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“Fool’s Gold” Standards

Posted by Gonzalo Schwarz
November 12, 2012

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In a recent Mises Daily“A Golden Opportunity,” Patrick Barron and Godfrey Bloom make the case for Germany to withdraw from the monetary union combined with a strong argument that “a golden Deutsche Mark is possible and desirable.” This recommendation may be a step in the right direction, but it leaves Germany with a central bank and a discretionary monetary policy: “The Bundesbank would be responsible for monetary policy just as it was before Germany joined the EMU.” They conclude,

A prerequisite to market acceptance of any gold money would be confidence in the integrity of the sponsoring institution. Not only is the Bundesbank known for its integrity and reverence for stable money; Germany itself has a worldwide reputation for the rule of law, advanced financial architecture, and a stable political system. For these reasons, Germany would prove to the world that a gold-backed money is not only possible but desirable. (emphasis added)

Joe Salerno, in “Gold Standards: True and False,” provides some sound guidance on discussion of a return to gold. What is ultimately desired is a return to a market-chosen money, which has historically been a commodity — gold or silver money, not a gold- or silver-”backed” money. Salerno’s caution continues to be relevant. He argues, …

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