Economists vs. the Gold Coin Standard
Tea Party Economist
by Gary North: Murray
Rothbard's Memory; Or, Why I Don't Measure Up
If there is a single confession of faith uniting economists all
over the world today it is this: their uncompromising hostility
to a full gold coin standard.
confession of faith is their qualified support of the idea of central
The two positions
are operationally one position.
economists oppose central banking. This goes back to Ludwig von
Mises' 1912 book, The
Theory of Money and Credit. Mises promoted free banking:
commercial banking governed by the law of contracts. He did not
support the idea of legislation to establish 100% reserve banking.
Murray Rothbard promoted 100% reserve banking. But, because he opposed
the existence of the state, his call for 100% reserves was not a
call for legislation requiring 100% reserves. As far as I can see,
operationally speaking, his position was the same as Mises' position:
economists support whatever monetary standard that a free market
society produces through voluntary exchange. They believe that this
monetary standard is likely to be monies plural based
on the precious metals. They believe in parallel standards: silver
coins, gold coins, and token base metal coins trading without any
state-legislated controls. They do not believe in price controls
fixed exchange rates as the basis of unifying multiple
metal coin standards.
Austrians reject the idea of state-issued money. Money issued by
the state should not be trusted. Why not? Because the state's officials
always are tempted to debase the currency. They want to increase
government spending without imposing visible new taxes, which lead
to political resistance. It is cheaper, easier, and safer to expand
the money supply, and then spend the newly created (counterfeited)
money into circulation. They buy today's goods at yesterday's lower
prices, at least until the investors catch on and begin to bid up
prices in the commodity futures markets. I have written a book on
Why are economists
so opposed to a gold coin standard? There are three reasons: (1)
self-interest, (2) arrogance, and (3) faith in the State.
Let us begin
with the #2 assumption of all free market economic methodology:
personal self-interest is the #1 motivating factor behind economic
action. (The #1 assumption is scarcity: "At zero price, there will
be greater demand than supply.")
Let us assume
that a newly minted Ph.D. in economics goes looking for a job. He
has no ability to make money as an entrepreneur. He is a bureaucrat
certified by bureaucrats. He cannot successfully forecast markets.
No one in
the private sector is likely to pay him to write unreadable term
papers based on formulas that have no relation to actual markets.
Yet writing such term papers is his main skill. His only other skill
is taking exams based on these formulas.
He is in his
late 20s. He is heavily in debt. The state has funded most of his
education, but still he is in debt. He overpaid.
been a glut in Ph.D.s since 1969. It has gotten worse every year.
But, because university departments are paid more by the university
for graduate students than for undergrads, the faculties have an
incentive to recruit students into graduate school. He was sucked
in. He did not see my
debate on why it is not a good idea to get a Ph.D. in economics.
of economics will hire him: the glut. But the Federal Reserve System
will, if he specialized in money and banking. The Huffington
Post in 2009 published an indispensable article, "Priceless:
How the Federal Reserve Bought the Economics Profession."
In 1993, we
are told, Alan Greenspan informed the House Banking Committee that
189 economists worked for the Board of Governors (a government operation)
and 171 worked for the 12 regional Federal Reserve banks (privately
owned). Then there were 703 support staff and statisticians. These
came from the ranks of economists.
This was only
part of the story: the proverbial tip of the iceberg. From 1991
to 1994, the FED handed out $3 million to over 200 professors to
This is still
going on. There has been growth. The Board of Governors now employs
220 Ph.D.-level economists. But the real growth has been in contracts.
A Fed spokeswoman
says that exact figures for the number of economists
contracted with weren't available. But, she says, the Federal
Reserve spent $389.2 million in 2008 on "monetary and economic policy,"
money spent on analysis, research, data gathering, and studies on
market structure; $433 million is budgeted for 2009.
That is a
great deal of money. This amount of money, the author implied, is
sufficient to buy silence. He added that there are fewer than 500
Ph.D.-level members of the American Economic Association whose specialty
is either money and interest rates or public finance. In the private
sector, about 600 are part of the National Association of Business
Economists' Financial Roundtable.
If you count
existing economists on the payroll, past economists on the payroll,
economists receiving grants, and those who want in on the deal,
"you've accounted for a very significant majority of the field."
I can think
of only one Austrian School economist who ever took a job with the
Federal Reserve. He did so as soon as he received his Ph.D. He ceased
writing for Austrian School publications for the next 35 years.
"If you take the queen's shilling, you do the queen's bidding."
of Austrian School economic analysis is the idea that the free market
provides better information to decision-makers than any government
committee can assemble. The decentralized sources of information,
when governed by a price system, provide more accurate information.
The sanctions of profit and loss reward accurate information-collectors
and penalize inaccurate ones. This means that Austrian School analysis
is inherently hostile to the claim by bureaucrats that the civil
government, especially the national government, can make more efficient
decisions than the free market can.
has waned ever since the economic collapse of the Soviet Union,
1987-1991. But, even so, there is one exception heralded by academic
economists: the Federal Reserve System. We are asked to believe
that the FED does not operate as a normal government-created cartel
does, even though its characteristic features are shared by all
other government-created, government-defended cartels: high prices,
little accountability, self-serving managers, guaranteed income,
and all due to a monopolistic grant of privilege by the government.
textbooks on economics, the chapter on cartels is separated from
the chapter on the Federal Reserve, usually by at least a dozen
chapters. References back and forth do not appear.
minted Ph.D. has been given a schizophrenic education, from Economics
1a to the final oral examination. He has been told that cartels
are bad for consumers, and the Federal Reserve System has been a
benefit. The student has accepted both positions, which means that
he cannot connect cause with effect in economics. He cannot follow
a chain of reasoning from one zone in the economy (cartels) to another
(central banking). In short, he would make a good economic staff
member in any of the 12 regional Federal Reserve Banks or the Board
To get a job
he must do this: teach that the cartel of central banking is a positive
non-cartel. It can make unproductive people (economists) productive.
It can provide money for governments, yet not weaken democratic
control over governments.
are said to be able to provide positive policies in the aggregate
for most members of society, despite the fact that central bankers
favor national political objectives for one group or another, or
one region or another. Economists assert that despite winners and
losers, and despite the fact that economic theory teaches that there
is no common value scale uniting all members of the civil order,
that central banking is better than the gold coin standard.
that he, along with other employees of the banking cartel's enforcer,
the central bank, are capable of devising a national economic strategy
and then executing it, so that the results conform to the government's
believe that they possess specialized economic knowledge that enables
them and others like them to join together in an agency that possesses
the government-chartered power of coercion. This information enables
them to dream up policies that will make people better off than
a free market outcome would have been for the great mass of citizens.
that their knowledge, which would bankrupt them in a few hours in
the currency futures market, puts them in a better position to plan
the central institution of a division of labor social order: the
that formulas taught in graduate school that are loss-producing
in the currency futures markets are wealth-creating in a central
that bureaucratic control over the monetary base mainly government
IOUs which is the central economic policy tool in society,
is superior to the currency markets, where profit and loss govern
the flow of information. They believe that tenure is more of an
incentive to guess correctly than is the profit-and-loss system
of the futures markets.
that they, when they are part of a government-created and government-protected
cartel, are wiser than the currency markets.
They are supremely
not control the central bank. The private capital markets cannot
control it. Then what does control it? The employees' fear of getting
blamed for depression and default on one hand, and hyperinflation
on the other. They are in control in between.
IN THE STATE
is easily summarized in a formula: M + B + G = P, where M is money,
B is badges, G is guns, and P is prosperity.
is faith in legalized coercion: badges and guns. The presence of
badges makes guns efficient in the production of wealth. Guns without
badges are seen as wealth-destroying: the law of theft. But when
badges are added to guns, everything somehow changes. Those officials
who carry both badges and guns are transformed. They can now be
trusted to enforce decisions that will lead to outcomes that increase
in the state is challenged in the curriculum materials of Chicago
School economists. Keynesians extend this faith to other departments
of the government, especially government finance. But Chicago School
economists are taught not to trust any cartels, except two: (1)
the banking system, (2) the educational system.
To make these
two institutions work, meaning work better than (1) non-Chicago
programs and (2) the free market, politicians must adopt two rules:
(1) a fixed rate of increase for M1 (or maybe M2) of 2% to 5% per
year, and (2) educational vouchers.
neither of these two recommendations has ever been implemented,
which means that Chicago School economists can continue to promote
their reforms, justifying them on this basis: "They have never been
economists strive to make the State more efficient by imposing rules
other than the free market's rules, which are:
The law of contracts
2. Private ownership
3. No government restrictions on entry into markets
4. Prohibitions against violence and fraud
economists profess faith in the outcomes of these four rules, except
in banking and education. In these two areas, the rules do not apply.
Why, we are not told.
I think it
has something to do with self-interest, arrogance, and faith in
coercion, when the rules governing coercion are designed by professional
In 1946, the
economics department of the University of Chicago had an opportunity
to hire F. A. Hayek away from the London School of Economics. Hayek's
Road to Serfdom (1944), had become a best-seller by 1945.
It was published by the University of Chicago Press.
of economics rejected him. The reason? Hayek's view of economics
was insufficiently scientific. Translation: he was more systematic
in opposing the use of badges and guns as ways to increase efficiency
more committed to badges and guns than his mentor Ludwig von Mises
was. Chicago's economics department never hired Mises, either.
to Chicago as an unpaid professor, just as Mises came to New York
University. The William Volker Fund paid their salaries.
Yet in 1994,
Friedman wrote the Introduction to the 50th anniversary edition
of The Road to Serfdom. He refused to mention the
long-term hostility of his pro-free market colleagues to Hayek's
oppose the gold coin standard because they do not fully believe
in the free market social order. They do not believe that voluntary
exchange in a private property social order produces greater liberty,
and therefore greater wealth, than government planning does, meaning
planning by tenured committees.
The gold coin
standard is a threat, both in theory and practice, to modern economic
theory as taught by the cartel of higher education. It is a standing
testimony to the unwillingness of self-interested, arrogant, cartel-certified
economists to extend what they say they believe about free markets
to the two cartels that employ them: higher education and the fractional
reserve banking system.
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible.
2012 Gary North
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