Monday, 17 September 2012

A Terrible Confession

I have come to a gradual & horrible realisation.
I can no longer live a lie, nothing can justify pretending to be somebody else. I am coming out. I am a gold-bug.
I know this is a shocking admission & only my closest friends will stand by a man with such a horrendous affliction. Flat-Earthers, morons, dark-age clowns are some of the kinder words the great & good have hurled at those afflicted with the entirely bizarre view that hard currency, backed by gold, is good or desirable. 

Gold currency must be a very bad idea because those brilliant people who inhabit the higher echelons of central banks & government finance departments would not, in a gold currency situation, be able to exercise their magnificent minds managing the economy. Their intellects & wisdom, greater by far than the collective wisdom expressed through freely made choices that we call the markets would no longer be employed in their arcane & esoteric arts & the unfortunate economy would be left to itself....

That we might be so lucky.

Economies are not manageable entities. It can be argued they are by far to large & to complex for effective intervention but although size & complexity would make their management beyond human power it is the very nature of a market economy that precludes management.

Free markets work because they are merely our free choices exercised again & again, the repetition of all our choices informing the goods & services that are made available. Price is a constant exploration by all of us, collectively in whatever market we are operating. (There is neither perfect knowledge, perfect opportunity or equilibrium- that last the daftest ignorance of markets ever committed  by intellectual clowns) That exploration is a constant pushing & pulling, a tug of war always to the consumers benefit in a free market.

Management of this process is a ridiculous concept: we all mange the market with our purchasing & selling decisions. When a politician or a bureaucrat threatens to "manage" an economy what they threaten is to replace our choices with their own. Instead of the democracy of our values implemented by our preferences with our money they will substitute an oligarchy, the options of a tiny coterie in offices, very much less concerned with our lives than we are.

Such oligarchs, no matter how intelligent or wonderfully educated, can have only a fraction of the knowledge distributed throughout the players in whatever market they are trying to manage. We know more than they do simply because there are far, far more of us. The same rule applies to market power: the very rich have more money but the rest of us buy much more because there are just so much more of us.

The size of the economy is not the essential problem: that merely multiplies the issue that idea of "management" presents.

Gold robs the oligarchs of their central plank: management of the money supply. Oligarchs manage the money supply by printing money for their cronies. Ordinary citizens are robbed by inflation of the money supply because by the time the newly printed money is circulating to them, it has devalued the money they have or earn.

It is first users, banksters & their executives who benefit because they have the use of the new money before the effect of the increased supply robs money of its value. Borrowers benefit in a second tier, purchasing assets or labour with the new money, allowing it leak it into the economy & devalue all the currency.

This robbery is usually done under the pretext of "stimulating" the economy in a boom but such sugar rushes are by their very nature a fleeting phenomenon. Once every market in the economy adjusts in prices then the printing has to be done again to "stimulate". Inflation is the enemy, not deflation.A stable gold currency does not create depresion/deflation: that is a function of oversupplied credit & capital destruction.

Inflating the money supply clouds the exploration of price. Low interest rates, pressure on banks to grow loan books & continuously rising asset prices create a wonderfully fun but utterly toxic spiral: ask any Irish person. Four years in to a recession that may well last all of this decade & after the clueless reigns of Greenspan & Trichet the arguments for management are as threadbare as Barroso & Bernanke's economics.

Gold cannot be printed.
It robs not just the politicians & the bureaucrats of their self appointed management function but of the very monopoly on money itself. Gold cannot be counterfeited either.

In a week that Ben Bernanke & Mario Draghi both announced an inflation fuelling robbery of American & European citizens the idea of an honest currency that cannot be debauched under the ridiculous Keynesian pretext of liquidity looks much more attractive. I have never seen an argument against Gold that I found convincing but then, I have never seen an argument against Gold. Lots of insults, ad hominem attacks but no rigorous defence of fiat currency & the power to inflation-tax ordinary people.

There are good reasons to be a Goldbug. Schumpeter, in his usual contradictory manner said "This is the reason why gold is so unpopular now and also why it was so popular in a bourgeois era. It imposes restrictions upon governments or bureaucracies that are much more powerful than is parliamentary criticism. It is both the badge and the guarantee of bourgeois freedom—of freedom not simply of the bourgeois interest, but of freedom in the bourgeois sense. From this standpoint a man may quite rationally fight for it, even if fully convinced of the validity of all that has ever been urged against it on economic grounds. From the standpoint of etatisme and planning, a man may not less rationally condemn it, even if fully convinced of the validity of all that has ever been urged for it on economic grounds."

There are reasons why a Gold Standard may not be possible or that a return may face insurmountable obstacles. That does not mean we should not discuss a currency free from government mismanagement.

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