Gold Standard Is Government Intervention

Recently there’s been a revival of interest in the gold standard on the American right.  As fixed exchange rates inevitably lead to massive government intervention in the economy, I cannot understand why any conservative would get behind the idea.

Under fixed exchange rates, governments must intervene (with taxes, regulations, tariffs, etc) to maintain price stability.  Only under floating exchange rates can the central bank alone fulfill this role.  Ask yourself, why did Milton Friedman oppose fixed exchange rates?  Why did the greatest proponent of sound money of the 20th century oppose fixed rates, when they deliver perfect price stability?

Under fixed exchange rates, the government is forced to use taxes to do what a floating rate would.  With market forces in the currency markets suppressed, the government must use taxes to maintain economic balance.  If consumption (and GDP growth) is too high, the government must raises taxes.  If a trade deficit develops, the government must levy a VAT to curtail consumption.  Fixing exchange rates removes a key market force from the economy–and forces the government to replace it with tax policy.

That is what the gold standard is.  Keynesians in the 1960s were pro-gold precisely because it leads to greater government intervention in the economy.  They opposed floating exchange rates for the same reason.

This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s