NRO’s eye on debt and deficits . . . by Kevin D. Williamson.

Monopoly Money


We’ve got goldbugs at the World Bank!

The soaring price of gold reflects international unease about the strength of large developed economies that must be taken seriously by the Group of 20 leading nations, according to Robert Zoellick, president of the World Bank.

Mr Zoellick on Wednesday said the increasing use of gold as a monetary asset was an “elephant in the room” that was being ignored by policymakers in the debate over how to correct global trade and fiscal imbalances.

. . .  Mr Zoellick dismissed criticism of his proposal in Monday’s Financial Times for a new international monetary system involving multiple reserve currencies and including a role for gold as a reference point for market expectations of inflation and future currency values.

He said critics had misunderstood his proposal as a call for a return to the gold standard – the framework of fixed exchange rates backed by gold which was replaced after the second world war by the Bretton Woods system of fixed but adjustable exchange rates.

Looked at another way, the price of gold is not soaring; the price of dollars, yen, and euros is tanking. (And not just in terms of gold.) Monetary-policy authorities are in a race to the bottom, devaluing national currencies in response to weak growth: Every country thinks it can be China and export its way out of making hard economic decisions. All you need to make that model work is an impoverished population, a government-dominated economy, and a for-profit police state. Super.

Count me as against a new Bretton Woods, even one incorporating some sort of gold-derived controls, and in favor of the free-market alternative to international monetary-policy shenanigans: privatizing money.

Conservatives usually are fans of privatization and foes of government price-fixing. We do not like government-monopoly schools or government-monopoly health-care systems. So why do we assume that we must always have government price-fixing and government-monopoly supply-management in the most fundamental commodity of all: money?

We want money to do a couple of things: The first is facilitating exchange, the second is providing a relatively stable store of wealth. The dollar excels at the first but not at the second: What other asset do you hold expecting an annual loss of around 3 percent, forever? None, is my guess. You’re telling me we cannot come up with a non-government alternative for that relatively straightforward task?

Technology and financial innovation are going to catch up with, and surpass, the state’s monopoly on money; if I had to guess, I would predict that it will happen in the near future, though not in the United States, where private-currency innovators are preposterously prosecuted  as counterfeiters. My bet would be on a far-sighted innovator based in a market-minded financial upstart like Singapore or South Korea. But why not here? We have 900 kinds of shampoo and one kind of currency — government monopoly money. In what other marketplace does a government monopoly provide the best value?

I don’t get the gold fetish, and I suspect that a currency tied to a single commodity or metal would not be the most stable option. But a currency based on a market-basket of commodities (gold, crude — take your pick, and the more the merrier) could provide a very stable store of value with a basis in something more concrete than the acumen of Ben Bernanke and his fellow committee members, smart guys though they are.

Am I crazy? Let me know in the comments.

– Kevin D. Williamson is deputy managing editor of National Review and author of The Politically Incorrect Guide to Socialism, to be published in January.

Tags: Anemic Fiat Dollars , Monetary Policy , Radical Ideas , the Fed


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