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To: Don Lloyd who wrote (80429)	1/7/2002 7:19:31 AM
From: Don Lloyd	Respond to of 116815

mises.org [1969] "... "Greaves: In your many writings on monetary problems you have always spoken highly of the gold standard. Why? Mises: The practical problem of money today in the whole world is precisely this: Taxes are unpopular. And the most unpopular thing is to substitute a higher tax for a lower tax. The government wants to spend more without increasing taxes. Now what does the government do in such a situation? The government increases the quantity of money—it resorts to inflation. Prices necessarily go up as a greater quantity of money appears on the market and "chasing" after a not-increased quantity of goods. The gold standard did not fail. The governments sabotaged it and still go on sabotaging it. The governments established a legal ratio between gold and the monetary unit. (For the United States the ratio established by law is that one ounce of gold is the legal equivalent of $35.)[2] But then, by inflating, the government makes it impossible to maintain this legal tender ratio. This is the monetary problem. Governments do not want to admit that an increased quantity of paper money brings about higher prices, in terms of the government-issued paper money, for all commodities and, of course, also for gold. The quantity of money is the decisive problem. The quality that makes gold fit for service as money is precisely the fact that the quantity of gold cannot be manipulated by governments. The gold standard has one quality, one virtue. It is that the quantity of gold cannot be increased in the way that paper notes can be increased. The usefulness of the gold standard consists in the fact that it makes the supply of money depend on the profitability of mining gold, and thus checks large-scale inflationary ventures on the part of governments. Gold cannot be produced in a cheaper way by any governmental bureau, committee, institution, office, international agency, or so on. This is the only justification for the gold standard. One has tried again and again to find some method to substitute these qualities of gold in some other way. But all these methods have failed, and will ever fail as long as governments are committed to the idea that it is all right for a government, which has not collected enough money to pay its expenses by taxing its citizens or by borrowing on the market, to increase the quantity of money simply by printing it. The eminence of the gold standard is to be seen in the fact that the gold standard alone makes the determination of the monetary unit's purchasing power independent of the ambitions and activities of dictators, political parties and pressure groups. No government is powerful enough to destroy the gold standard as long as the market economy is not entirely suppressed. The gold standard alone is what the 19th-century champions of representative government, civil liberties, and prosperity for all meant by "sound money." Regards, Don