The Reason for a Commodity Based Monetary Standard

One of the reasons I know Ron Paul is a pretty stand up guys is because he’s up front and honest:

I’ve described the rationale behind the idea of taxation being theft but taxation isn’t the only type of theft the government partakes in. Another type of theft they perform is inflation. As the Federal Reserve prints money each monetary unit (dollar) becomes worth less.

If you have $10,000 in a bank account at the government prints off $100,000 inflation ensures the value of each dollar goes down meaning that the purchasing power in your bank account becomes less. Inflation takes some time to kick in and thus those who first receive the money are unaffected while those of us at the bottom of the receiving pole get the feel the full force of it.

During this whole bailout fiasco the government has been printing trillions of dollars and handing those bills out to companies that are “too big to fail” and foreign banks. This is a nice little double dip of theft as the government first stole money from the citizens in the form of taxes and then they stole purchasing power from us in the form of inflation.

This is where the advocacy of hard money comes into play. People often hear libertarians speak about a “gold standard” and scoff. When you understand the reasoning behind the gold standard is makes a bit more sense though. First saying gold standard is a bit of a misnomer as any commodity can be used in place of gold (gold has traditionally been used because it was the commodity chosen by the market).

What a commodity standard does is prevent government theft in the form of inflation. One of the benefits of gold is that mining it is a fairly intensive process and much of the mined gold is used for industrial uses. This means the amount of monetary gold remains mostly fixed and thus the purchasing power of each ounce o gold remains mostly constant. As gold can’t just be printed up the amount can’t be increased on a whim so the government is restricted from “printing money.”

The reason libertarians say we need to return to the gold standard is because there is no better way to protect each person’s purchasing power from government initiated inflation.

3 thoughts on “The Reason for a Commodity Based Monetary Standard”

  1. Historically the supply of gold has grown at about the rate of population. So you end up with a pretty stable amount of money per population since they are both growing at the same rate. In the past when massive amounts of gold flooded the market there were inflation problems (like when Spain looted the gold from the new world), but the Gold standard seems like the best option money wise, and we are unlikely to have a massive increase in supply like that again which would cause issues.

    1. The other thing to mention that I don’t think I emphasized enough is the fact that it doesn’t have to be gold but any commodity. Traditionally gold and silver were both used for money although the United States messed that up by trying to enact a fixed ratio between the two which makes no sense at all.

      When a free market money is selected if the value of one type of money commodity goes down people usually invest in another type which is why gold and silver were both in use (when one would go down people would put their assets in the other and visa versa).

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