to play this course properly a new approach is needed. Every hole has been a challenge. Each has had its own tricks and quirks. Each has its own special name — like the opening one — the ominous sounding "What is Seen and What is Unseen." Then a few holes on the terrifying "Keynesian Menace"; then later the forlorn and deadly "More Tragedy Than Hope." The front nine finished with a deceptively easy looking Par 3 which had a name similar to many pop groups which thrived in the 1970s and faded in the 1980s — "Milton Friedman and the Monetarists!"
I reached a turning point in my round when I found that I could read people like Frank Shostak without having to go on a paper chase. In a recent article he demolishes "Obamanomics" with remarkable calmness and patience.
I find it difficult to be as calm and patient. I’m in good company.
The fact that they’re only making things worse is depressing. I’m not saying that I sit by myself in the kitchen, in the small hours of the morning, with a bottle of scotch in one hand and a loaded revolver in the other — but it is depressing.
All is not lost however. I haven’t completed the round yet. I’m somewhere on the back nine but just not too sure where. I’ll never get to the eighteenth — I don’t think anyone ever does — it’s the nature of the subject.
At the moment I’m standing at the tee of a monstrous Par 5. Double-bogey strength — at least.
It’s called "The Barbarous Relic."
I’ve been dreading this one because I’ve known all along that all of my unlearning, learning and relearning would inevitably have to converge at some point.
Well this is it and the question is critical.
How do we escape from our fiat money system?
The legitimacy of Austrian economics as a realistic and workable alternative centers on a return to sound money.
" … [S]o many of the policy ideas suggested within the Austrian framework can be subsumed under the need to abolish the central bank." ~ Lew Rockwell.
If successful it would be a start, in fact it’s the only way that a return to sound money can ever begin.
Austrian economists are united in their views about the disaster of fiat money; its history, without exception, has been one of abuse by those running it. They simply cannot be trusted, — it has happened time and time again — they just can’t help themselves.
We used to have a global currency system that worked — the gold standard. Currencies were backed by something which was reliable and stable. It could not be created out of nothing. If governments and banks behaved irresponsibly there was no protection — they went bankrupt — they were forced to behave with honesty and integrity or else.
The case for abandoning fiat money is clear. However, even Austrian economists begin to break ranks when it comes to the feasibility or probability of returning to a commodity based system.
It’s all very confusing.
Will we ever, or can we ever, return to a gold standard? Here’s just five examples of the diversity of views amongst Austrian advocates.
1. Back in 1977 F. A. Hayek said here:
"[Any] hope of returning to the kind of gold standard system which has worked fairly well over a long period is absolutely vain." (Emphasis added).
2. Murray Rothbard argued here (1995), that the job of privitizing money, of returning it to the market economy, was not as impossible as it seemed. By way of example he says the job would be:
" … much less difficult than [was] the daunting task of denationalizing and decommunizing … the former Soviet Union." (Emphasis added).
3. When asked if he would see a return to the gold standard in his lifetime Peter Schiff replied in this interview:
" Yes, I will — it has to happen.." (Emphasis added).
This is a prediction. Given his track record it is worth bearing in mind.
4. Byron King suggests that China has taken the first tentative steps back to something partly resembling a gold standard system by building up and then monetizing its gold as reserves.
5. Gary North, writing here (Chapter 14 — Conclusion), doubts if gold will become money in his lifetime.
"A return to gold as money in the West will take a cataclysm … " (Emphasis added).
Where does all this leave us?
Hayak said it would never happen, Rothbard said it’s not as difficult as we think, Schiff says it has to happen, King says it may already have started to happen and North says it will only happen following some monumental disaster.
If I had to go for just one right now it would be the "North Criteria." Given the power of the vested interests and the apathy and ignorance of the general public the whole thing would first have to come crashing down before it could be rebuilt with sound money. It’s a frightening prospect:
" [L]ife-threatening, in my view" — Gary North here (Chapter 14 — Conclusion).
Anyway, a mist has descended on The Barbarous Relic. I’m not quite sure which line of attack to take. But here goes anyway. I tee the ball up. I select a driver with a sweet-spot almost as big as the ball itself — I’m going to need it. I check my grip, check my stance and then address the ball. I’m going to give this sucker one God-Almighty smack!
Let’s just see where it leads me.
Chris Clancy [send him mail] is Associate Professor of Financial Accounting at Zhongnan University of Economics and Law in Wuhan, Hubei Province, People’s Republic of China.