Remember: the Fed is like the arsonist disguised as a firefighter who claims only he can put out the fires he started. Yeah, maybe the firefighter can’t rescue people from the building if he doesn’t have an axe to break down the door, but giving him a way to break in makes it far more likely that he’ll set fires in the first place.
Claiming that a gold standard ties the Fed’s hands is exactly the reason to favor it, not oppose it. The Fed was primarily, though not solely, responsible for getting us in this mess in the first place precisely because its hands were free to flood the market with artificially cheap credit.
The discretion of Big Players like the Fed is the problem, and the solution is not somehow hoping that next time they will use that discretion only for good and not evil. Tying Federal Reserve Notes to gold would take away some of that discretion, and eliminating the central bank completely in favor of a competitive monetary system with commodity backing of any sort would take it all away.
When the arsonist can’t set fires, we don’t need to worry about whether or not he has the tools to put them out. That is the fundamental argument for constraining both central banks and competitive ones by making the money they create redeemable in gold.
This is from Professor Steve Horwitz’s refutation of Ezra Klein’s critique of the Gold Standard.
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