As a libertarian who dabbles in the dismal science, I feel obliged to don my tin-foil hat and throw out some tirade about how the Fed is destroying the value of the dollar, and that we should return to a more reasonable monetary standard. Well, the Fed is destroying the value of the dollar, and, we should return to a more reasonable monetary standard. I’m working on a response to one of Kip’s old posts (Gold Digging) about the gold-standard, and “tin-foil hat” libertarians who advocate a return to a specie-standard of currency.

I’ve got quite a bit going on in my jumbled notes and quotes for this response, and I’m trying to pare it down and make it reasonably concise (and readable). One of the problems I’m having is evidenced in the following quote: “[T]he price of gold, um, fluctuates. Or if you prefer, the dollar fluctuates against gold.”

You see, I’m not sure if Kip is consistently referring to a gold-standard. There is no such “fluctuation” if the amount of notes printed are equivalent to that additional quantity of gold extracted from the ground. Under a gold standard, a Dollar, Franc, Euro, Yen, etc., is strictly a numéraire, and denotes a certain quantity of gold of a certain fineness. Historically, the ratio was 1 USD = 25.8 grains, 9/10 fine, or $20/oz of pure gold. It makes no difference what this ratio is, here or elsewhere, so long as the ratio is maintained constant, and so long as we understand that what is really being transacted, when we discuss “dollars” in the context of a gold standard, is a certain quantity of gold.

More to follow…