Today the government decides what we use as money, and it can print new money whenever it wants. Under laissez-faire capitalism, there is a separation of state and economics—and this includes a separation of the state and the money supply.
If this issue sounds remote or unimportant, it shouldn’t. Ending government control of money is indispensable to protecting freedom.
Money is, of course, crucial to our lives. In a division of labor society, individuals don’t produce the things they themselves consume (the way a farmer might). They produce things that other people want, sell those things for money, and use the money to buy the things they themselves want. Money is a tool of exchange.
Under laissez-faire capitalism, individuals are free to use whatever they want for money, assuming they can get other people to accept it. Historically, when people have been free to choose their medium of exchange, they have gravitated toward gold.
There are a lot of reasons why gold makes for good money: it’s fungible, it’s portable, it lasts forever—and it’s relatively scarce.
Today, money consists of green pieces of paper (and computer entries) that the government can print at will. It’s the complete opposite of scarce, and that’s a very dangerous thing because it enables the government to spend virtually without restraint.
Under a gold standard, government spending is constrained by what the government can collect in taxes. But when it controls money it can inflate the currency.
Inflation is one of the most destructive things that can happen to an economy. As the government prints more money it doesn’t magically bring new goods into existence—it merely dilutes the purchasing power of each dollar: your money is worth less. It’s for this reason that inflation is often referred to as a “hidden tax.”
Some of results?
- The government can eat away at your savings.
- The government can take on incredible amounts of debt, as we’re seeing today.
- Inflation can distort the entire economy. The new cash can become concentrated in certain sectors of the economy, creating bubbles that ultimately burst—as we saw during the recent housing boom and bust.
Under a gold standard, the government has no power over the money supply: it cannot inflate. Its power to spend is restrained, and its ability to create bubbles is eliminated. Whatever the economic advantages of gold, the political advantage is undeniable: gold is the guardian of a free economy.
Monetary economics is a vast, complex topic, but here are a few resources that I recommend for anyone thinking about this issue.