Wednesday, July 9, 2008

Excerpt From "WHY GOLD"

By Llewellyn H. Rockwell, Jr.

It's been three decades since the dollar's tie to gold was completely severed, to the hosannas of mainstream economist. There is no stash of gold held by the Fed or the Treasury that backs our currency system. The dollar, and all our money, is nothing more and nothing less than what it looks like: a cut piece of linen paper with fancy printing on it.

Why, then, do people turn to gold in times like these? What is gold used for? Yes, there are industrial uses and there are consumer uses in jewelry or stock up on industrial metal. The investor demand ultimately reflects consumer demand for gold. But that still leaves us with the question of why the consumer demand exists in the first place. Why gold and not sugar or wheat or something else?

Gold and freedom go together. Gold money is both the result of freedom and its leading protector. When money is as good as gold, the government cannot manipulate the supply for it's own purposes. Just the rule of law puts limits on the despotic use of police power, a gold standard puts extreme limits on the government's ability to spend, borrow, and otherwise create crazy unworkable programs. It is forced to raise its revenue through taxation, not inflation, and generally keep its house in order.

Without the gold standard, government is free to work with the Fed to inflate the currency without limit. Even in our own times, we've seen governments do that and thereby spread mass misery.

Why isn't gold money now? Because governments destroyed the gold standard. Why? Because they degraded it as too inflexible. To be sure, monetary inflexibility is the friend of free markets. Without the ability to create money out of nothing, governments tend to run tight financial ships. Banks are more careful about lending when they can't rely on a lender of last resort with access to money-creation machine like the Fed.

Is a gold standard feasible again? Of course.