"An almost hysterical antagonism toward the gold standard is one issue which
unites statists of all persuasions. They seem to sense, perhaps more clearly
and subtly than many consistent defenders of laissez-faire, that gold and
economic freedom are inseparable, that the gold standard is an instrument of
laissez-faire and that each implies and requires the other. In order to
understand the source of their antagonism, it is necessary first to understand
the specific role of gold in a free society."
"Even in the present century, two major commodities, gold and silver,
have been used as international media of exchange, with gold becoming the
predominant one. Gold, having both artistic and functional uses and being
relatively scarce, has always been considered a luxury good. It (gold) is durable,
portable, homogeneous, divisible, and, therefore, has significant advantages
over all other media of exchange."
"A free banking system based on gold is able to extend credit and thus to
create bank notes (currency) and deposits, according to the production
requirements of the economy. Individual owners of gold are induced, by
payments of interest, to deposit their gold in a bank (against which they
can draw checks). But since it is rarely the case that all depositors want to
withdraw all their gold at the same time, the banker need keep only a fraction
of his total deposits in gold as reserves. This enables the banker to loan out
more than the amount of his gold deposits (which means that he holds claims
to gold rather than gold as security for his deposits). But, the amount of loans
which he can afford to make is not arbitrary: he has to gauge it in relation to his
reserves and to the status of his investments."
"When gold is accepted as the medium of exchange by most or all nations,
an unhampered free international gold standard serves to foster a world-wide
division of labor and the broadest international trade. Even though the units of
exchange (the dollar, the pound, the franc, etc.) differ from country to country,
when all are defined in terms of gold the economies of the different countries
act as one- so long as there are no restraints on trade or on the
movement of capital."
"Under a gold standard, the amount of credit that an economy can support is
determined by the economy's tangible assets, since every credit instrument is
ultimately a claim on some tangible asset. But government bonds are not backed
by tangible wealth, only by government's promise to pay out of future tax
revenues, and cannot easily be absorbed by the financial markets."
"The abandonment of the gold standard made it possible for the welfare
statists to use the banking system as a means to an unlimited expansion of
credit. They have created paper reserves in the form of government bonds
which- through a complex series of steps- the banks accept in place of tangible
assets and treat as if they were an actual deposit, i.e., as the equivalent of what
was formerly a deposit of gold. The holder of a government bond or of a bank
deposit created by paper reserves believes that he has a valid claim on a real
asset. But the fact is that there are now more claims
outstanding than real assets."
"In the absence of the gold standard, there is no way to protect savings
from confiscation through inflation. There is no safe store of value. If there were,
the government would have to make its holding illegal, as was done in the case
of gold. If everyone decided, for example, to convert all his bank deposits to silver
or copper or any other good, and thereafter declined to accept checks as
payment for goods, bank deposits would lose their purchasing power and
government-created bank credit would be worthless as a claim on goods.
The financial policy of the welfare state requires that there be no way for the
owners of wealth to protect themselves."
"This is the shabby secret of the welfare statists' tirades against gold.
Deficit spending is simply a scheme for the 'hidden' confiscation of wealth.
Gold stands in the way of this insidious process. It stands as a protector
of property rights. If one grasps this, one has no difficulty in
understanding the statists' antagonism toward the gold standard."
Capitalism: The Unknown Ideal by Ayn Rand
Published November, 1967 by Signet Paperback Books, NY, New York
Chapter 6. "Gold And Economic Freedom" by Alan Greenspan |
