“There were no marches for Adam Smith or posters of Milton Friedman at Davos this year, but the applause for the combative defense of free markets by Argentina’s new libertarian President Javier Milei was more than polite. Citing the contrast between ages of stagnation and the miracle of accelerating progress in the modern era, Mr. Milei reminded his audience that `far from being the cause of our problems, free-trade capitalism as an economic system is the only instrument we have to end hunger, poverty and extreme poverty across our planet’.”
– Walter Russell Mead, WSJ ($)
A couple more from the paywalled article:
His words resonated because, as one heard in panel after panel, the empirical foundations of the fashionable statist view appear to be crumbling. For now at least, the China miracle seems to be over. Beijing isn’t only suffering one economic shock after another. Its worst problems—demographic decline, a property bubble, overinvestment in manufacturing, and fear of arbitrary state actions against both foreign and domestic businesses—are the result of government planning gone wrong. As China doubles down on repression, its economic problems get worse.
Fifteen years after the financial crisis, meanwhile, tightly regulated Europe has fallen behind the U.S. Using chained 2015 dollars to minimize the effect of currency fluctuations, total European Union gross domestic product in 2008 was 81% that of the U.S. In 2022 it was 73%, hardly an argument for the European way.
The final point is a good one. These days, only the more ardent fans of the Brussels machine really claim that EU membership has had, or could have, a transformational impact on economic growth. That argument, to the extent it made sense, is a dead letter.
Both Vietnam and Laos claim to be socialist. Can anyone tell me how they are doing, economically?
Vietnam is one of the faster growing emerging markets. Nominally it’s a socialist country but free enterprise operates vigorously. It’s a dynamic place. On my list of places to go.
Vietnam is much the same, economically, as China – a Communist Party political dictatorship, but with a largely private enterprise economy.
Yes China has a fiat (command-order-whim) monetary system and a Credit Bubble financial system – and this is very bad. So do Western countries. This monetary and financial mess is going to collapse everywhere – and take the “Cantillon Effect” class with it.
As for the positive reception for the President of Argentina at Davos – perhaps (perhaps) some of the international elite are starting to understand that if they destroy the world with Collectivism they will lose their own comfortable life styles. The “you will eat bugs whilst we eat steak, you will will live in 15 minute cities whilst we have private jets” idea is not going to work.
I beg to differ that the argument that he Brussels machine really claim that EU membership has had, or could have, a transformational impact on economic growth is dead. It has had an impact transforming high growth to highly regulated low growth. Which was one of the reasons to leave…
TomJ
Which was one of the reasons to leave…
And leave all the same regulations in place. However, thank God the government is focusing on preventing the last six people in Britain from smoking. I mean really, that is one area the EU’s regulatory framework was really slacking off.
Paul Marks said:
I’ve been waiting for the collapse since about 1985-ish, when they first blew past a measly trillion dollars in national debt. Collapse hasn’t come, and they’re now up to, what…? 31 trillion that they’ll admit to?
When is the collapse coming, again?
Here’s the rub, with all of this: We’re in entirely unexplored territory, here. Nobody really knows how an economy like ours really works; there’s no track record, no data. We’re going on supposition based on previous scarcity-based economies that were sufficiently primitive that we had over 90 of the population engaged in farming enough food to keep everyone else fed. What’s the proportion of farmers, these days…? It sure as hell isn’t 90%. The other question is just how much effect all this automation and connectedness has had on the basic assumptions of economics. Everyone who was anyone back in the day would have looked at today’s economy and gone “There’s no visible means of support… It should have collapsed, by now…”
Yet, it hasn’t.
I’ve no idea why, but I would submit that there is obviously something off with our classical assumptions about such things, and that we may be edging over into a post-scarcity situation ever so slightly. That’s about the only explanation I can come up with, that all of our assumptions are based on earlier prevailing conditions that no longer obtain.
I keep waiting for the economy-shattering Ka-Boom, but we ain’t had one. Why that is might be a good question to ask the next actual working economist you meet, because I clearly remember reading various tomes on economics dating back to the 1970s that quite plainly said that what we’ve got going on today is impossible…
31 trillion in formal debt, and God alone knows how many in unfunded mandates. How’s all this still working, again?
TomJ, you’re wrong. I have heard Remainers claim that Britain will suffer low growth outside the EU, and that joining it boosted our economy and that the EU would boost growth in general. That was the original sales pitch for the Single Market. Yes, there was a desire to regulate everything – the French curse – but there’s no doubt about what people originally claimed.
of course, there never has been a pure free-market economy. Conversely, even Soviet Russia was never able to dispense with prices entirely. But you do see a strong dose-dependence effect: in general the freer a country is economically, the more prosperous it is materially. This is particularly true in nominally socialist/communist countries. China has become more prosperous as it has allowed more private ownership.
Kirk,
No mystery, the dollar is the reserve currency. It is the world’s currency and America’s most important export. Should that change and the US become just another country, it would indeed be in trouble but that is unlikely to happen untill the west itself falls. But still, as you say, uncharted territory.
Why would there not be more money? Given that there is a LOT more wealth — I live better than a king of 200 years ago — there should be a lot more money. If we kept the money supply at the same amount there would be massive deflation — which is terrible for an economy.
We also keep inventing whole new areas for our economies to grow in. The billionaires of today have a tendency to have made their money on things that did not exist 100 or even 50 years ago (which is why they could make their money so fast). More things, even if virtual things, mean more wealth.
Pace Paul Marks, if we didn’t have fiat money, and went to some fixed system, then we might be more stable, and vastly poorer. Although since governments had major financial issues even on the gold standard, it is hard to see how the current system is actually worse.
Chester Draws,
Exactly. Being the reserve currency means the US Isn’t printing money for its domestic economy, it’s printing money for the world economy.
As you say, a modern, growing economy has to have a fiat currency, it’s a given. Politicians screwing around with it is just something we have to put up with.
@Fraser: We at least have the opportunity to deregulate. Maybe not today, maybe not tomorrow…
@JP: I understand what people claimed. I’m simply claiming the opposite is in fact true.
Roue:
Are you suggesting that for an economy to grow, it is necessary to have money based on nothing but the word of government?
You mention that the US Dollar is the world’s reserve currency. This is true, but it did not happen by accident. In 1945 the US economy was about half that of the world. At Bretton Woods the USA insisted that their currency should be the world reserve, but backed by gold at $35/ounce. Since 1971 it has not been backed by gold, but remains the global reserve, even as the relative size of the US economy has declined. The agreement of Saudi Arabia to price oil in dollars has certainly helped, but it hard to see how this can continue forever.
However, I dispute your claim that a growing economy requires an ever increasing supply of fiat money. That can only lead to inflation, as each year each unit of fiat currency buys less. Any “prosperity” this system brings is illusory. Again, it cannot last, but nobody knows how long it will last for.
OK, This might seem somewhat OT…
Have you seen TEMU? What is TEMU? I mean seriously… Just look at the prices and the absolute shite* they “sell”. Now I have an hypothesis.
I seem to recall reading recently somewhere (sorry) that China has 31% of the planet’s manufacting base but consumes 17% of manufactured goods. That 14% has to go somewhere. Is TEMU the PRC’s waste management system? Is it how they get rid off all that crap because it is marginally cheaper (and a lot less embarrassing than landfill?)
Othewise I simply don’t understand TEMU as an enterprise. All I can think is the CPC has it to get rid of the crap they can’t sell via Ali Baba or whatever. So… the CPC allows, encourages, whatever China into having an enormously large manufacturing sector and TEMU is how they off-load the inevitable bottom of the barrel junk this results in. Nothing else makes much sense.
I am oddly reminded of Seymour Cray. Bear with me. Cray starts off building computers using transistors which was new at the time. It was new because transistors cost $3 each. He had the whiz-bang idea of buying transistors which had failed batch testing (a dime a go) and building computers from such things with sufficient redudancy that they’d still work and were still a lot cheaper. Is TEMU buying up huge quantities of things that failed a batch-test. Yes, I am aware there is a world of difference between Bond villian super-computers and TEMU’s infamous camo-styled umbrella hat but might there be a similarity in the business model at some level?
Or as Kirk suggests could this be some sort of post-scarcity stuff. I recently built a PC from scratch. I have done this several times before. This time around I was somewhat surprised at the concept of a “showcase PC” – a computer with more expensespent on the looks and the LEDs than the guts. The days of the beige box are long gone. I went anti-vejazzle and mine looks kinda like the momolith in “2001 – A Space Ogyssey”. I mean you can get skeleton cases which don’t actually encase. And they’re pricey. They are designed to show-off the hardware. Call me old skool but I prefer to do that via what comes on screen or out the speakers. Oh and I also have two cats and paws and unshielded fans don’t mix. And the prospect of a shagged computer and a hefty vet’s bill is not good…
*I have never bought anything from TEMU because they have a dreadful reputation. But they also sell things that aren’t just very flimsy looking but seem to occupy niches that are sometimes inconceivable. I mean answers to problems I never suspected anyone would ever ask but then China has like a billion people so monkeys and typewriters and not getting the complete works of Shakespeare – most of the time.
JohnK,
Yes, indeed I am. If the economy grows and the money supply doesn’t, the result is deflation.
Imagine a hundred castaways of both sexes each with a gold coin. One coin is one percent of the economy, which initially stands at a pile of coconuts and some dried fish. Come back a century later and it’s a thriving settlement with over a thousand people, with a town, farms and craftsmen. But the whole economy is still only one hundred gold coins. People are having to trade with itty bitty pieces of gold leaf. Nobody wants to spend any money because it’ll be worth even more next year.
Gold is ok for agrarian economies producing the same for centuries but it doesn’t work if your economy is growing steadily.
Nick,
China is nowhere self-sufficient. It has to buy in loads of goods and so it needs lots of foreign money. It gets this though exports. It isn’t entirely true that china’s output is cheap crap, this impression is gained because importers tend to buy the cheapest stuff rather than the better stuff because they can mark it up further.
Roue:
I think you will find that the global supply of gold increases every year, it is not static. The global economy might appear to grow, but how much of that is real?
You present deflation as a bad thing. Would you prefer still to have to pay £2000 for a laptop with 1/10 of the processing power of a modern one? It’s an extreme example, I know.
Take property. A relative of mine bought a house in London in the 1960s for £3000. It’s now worth well over a million. The house is much the same, the pounds aren’t.
Increasing the money supply above the growth rate of the economy is a drug. It gives a short term rush, but in the long term it is ruinous.
Roue,
I didn’t say Chinese stuff is all cheap crap but if you are making that much some of it will be. Some of it will be excellent and most in the creamy middles but there is always going to be some shite at the bottom. It’s like refining petroleum. You got that nice high-octane stuff at the top but then there’s tar at the bottom… And of course they’re not self-sufficient. Is anywhere? Oh, yeah, North Korea (The Juche idea). Obviously North Korea isn’t actually self-sufficient and I assume Fat Kim imports his Emmental (he developed a taste for it whilst “studying” in Switzerland) but like whatever. Nobody is self-sufficient which is why Yemen needs to be bombed into… Ah, feck, that’s where my strategic brilliance honed via Sid Meier and Sun Tzu kinda fails… There really is fuck-all to bomb in Yemen! I mean it’s like Gaza. How do you wield a big stick against people with literally nothing to lose?
Deflation, the scary shibboleth that fiat money fans always pose. Without gov’t interference, prices tend downward… SLOWLY. Not so fast that people hoard gold because they can buy 2 loaves of bread next month with the same coin that today only buys a single loaf. At low constant deflation rates, things just slowly get cheaper… right along with the advancement in innovation that makes life better and better. Don’t be fooled by the neo-Keynesians. Deflation in a non-fiat money economy is GOOD.
@Chester Draws
If we kept the money supply at the same amount there would be massive deflation — which is terrible for an economy.
This is what we are told all the time (though I’d challenge your word “massive”). But the truth is that inflation has pros and cons and deflation has pros and cons. Bottom line: Inflation encourages consumption, deflation encourages savings. And which of these is good depends on your perspective, but it is worth saying that civilization is built on the idea of deferred spending and saving to create investment capital, not consumption.
When I was younger people who were thinking of buying their first computer would often come to me for advice. I had a standard line — I’ll help you on condition that after your buy it you don’t look at the price and specs of any computer on sale for the next 12 months. Why? Because at that time every week someone brought out a new computer for the same price or less that was faster, had a bigger disk, had more memory and so on. The computer industry has been in truly massive deflation for decades, and that for sure is surely a really good thing.
However, the point of money is that it shouldn’t be an issue. Money is supposed to be a neutral container of value so ideally it should be neither inflationary nor deflationary. Insofar as it is, it should be ENTIRELY predictable. The problem is that we put it in the hands of politicians or at least quango type organizations, who manipulate it to political advantage. If I were King what I’d do is write it in the constitution that the money supply grew exactly at 4% a year good years and bad. Some years that would be inflationary, some years deflationary, but it would average out to be smooth for the most part and, most importantly, it would be 100% predictable. You could even have the “new” money retained by the government as an alternative to taxes — kind of like a fee for running the economy. (FWIW I believe I stole that idea from Milton Friedman, but I can’t remember where.)
It clearly isn’t ruinous, because we aren’t ruined.
Governments went off the gold standard because THAT was ruinous, remember. It literally is a zero sum game, and you can’t expect half the world to be perpetual losers because you have a fetish for one particular metal. I’m in New Zealand, and the gold standard was a disaster for us (it actually would have led to massive gold mining, for no other reason than because we just had to have it. Utterly wasteful activity.)
Its well established that you need inflation. Otherwise zombie companies don’t go out of business — a feature of the Japanese economy that no-one wants to copy — and to force money into active investment rather than just sitting in a bank getting worth more.
That 1% or 2% inflation gives the impression of being stupid if you take a long enough period, because of exponential growth. But what actual harm is done that a house that used to cost $10,000 now costs $1,000,000?
If our numbers creeping us force those with money to have to invest it, then I’m all for it. I don’t want people hoarding wealth — and allowing deflation to make that worthwhile — just so some of us can feel pure about our money system.
Chester:
I couldn’t disagree with you more.
As to NZ, what gold standard are you referring to? The classical pre-1914 gold standard, the 1920s version or Bretton Woods?
So why do we “need” inflation? Governments like it, because they are borrowers, and like being able to pay back less than they borrowed. Inflation is theft, and it is insidious. You are free to disagree, but you would be wrong.
Kirk – even by the lowest possible estimate the Federal Government debt is already over 34 Trillion (“Trillion with a T”) Dollars.
As for the collapse – it is already happening, falling life expectancy, people fleeing the cities, and so on. General societal decay – you mention the 1980s, if you said to people in the 1980s that the sexual mutilation of children, to pretend that boys were girls and girls were boys, was going to be fashionable and pushed by the “President of the United States” (someone who supposedly got 81 million votes – but no one can remember campaigning) they would have thought you were insane.
The Roman Empire did not fall in a day – it gradually fell apart, but that was still a collapse.
How long before the military goes the way of the Roman Army? The army lists of the early 400s AD still list nearly all the Legions – but we know from the witnesses of the time that even in their down-sized post Diocletian “reforms” state, most of the Legions had already ceased to exist.
When the Rhine froze and the barbarians crossed – they found there was little left to stop them.
Will it be the same in China? I do not know – but it seems likely that America will continue to fall apart.
The Eastern Empire was saved by such Emperors as Marcian and Anastasius – but the more I consider these men, and how they managed to cut through entrenched bureaucracy and ways of doing things, the more impressed I am.
I could not have done the things that Marcian and Anastasius did – and I do not see anyone in America like them.
So the fate of America may be rather more like Rome in the 5th and 6th centuries AD rather than Constantinople.
Perhaps President Trump will, somehow, turn things around – but that is a long shot.
House prices are driven up by supply and demand, manufactured goods get cheaper because we get better at making them. Neither of these price changes has anything to do with changes in the money supply.
Roue:
You are free to believe what you believe.
@Myno
Not so fast that people hoard gold because they can buy 2 loaves of bread next month with the same coin that today only buys a single loaf.
This does happen and I agree it is good. As I mentioned above, today, but especially in the early days of home computers this was a constant problem. You buy a computer today and a month later you could have got a better one for the same money. But people still bought computers in droves. Sometimes they did wait and got something better. I’m not sure why that is bad. In fact I think it is good.
Capital is another word for deferred spending. Modern civilization is build on capital. Deferring spending is good because it accumulates capital, and you can’t defer spending it forever, because you need things. Just as the computer buyer bought the computer even though they knew next month they could get a better computer because the utility they gained from that extra month of ownership more than compensated. So too, me and a group of investors want to buy a factory and have a million dollars. If we wait 12 months we could have an equivalent of $1.1million dollars, however, the utility of the extra 12 months of factory operation mean that we build it now.
Inflation through fiat money printing is a tax on wealth.
And the main reason to avoid fiat money is, to mangle an old expression, giving control of the money supply to politicians is like giving whisky and car keys to a teenage boy.
@Fraser Orr
I don’t think this is true. Capital could be something like a piece of machinery. That is the exact opposite of deferred spending – money has been spent to purchase that. If you invest in something, that is not deferred spending. Investing means spending money. It is a cost.
Capital is also not another word for deferred spending because deferred spending could be simply hoarding money. That’s also the kind of deferred spending that deflation encourages. If your money is going to be worth more in the future if you just keep it in a safe deposit box or under your bed, you are unlikely to invest it in something which you expect to make a lower return than holding your money. Inflation, on the other hand, encourages consumption and investment. Both of these things contribute to economic growth. On the other hand it has obvious downsides. As you said, there are pros and cons, but there are real cons to both.
In theory, I agree. In fact I would agree that giving anything to politicians is like giving whisky and car keys to a teenage boy. But if you look at the performance of the Federal Reserve, for instance, it has done pretty well for a government agency. The incentive for politicians is to keep inflation low, even if they would get some benefit from making it high. Apart from in broken third-world countries, governments don’t generally print lots of money to fund things. As you can see here, seigniorage in the U.S. accounts for 1-2% of spending. Because the public thinks that inflation is worse than it actually is, (relatively) high inflation tends to make politicians unpopular. So we see that inflation has been in single digits in the U.S. for over forty years.
Without excessive fear of inflation we probably would see politicians printing money to fund things though. So it seems like something which has good effects, even if it isn’t sound in itself.
Rour le Jour – your claim that house prices are “nothing to do with the money supply” is false, indeed wildly false, ignoring all history and ignoring basic economics.
However, the money supply, the Credit Money bubble, is not the only factor – mass immigration is another, some ten million people since 1997 – displacing the existing populations in the cities and leading these existing people to go to other areas of England (for it is mostly England).
But rather than deal with reality, Credit Money and mass immigration, various institutes down in London pretend the problem is “the planning laws” (in reality these never stop housing estates) and further pretend we can “build our way out of the housing crises”.
Their lies are extreme – indeed absurd.
Whether the fiat money is created by “politicians” or by officials and bankers is not relevant – it is fiat money (money from nothing) that is the problem.
The “Banking School” of the early 19th century was totally wrong – the idea that “some” (the amount is never given) money-created-from-nothing is necessary for “the needs of trade” is utterly false and harmful.
Money created from nothing (whether by the printing press, or banker book keeping tricks – “lending” money that never existed) is an evil.
Money must be something that is voluntarily valued before-and-apart-from its use as money – and bankers should content themselves with being money lenders (“Shylocks”) not “the partners of governments” “creating money for the needs of trade”.
I do not believe in the “Gold Standard” – either the gold (or some other commodity – such as silver) is the money or it is not, the word “standard” opens the door to fraud, to massive fraud. In American history every Credit Bubble bust from 1819 onwards was caused by the “standard” fraud (legalised fraud), not by physical gold or silver.
On the invasion over the American border (or into Britain) – modern “historians” are tying to “reinterpret” the fall of Roman civilisation, we are told that it was not because the Romans failed to keep out the barbarians, but because they “failed to integrate” them – hint-hint the influx of barbarians is a good thing, Diversity and Inclusion.
We are also told that the Great Wall of China, which worked for centuries, “never worked” and was a “mistake” as the Chinese should have made friends with the steppe nomads.
The political agenda of such “reinterpretations” of history is obvious.
@Fraser Orr
…especially in the early days of home computers…
…like the $2000 I paid in 1983 for a Hewlett-Packard external 5MB hard drive unit (about 14″ x 14″ x 4″ IIRC). I felt lucky to have it. I managed to sell it before it completely obsolesced. Powerful market forces at work!
@Colli
…the public thinks that inflation is worse than it actually is…
Wow. Read the room.
Methinks you also conflate liquid capital with a capital investment. That piece of machinery you cite is not exactly liquid. Like my old hard drive, you would take a significant loss liquidating it.
Paul:
Pre-1914 we had the classical gold standard, in which gold coins circulated as currency. Governments could not create money at will.
The situation in the 1920s and Bretton Woods were not true gold standards, as gold was no longer used as currency, but the issuance of money was still linked to gold.
The USA dropped the link to gold in 1971 because they could not afford to keep it. This was because they wished to finance a welfare state, and the Vietnam War, but did not want to raise the taxes to pay for them.
Needless to say, I do not think this was a good thing. Gold backing for the currency, if not a full gold standard, at least helped to keep politicians honest. The things they wanted had to be paid for, somehow. And they had to be paid, ultimately, in gold. When de Gaulle started demanding payment in gold rather than dollars, ie in a medium which the US government could not create at will, then Bretton Woods was over.
And I’m sure Roue would tell us that it has all been great ever since. Should I believe him or my lying eyes?
@Colli
Capital is another word for deferred spending
Yup, what I really mean here is “deferred spending produces capital”, so apologies for my goof up.
governments don’t generally print lots of money to fund things. As you can see here, seigniorage in the U.S. accounts for 1-2% of spending.
Seigniorage? Wow that’s a $50 word, I had to look it up. But it isn’t about that. It is about the ability of the government to print money. Last year for example, they spent more than two trillion dollars above what they collected. A trillion dollars here, a trillion dollars there, eventually it adds up to real money.
Because the public thinks that inflation is worse than it actually is
But inflation is a bad thing. It is the measure of how much the government devalued the currency, and is effectively a silent tax on everybody’s wealth. If you expand the money supply to correct for economic growth then prices would stay the same (on average, obviously.)
Money is supposed to be bland and boring, neither inflationary nor deflationary. It is meant to be a temporary store of and measure of value. There is a reason it is in the weights and measure clause of the constitution. Imagine if the government made the yard 2% shorter each year, and then proudly proclaimed that because of government policy everyone was getting taller.
Or, perhaps more relevantly, increased the minimum wage from $7.50 and hour to $15 an hour by making the dollar worth half as much as it was. “Under my administration we ensured that every person can earn a living wage… people said $15 an hour was unrealistic, but we got it done.”
You can’t expect our reptilian political class to pass up an opportunity like that, which is exactly why they shouldn’t have that opportunity in the first place.
Colli wrote:
In large part because the public is seeing necessities skyrocket in price. Food, clothing, housing, utilities, medical expenses, car repairs, people must have those things. A new TV going up in price by 25% in the space of six months because the dollar is less valuable is bad but a loaf of bread increasing by 50% in the same six months is a real problem.
@Fraser Orr
True, but only if that deferred spending is then invested. If the money is simply hoarded, then it does not produce capital.
I agree, on balance it is. But when have you heard people talk about the good effects of inflation? They don’t often say “inflation is up, so unemployment will be down”. Also, the public seems to overestimate the cost of inflation. A decrease in inflation from 2% to 0% is estimated to have a benefit of a small fraction of one percent of the GDP. Even 10% inflation is estimated to have an annual cost of less than 1% of the GDP.
I agree, it is a tax. To be totally pedantic, it isn’t a tax on wealth because money isn’t wealth. But it’s still pretty small, that’s what seigniorage is. But it is not as though there are no consequences from this tax, since the public is not very happy with inflation. So it may be silent in the sense that people don’t see directly how much they were taxed, but they certainly see its effects. It does not seem to be a very good way for politicians to secretly tax people, because people when people see these effects they rightly blame the politicians. It seems like most politicians recognize this, since they don’t try to levy a particularly large tax by expanding the money supply.
Sorry, I don’t think I get the analogy. Do politicians do this?
On the point about computers. People probably don’t spend more than a couple thousand dollars per year on computers. So they may save that amount for a little while in order to get a better computer, but the general economy will not suffer the negative effects of deflation if there is general inflation. I think it’s reasonable to say that people don’t stop spending on other things in order to buy a computer, but rather keep the money that they would use to buy a computer now and spend it later.
John K. – even before 1914 governments and banks (but I repeat myself – as they are joined at the hip) could-and-did create lots of money from nothing – that is why there were boom-busts. However, you are correct that the boom-busts could only go so far before people started to demand physical gold and then the fraud (because it was fraud – legalised fraud) became obvious.
The link with gold ended in Britain in 1931 (my father remembered it well), and in the United States in 1933.
It is true that the American government pretended, as a legal fiction, to still have a link to gold till 1971 – but when France and other governments (only governments were promised gold) asked for gold for their Dollars it was obvious that the American government did not have the gold to give them – President Nixon just told the truth (or part of the truth – he pretended it was a temporary measure, just as “FDR” claimed a temporary emergency 91 years ago).
The last government to make a claim to have a link with gold was the Swiss government – which claimed to have enough gold to cover 10% of its notes and coins (NOT bank money – which is what most money is, most money has no physical existence at all, it is “pure” fraud – although legalised fraud, banker book keeping tricks), that link was ended in 2000 – with the new Swiss Constitution.
For, at least, the last 24 years the world has been like the coyote in the “Road Runner” cartoons – it has run off a cliff, but does not fall till it looks down.
The gold “standard” was always a fraud (see above) – but it was miles better than the total insanity we have now.
In response to the great crash of 1907 President Taft declared that the problem was “lack of flexibility” in the system.
He was exactly WRONG – the problem was the opposite, the “flexibility” (i.e. fraud) that already existed in the system – the ability of the banks to lend out “money” that DID NOT EXIST. A practice that caused every boom-bust that there has ever been.
Sadly most powerful people were worse (not better) than President Taft – and wanted even more “flexibility” (i.e. legalised fraud) than he did.
Our present system is 100% fraud – there is no element of sanity in it at all, none.
The present system is criminal insanity.
The answer is not “Free Banking” (one might as well talk of “free robbing” or “free raping”) the answer is for bakers to be money lenders (“Shylocks”) dealing with Real Savings of actual cash-money (gold, silver – or whatever commodity people choose, that they value before-and-apart-from its use as money), rather than consider themselves “Masters of the Universe” who can create money-to-lend from their whims.
There is no reason for people to carry round bags of gold or silver – the electronic transfer of ownership will do, as long as the money really exists (is not just the whims of the government and banks).
I should have pointed out that the comments of President Taft were looking back on the crash – he himself became President in 1909.
Sadly as bad as the errors of William Howard Taft were – his rivals, Theodore Roosevelt and Woodrow Wilson, were much worse – much more statist.
Already by 1912 no major figure in public life was arguing against the principle of Credit Expansion – the argument was whether the government of the banks should product it, which is like an argument over whether the government or the Mafia should murder you (it is the principle that is wrong – regardless of who does it).