In his latest column entitled “Crazy About Money,” Paul Krugman goes after Sen. Ted Cruz and House Speaker Paul Ryan for their endorsement of a return to the gold standard. But who is crazy?
The idea of a return to the gold standard disturbs him especially because the GOP gentlemen seem to have gotten it from Ayn Rand. (He even links right here to The Atlas Society as proof of this nefarious connection!) I wish they got all their policies from that source! But more important than debating Krugman’s economic errors is highlighting his moral errors.
Krugman argues that there is a consensus among economists that returning to the gold standard is a bad idea. Rather, he believes that it is better to allow the federal government through the Federal Reserve to control the money supply. For example, he says many economists believe “that a destructive focus on gold played a major role in the spread of the Great Depression.”
Wrong! The newly-created Fed in the U.S. after World War One was able to inflate the currency, that is, print up dollar bills, because those bills were no longer strictly tied to a certain amount of gold. The goal at that time was, in part, to bring the exchange rate of the dollar with the British pound and other currencies into line with the rates that existed before the War, when currencies were tied to gold. They inflated the dollar—the Florida land boom and ‘20s stock boom resulting—and when they hauled back on the money supply. . . Pop went the markets!
Krugman forgets that Britain and North America industrialized in the 19th century, experiencing growth as fast as in the 20th, while basing their monies in gold. Of course, a bigger picture issue is that what we need is a free banking and monetary system. Then people will choose the best money for them: gold-backed, bitcoin, or perhaps suddenly trusty Federal Reserve notes.
When the government forces individuals to abandon gold as a currency and exercises control over money, the medium of exchange, the deeper problem is a moral one.
First, political control of money usually is part of a fundamental evasion of reality. Pandering politicians think they can get something for nothing. They can simply print up pieces of paper they call money in order to bribe voters, ignoring the fact money is a medium that stands in for produced goods and services. Governments want to pretend that they are giving goods and services to people even though they are not. They are just cheating the people who don’t get the free, fiat money. It’s fraud.
Second, when government inflates the money supply, printing up those dollar bills, it is attempting to steal from productive citizens with impunity. Inflation means those dollar bills in their pockets and bank accounts have less purchasing power. One way for government to “spread the wealth” is to steal directly from productive citizens through taxation. Another is to reduce the value of the money some individuals have earned through inflation.
When government inflates the money supply it is attempting to steal from productive citizens.
Third, politicians "blank out" in their own minds the fact that reckless government control of money caused the Depression. It also caused the 1990s tech bubble burst and the 2000s housing bubble crash. And voters who supports these pols? They’re like drunkards who wonder why they have a headache while they order another whiskey.
Krugman and his ilk want government to control our lives and controlling money is an effective way to do so. It is also an effective way to destroy lives, as the economic messes and hardships created by government show. Chances are, unfortunately, slim that a President Cruz and Speaker Ryan in the near term could replace the Fed with a gold standard. But let’s hope they make government control of money a major issue. They can start by strongly backing efforts of Sen. Rand Paul to audit the Fed. If the citizens could see just how corrupt and crony the current system is, there might emerge a consensus that the country should free up its money, letting gold have a chance to be the standard again.
Edward Hudgins is research director at the Heartland Institute and former director of advocacy and senior scholar at The Atlas Society.