How to Defend the Free Market Gold Coin Standard: Stop Defending the Government Counterfeits

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by Gary North: No
Criticism of Bernanke Is Allowed



This was posted
on one of my site’s discussion forums on the night before Christmas:

Gold based
economies more volatile than central bank fiat based money economies??

On a return to the Gold standard

you had a traditional gold standard, boom and bust with severe
swings in economic activity were the norm – really big ones.
It was only once we moved to fiat money that central banks were
able to smooth the business cycle, and make it less volatile,
as we did during the financial economic crisis." ~ Nov 2010

Where do
they get these ideas? Or rather where did I get the idea the boom
and busts would be smaller in a gold based society? I know I have
heard this multiple times.

But they
did have bank panics in the 1800s. So maybe they are right?

My bet is
that the booms and busts will occur in a gold based economy but
they will not be so big and wild or last as long as in a fiat
money based economy.

The person
who posted this is well meaning. He senses that Roubini is wrong,
but he is not sure exactly why. He is typical of the overwhelming
minority of those who think that a gold standard would be a good
idea. He means well, but, as they say, he doesn’t get it.

What is "it"?
The logic of the free market.

So, let us
begin. First and foremost, a government-guaranteed gold standard
is a rotten idea. It is just a little better than a fiat-money standard.
But advocates of "the gold standard" almost always mean
"a government-guaranteed gold standard." Therein lies
the problem. Governments lie. They cheat. They steal.

Over and over,
I have returned to this theme: a government-guaranteed gold standard
is a fool’s gold standard
. I have had great trouble in getting
this idea across.

There are two
kinds of gold standards: government-guaranteed and privately administered.
The first is a counterfeit of the second. The politicians set up
the rubes to be skinned.
I have written about this here.

I hope you
will click the link, print out the 2003 article, and read it twice.

The idea of
the gold standard pre-dates Austrian School economics by a century.
Ludwig von Mises created the Austrian School by applying the general
principles of economics developed by Menger and Bohm-Bawerk to monetary
theory: The
Theory of Money and Credit
(1912). Here, we find the first
integrated defense of a free market gold standard.

A short presentation
is Murray Rothbard’s mini-book, What
Has Government Done to Our Money?

Something close
to a free market gold standard existed in California
in 1849–54
. That is about the only place it has ever existed.

Here are the
characteristic features of a free market gold standard:

1. Private
2. The right of contract
3. The enforcement of contracts by the government
4. No government licensing of banks
5. Open entry in coin production
6. No government mint
7. No government currency or coins
8. Therefore, no legal tender laws

The legal framework
begins with private property. The monetary system develops out of
this. If the monetary system does not begin with private property
and the right of contract, then it is just one more government substitute
for liberty. It will fail to bring liberty or maintain it.

the rest of the article

27, 2010

North [send him mail]
is the author of Mises
on Money
. Visit
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible

Best of Gary North

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