Liberty Maven

Given the direction the political winds are blowing, with world leaders meeting to determine how best to further intervene into the world’s monetary and economic system, the odds of returning to the stable days of the Gold Standard seems infinitesimal at best.  At the Christian Science Monitor, an op-ed titled Forget Bretton Woods II – we need a gold standard, editorialist Walker Todd says that absent the “integrity and restraint a gold standard provides” our country may be headed straight for hyperinflation. Using Weimar, Germany as an extreme example, he illustrated how desperate conditions could get:

Weimar Germany experienced one of the greatest inflations in modern history in 1922 and 1923. Eventually, the official exchange rate reached 4.2 trillion marks per dollar. Some Germans heated their homes by burning cash, since it was cheaper than buying wood. The inflation finally was tamed by government bonds promising repayment in gold, backed by land taxes also payable in gold.

And photographs from the situation in Zimbabwe illustrate clearly what could happen.  Here’s a man going out to lunch:

Here’s a man heading to the store:

This doesn’t exactly make it seem as though each bill is worth much, does it?

In the 37 years since the U.S. Dollar was unlinked from the price of gold, it has fluctuated wildly.  The government suddenly had the ability to inflate the currency simply by printing more, and pay for all their pet projects.  To return to the gold standard now would require that we return to some semblance of a “reasonable” level of spending.  So could we ever actually return to the gold standard?  Todd continues:

But could it realistically make a comeback? Anna J. Schwartz, who co-wrote with Milton Friedman the highly influential book, “A Monetary History of the United States: 1867-1960,” suggested at a 2004 gold conference at the American Institute for Economic Research that only a crisis of sufficient depth and magnitude would provoke the public to demand the stability of gold or a gold-linked currency. Such a crisis, which appeared remote at the time, may soon be upon us.

There’s another significant point that Ms. Schwartz raised in 2004: The size of government itself would have to shrink radically to permit a complete return to gold. Before 1933, the share of gross domestic product represented by government at all levels was about 10 percent. Today, the national average of that share is about 35 percent. Any adjustment to economic shocks has to be absorbed by a proportionately much smaller private sector than was the case 75 years ago.

It’s crystal clear to me that our nation’s spending is out of control, and only a revolutionary reduction in the size and scope of the federal government — indeed a return to a Constutional form of government, as recommended by Ron Paul and many liberty-minded folks — would allow us the opportunity to return to financial stability.