A gold standard would do wonders for economic growth, but would almost certainly not limit the growth of our federal government. The view that it would insults markets at least three times, but certainly many more.
Implicit in the notion that a gold-defined dollar would bring about fiscal discipline is the odd view suggesting a floating dollar lacking a golden anchor enables more government borrowing. It’s not serious.
Implicit once again in the view that money severed from a gold would enable unlimited government growth is the view that uncertain income streams are attractive to debt buyers the world over. The very notion!
Such a notion ignores the fact that no one buys income streams, rather they buy what those income steams can be exchanged for. Assuming a floating, occasionally devalued dollar, we can extrapolate from either that the income streams are unreliable such that they would logically be less attractive to buyers of the debt securities paying the monies out.
To which some will reply against observable, global reality that there’s no real market for U.S. Treasuries as is, that the Fed is the only buyer of government debt. Forget that Treasuries are the most owned and analyzed income streams in the world for a minute, and just contemplate what the promoters of such an absurd mode of thinking are saying: the Fed just prints the money that enables ever more debt and ever more government. Ok, but just who are the customers of our federal government and employees of the same that would accept dollars that don’t exist as a consequence of production, but as a consequence of the productivity of printing presses? Once again, the very notion!
Markets just aren’t this foolish. Exactly because counterfeit money is printed without regard to production, it quickly disappears from circulation. Yet the dollar doesn’t just circulate stateside, it also circulates globally. Which means dollars are an effect of production such that they command production, not just the bitter fruits of an overactive printing press.
About what’s been written so far, none of it should be construed as evidence of acceptance of a floating dollar. Far from it. In an ideal world, money would be nothing more than a measure broadly accepted by producers as a facilitator of crucial wealth exchange. Adam Smith was right that the sole use of money is to facilitate the exchange of consumable goods.
Which explains why a gold-defined dollar, far from shrinking government, would expand it. Quite a lot. Exactly because stable money as a measure would facilitate more trade, less hedging of the value of existing wealth, and more investment in the creation of new wealth, economic activity would soar if the dollar were stable. And with this growth, so would grow tax revenues for the U.S. Treasury in concert with Treasury’s rising ability to borrow even more based on the trustworthiness of Treasury income streams paying out gold-defined dollars.
To be clear, none of this is a criticism of gold-defined money (it’s actually an endorsement of it), and none of this is a call for bigger government. Quite the opposite.
It’s just to say that what’s good for the economy is good for governments that have taxable access to economic growth. Brilliant as gold-defined money would be and has been, to believe it would limit government is to presume that credible income streams would be unattractive to investors. Again, a presumption that markets are stupid. They’re not.
