Back to the gold standard

So, the GOP has decided it wants the US to go back on the gold standard:

Drafts of the party platform, which it will adopt at a  convention in Tampa Bay, Florida, next week, call for an audit of Federal  Reserve monetary policy and a commission to look at restoring the link between  the dollar and gold.

Marsha Blackburn, a Republican congresswoman from Tennessee and co-chair of  the platform committee, said the issues were not adopted merely to placate Mr  Paul and the delegates that he picked up during his campaign for the party’s  nomination.

“These were adopted because they are things that Republicans agree on,” Ms  Blackburn told the Financial Times. “The House recently passed a bill on this,  and this is something that we think needs to be done.”

Paul Ryan in particular is very much for it (Digby has more from Rand):

Still, now that Ryan claims he’s more of a Thomas Aquinas guy than a Randian, it pays to understand what he took from the late Russian-American objectivist. The Rosetta Stone of Ryan-Randianism is his 2005 speech to the Rand revivalist Atlas Society, made when Ryan was in his fourth term and his Republicans were clearly losing their grip on power. He makes a few references that only compute if you’ve read Atlas Shrugged.

I always go back to, you know, Francisco d’Anconia’s speech, at Bill Taggart’s wedding, on money when I think about monetary policy. Then I go to the 64-page John Galt speech, you know, on the radio at the end, and go back to a lot of other things that she did, to try and make sure that I can check my premises.

The problem, says d’Anconia, is that statists — looters and moochers — see dollar signs and think they can, must redistribute them. “Whenever destroyers appear among men,” he says, “they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it becomes, marked: ‘Account overdrawn.'”

As Paul Krugman notes, this means Ryan might even want to get rid of paper money altogether.

Of course, if you believe in Keynes at all this is crazy as explained here:

 If everybody is trying to hoard more gold, you’re going to have to pay more potatoes to get an ounce of gold.  Since the U.S. insisted on holding the dollar price of gold fixed, this meant that the dollar price of potatoes had to fall.  The longer a country stayed on the gold standard, the more overall deflation it experienced.  Many of us are persuaded that this deflation greatly added to the economic difficulties of those countries that insisted on sticking with a fixed value of their currency in terms of gold.

Paul Krugman via Mark Thoma explains more here:

Why not emulate our  great-grandfathers and tie our currencies to gold?

Very few economists think this would be a good idea. The argument against it  is one of pragmatism, not principle. First, a gold standard would have all the  disadvantages of any system of rigidly fixed exchange rates–and even economists  who are enthusiastic about a common European currency generally think that  fixing the European currency to the dollar or yen would be going too far.  Second, and crucially, gold is not a stable standard when measured in terms of  other goods and services. On the contrary, it is a commodity whose price is  constantly buffeted by shifts in supply and demand that have nothing to do with  the needs of the world economy–by changes, for example, in dentistry.

The United States abandoned its policy of stabilizing gold prices back in  1971. Since then the price of gold has increased roughly tenfold, while consumer  prices have increased about 250 percent. If we had tried to keep the price of  gold from rising, this would have required a massive decline in the prices of  practically everything else–deflation on a scale not seen since the Depression.  This doesn’t sound like a particularly good idea.

This probably is an attempt to tie current Republican with Reagan who also called for a return to the gold standard. Of course, the commission he appointed to study going back on the gold standard, decided against it–it was just a ploy to get some votes from libertarian types. Is this another such ploy or do Republicans actually believe it this time?

 

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