We know that we’re all supposed to be concerned about the “Cantor/Brat Affair,” but, really, what difference is it going to make for the average American? Without the Just Third Way, things will pretty much continue as they are. As long as significant systemic barriers exist to ordinary people becoming owners of capital, we might as well save all the time and trouble and stay where we are . . . unless we’re organizing to change the system, of course.
We need economic growth in which every child, woman, and man, not just a wealthy private elite or a government bureaucracy, can participate. Nothing makes a mockery of democracy quite as much as rights restricted to a small group, whether or not those rights are held nominally or denied legally.
So, what is to be done to stimulate economic growth . . . the real kind, not inflationary increases due to speculation on Wall Street and massive government spending? Steve Forbes says he has the answer: return to the gold standard. [http://finance.yahoo.com/blogs/daily-ticker/bring-back-the-gold-standard-and-the-economy-will-prosper--says-steve-forbes-165840191.html]
Okay . . . which “gold standard” are we returning to? The one that never existed, or the one that can never exist? What, exactly does Forbes mean by “gold standard”?
It sounds as if he means that gold would be the only legal tender currency. That has never been the case in any country at any time in history. It is, in fact, a fantasy. Nor does the picture become any less fantastic if you substitute silver, which was the primary monetary metal for thousands of years before gold took over in the latter half of the 19th century.
The specie (i.e., gold and silver) fantasy, however, gives tremendous leverage to Forbes’s opponents. They can point out (as Benjamin Bernanke did) that there simply isn’t enough gold (or silver) in the world to meet the transactions demand for cash.
There are two other possibilities for a precious metal standard, however, both of which make more sense than an exclusively gold money supply.
One, a system in which all legal tender currency is convertible on demand into gold. This means that, whether the money you are using is backed by gold, private sector assets, or government debt, you can convert it into gold if that’s what you want.
Basically, this means that the government sets a fixed price for gold, and anyone with the right kind of money can buy as much gold as he or she wants at that price. Of course, the purchase has to be made with the legal tender currency, but that’s not a problem. The fact is, when the currency is freely convertible into gold, the demand for gold actually goes down. It’s much more convenient to transact business with banknotes, checks, and credit or debit cards. Gold is heavy.
Two, the legal tender currency is measured or defined in terms of gold, without necessarily being convertible into gold on demand. The standard is still gold, but all that means is that you’re doing your measuring in terms of a set amount of gold, just as if your currency was measured in terms of, say, chickens, cows, or elephants.
If you have something that is worth the same as an elephant, you don’t need the elephant to validate the worth of what you have. You just have to be aware that what you have has the same value as an elephant.
Of course, the main problem is “elasticity.” Yes, the prime rule of a reserve currency is that it must be asset-backed — and government debt is not an asset. It’s a debt. Government debt is backed by taxes that have not been collected, and that might not be collected, or even granted.
Elasticity refers to a currency that expands and contracts directly with the needs of the economy. If the government creates money, this is largely a matter of guesswork. If money creation is tied directly to the present value of existing and future marketable goods and services through private sector issuance of mortgages and bills of exchange, the supply of money will (at least in theory) always be equal to the demand for money.
Thus, if Steve Forbes wants to benefit his country and stimulate economic growth, he really should investigate CESJ’s Capital Homesteading proposal, paying particular attention to the expanded capital ownership feature and the monetary and tax reforms. It is, after all, a golden opportunity. . . .