It’s hard for me to imagine how you get government out of money. Gold isn’t money–it’s a commodity. Trading wheat for gold is barter; it’s exactly like trading wheat for apples. Gold becomes money when some regulating authority certifies its weight and purity, minting it into coins of casting it as ingots of a certified weight and purity. Taking a gold billet and stamping it with the image of the king makes it money. The King’s image certifies the value of the gold, and makes the gold coin more useful than gold nuggets or gold dust, because it’s faster. Lay the coin down, and everyone involves knows its value. Lay the nugget down, and it has to be assayed. It might be possible to have a non-governmental authority certify the value of a gold coin, but you’d need some legal and political enforcer–a government–behind it.
Barter involves trading one thing of value for another. But money introduces the symbolic into the equation–the coin symbolizes something. The King’s authority, the farmer’s labor, the principle of liberty, the idea of purity" money is symbolic in a way that objects in barter are not. Often the thing money symbolizes is not very obvious. For example, our paper money is backed by, is a symbol of, the labor of the American people and the material wealth of the USA. That’s pretty abstract–it’s real, the labor is real, the assets of the USA are real, but the paper as a symbol is pretty abstract.
The gold standard is attractive to people because gold appears permanent, objective, “natural” and “real.” It’s not abstract. But gold has no magic properties: if the economy collapsed tomorrow gold would have value, but so would iron, bullets, cans of soup and rolls of paper towels. And even under a gold standard, in capitalism, there is always money floating around which is not actually backed by gold–again, this is the essence of credit. Banks have 1000 in gold, they loan out 5000 with the expectation of getting 8000 in 5 years. In theories of the gold standard, the bank would have to be paid back in gold at the end of ten years. Where is that gold coming from?
It’s either coming out of someone else’s pocket, which means if I’m getting richer someone else is getting poorer, or it’s coming out of the earth–theoretically, gold would become so valuable that it’d be worth it to extract it in minute amounts from millions of gallons of seawater. But why? Why go to that trouble? Why would you have to wait to get a loan till more seawater had been processed?
What we have had since 1913 is a paper money indexed to the GDP, more or, less, and nominally we had a gold standard, but officially we went off it domestically in 1934 and internationally in 1972. It seems to be working ok, really. There no evidence that we have greater financial instability now then we did in 1878, or 1898 or 1938, say, or 1988. The money system we have now was pretty much envisioned very eloquently by Ben Franklin back in 1729 (http://etext.virginia.edu/users/brock/webdoc6.html). Milton Friedman himself, the Father of monetarism, says a gold standard is unworkable.
Friedman’s basic argument was that the govt. should as much as possible make money-making an automated, routine thing. Increase the money supply by, say, 3% every year, automatically. That way you would have steady economic growth and stable prices and interest rates. In practice it’s hard to do that, because there are depressions and booms in which the money supply contracts – we just had a big one–or increases as growth accelerates, as in the 90s. There are sudden material shortages of real commodities. Generally when the Fed makes one group happy it makes another group unhappy.
For the last decade China has had the fastest, most extensive economic growth the world has ever seen, and it’s done it in large part by keeping its currency really weak. This grows their economy but keeps the standard of living for Chinese workers lower than it would be if the currency were allowed to “float.” Sooner or later China will have to deal with that. It will probably have to strengthen the renmin, which means the dollar will go down, which means Chinese exports will be more expensive, which will make US goods more attractive and encourage overseas production to move back to the US. But of course, in the near term it would also mean that US consumers have less purchasing power.
In my opinion it’s a balancing act–there’s no magical solution.
