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Gold is NOT a Fiat Currency

October 8th, 2008

Some libertarians are prone to argue, against the so-called “gold bugs” that gold is essentially a fiat currency. Reiterating the common accusation, Tony proposes that, “Gold has value for the same reason a dollar isn’t a mere piece of ink-stained paper: someone else values it,” and continuing: “During a famine, would you accept gold for a loaf of bread? A loaf of bread for gold?”

Whenever I see this sort of argument, I’m compelled to respond. It’s a sickness, I know.

During a hyperinflation, would you accept a billion Zimbabwe Dollars for a loaf of bread? A loaf of bread for a billion Zimbabwe dollars? That’s a straw man argument, if ever I’ve read one. Perhaps more importantly, the “Diamond-Water Paradox” was thoroughly destroyed over a century ago, based on the theory of subjective valuation, to which I believe Tony refers in the previous sentence.

The peculiarity in the argument is that libertarians are apt to complain when government interference in the market for (e.g.) sugar, artificially overvalues sugar as compared to other goods, or when government interference in the market for (e.g.) automobile manufacture, makes autos more expensive than they otherwise would be. But many libertarians turn a blind eye to the outright interference in the market for nik-stained scraps of linen and cotton, which government compels everyone to accept under penalty of law.

I responded thusly:

And the only reason anyone values an ink-stained greenback, is because behind it is a government gun. Labeling hard-money proponents as fetishists is kind of off-the-mark. What we want is not to impose “gold” or anything for that matter, we just want to be free to trade in any medium which is mutually accepted, without being penalized by the government.

The fact that fiat currencies are imposed and maintained by violence, deception, fraud, and theft, is *always* overlooked by people willing to apologize for fiat currency. *ALWAYS*

Until and unless you’re willing to defend that idea, you can’t – with any consistency or conviction – complain about specie advocates.

Tony redeems himself in closing, suggesting that we can argue “for gold” and “against fiat”, but bearing in mind that they are “separate issues.” I’d tend to agree with him, at least in part, in this conclusion. I write occasionally about gold, and its merits, but my real complaint is against fiat. As with every other arena, individuals should be free to choose, without a market distorted by government manipulation. I object to fiat, and use gold to illustrate the likely alternative.

Gold is free market money, or at least my best estimation as to what the market might choose, given freedom, based on the simple fact that gold has continually been valued by nearly every civilization during 5,000 or more years of recorded history.

Comments

5 Comments

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  • KipEsquire says on: October 8, 2008 at 7:25 am

     

    You’re still tap-dancing around the core issue: gold only has value because people say it has value (or expect other people to say it has value).

    Neither gold nor anything else can ever have “intrinsic value.” In that sense gold is definitely indistinguishable from fiat currency and there is definitely such a thing as a “gold fetishist.”

    The difference between gold and fiat money is that a government cannot debase gold. I know of no libertarian who denies that.

    The debate is instead whether it is better, in an advanced global economy to argue for a government that cannot debase gold or one that will not debase its currency. I continue to support the latter because I believe the former is simply unworkable.

  • Jeff Molby says on: October 8, 2008 at 1:14 pm

     

    You’re still tap-dancing around the core issue: gold only has value because people say it has value (or expect other people to say it has value).

    No, he’s specifically stating that that isn’t the core issue. Fiat currency has value solely due to government coercion. If the government disappeared tomorrow, so would the value of its currency. Gold would retain a strong value sans government.

    The debate is instead whether it is better, in an advanced global economy to argue for a government that cannot debase gold or one that will not debase its currency.

    You forgot the third possibility: a government that will debase its currency as often and as much as it thinks it can get away with.

  • Tony says on: October 11, 2008 at 11:33 am

     

    I think I clarified most of your objections in my response, although I know we differ on the role of the Fed. Much like Kip’s conclusion above.

    Here, I’ll just say that I wasn’t aiming for the “Diamond-Water Paradox” with my gold-bread argument. That’s why I put the specific scenario of a famine. Although maybe an individual’s answer would be “yes” to a bread-for-gold exchange if we went deeper into the scenario, my point was to show that all tastes and preferences are subjective. It was a weak example, but sufficient for my basic point.

    I don’t doubt that gold would emerge as the dominant currency in a private system. If a consensus emerged, even though I don’t like gold, I’d (happily) use it. That doesn’t change the subjective nature of its value. If I commit to gold and then everyone else decides they want to use blueberries as the preferred currency, I’m switching to blueberries rather than clinging to gold as valuable.

    Obviously blueberries would be a poor currency choice since anyone can grow them and the supply would grow rapidly. Inflation from the ground. I accept that there are objective criteria for choosing a medium of exchange. Those criteria (supply is fixed) make gold objectively better than other items. But the supply of oil, copper, etc is also fixed. Why gold over those?

  • Turny Bright says on: August 31, 2009 at 8:34 pm

     

    God IS fiat money, but it differs from the average image of "printing presses madly issuing worthless paper" in that it is fiat money that ANYONE can pull out of the inkwell. Gold proponents seem to understand that the ability to create fiat money results in a disproportionate balance of power (to the government in the case of this debate), but ignore the fact that the value of gold without gov't coercion is as much of a "fiat-type" value system as WITH government coercion specifically due to the historic tendency of people to become "gold fetishists," and form a strong-arm gov't stigma for its value.

    Also, why would a currency with a fixed, finite supply be any good to stimulate growth in an economy? Seems to me that a constantly expanding fiat base (like blueberries) makes far more sense. Especially if every blueberry-grower/banker made sure everyone who got those blueberries as a basis for trade agreed not to inflate their expanding currency by selling their goods at a lower rate than profit margins require, with the blueberryman/banker agreeing to pay the profit from his infinite supply of blueberries. Wow. Expanding currencies aren't necessarily inflating currencies? MADNESS!

no third solution

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