Bill Flax Advocates Gold Standard In Forbes

With a stirring opinion piece, Bill Flax's latest from his "Courage To Do Nothing" column gives the reasons why a gold standard is preferable to fiat money. In a nutshell, gold prevents policymakers from relying upon monetary manipulation that always seems to be used to government's advantage. The evidence of any general benefit to a fiat money standard is slim, but the detriment is fairly plain.

The dollar’s lingering value is an illusion stemming from our trust in the Treasury’s ability to confiscate our surplus produce. Our trust is misplaced. No matter how much they tax, they always find ways to redistribute even more. They borrow more to repay debt with enlarged debt so politicians can continue funneling money to their favorites.

Unfortunately, we must use this debauched system because it is the required means to pay our taxes. They borrow in our name and then confiscate our wealth through taxes and inflation. Taxes take your money. Inflation leaves your money, but plunders its value instead. Washington relishes both....

Alas, fiat currency has everything to do with power and nothing to do with sound economics. Some of us value freedom over security. Others naively view power as benign. Even if the gold standard were an economic retardant, (which history disproves) gold would still tie government’s hands. And that’s the reason they dislike it.

Any stimulus if applied well can give a temporary boost, but inflation invariably exacerbates longer term complications. The immediate exhilaration of monetary inflation offers cover. Then the subsequent pain provides Washington the shoddy justification for further usurpations.

Inflation’s consequences stretch beyond the economy: more government and less freedom. And since inflation so often contributes to the downturn – even their best argument reflects a poor excuse for fiat currency.

Monetary policy is about power. Gold protects against government encroachment. The economic benefits are merely a bonus.

As momentum builds towards the revival of the gold standard, there'll be more and more intellectual effort devoted to getting there from here - including how to avoid the pitfall of a credit collapse that many fear will accompany the reimposition of a non-discretionary currency. There's been a lot of moral hazard, a lot of taking advantage of the looseness of fiat currency, over the last several decades. So, there's enough reason to be concerned about a credit implosion (which, as '08 showed, can come under a fiat currency.)

One idea, which I've discussed before, would be to allow downwards adjustments in the principal of loans should deflation rear its head. This idea would be most practicable after a spate of serious inflation made upwards adjustment of principal for inflation, as is the case for TIPS securities, popular in the private sector.