Should we return to the gold standard? With Congress getting ready to pay for 40 per cent of 2009 federal budget expenditures with money created from thin air, inflation is imminent. Our money will lose its capacity to serve as an honest measure, a meaningful unit of account or to provide a reliable store of value, says economist Judy Shelton.
So we must first establish a sound foundation for capitalism by permitting people to use a form of money they trust. Gold and silver have traditionally served as currencies and for good reason:
A study by two economists at the Federal Reserve Bank of Minneapolis, Arthur Rolnick and Warren Weber, concluded that gold and silver standards consistently outperform fiat standards.
Analysing data over many decades for a large sample of countries, they found that every country in their sample experienced a higher rate of inflation in the period during which it was operating under a fiat standard than in the period during which it was operating under a commodity standard.
Given that the driving force of free-market capitalism is competition, it stands to reason that the best way to improve money is through currency competition, says Shelton. Individuals should be able to choose whether they wish to carry out their personal economic transactions using the paper currency offered by the government, or to conduct their affairs using voluntary private contracts linked to payment in gold or silver:
Legal tender laws currently favour government-issued money, putting private contracts in gold or silver at a distinct disadvantage.
Contracts denominated in Federal Reserve notes are enforced by the courts, whereas contracts denominated in gold are not.
Gold purchases are subject to taxes, both sales and capital gains.
And while the Constitution specifies that only commodity standards are lawful "No state shall coin money, emit bills of credit, or make anything but gold and silver coin a tender in payment of debts" (Art. I, Sec. 10) it is fiat money that enjoys legal tender status and its protections.
Now is the time to challenge the exclusive monopoly of Federal Reserve notes as currency, says Shelton.
Source: Judy Shelton, Capitalism Needs a Sound-Money Foundation, Wall Street Journal, February 12, 2009.
For text: http://online.wsj.com/article/SB123440593696275773.html
For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17
FMF Policy Bulletin/ 17 February 2009
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