EDITOR NOTE: In the US Constitution, our Founding Fathers wrote, “No State shall...make any Thing but gold and silver Coin a Tender in Payment of Debts.” In the Bible, specifically the Book of Deuteronomy (25:15), it’s written that “But thou shalt have a perfect and just weight, a perfect and just measure shalt thou have 'that thy days may be lengthened in the land which the LORD thy God giveth thee.” The first concerns legal tender; the second, sound and just measurements. The first is an economic proposition; the second, a moral proposition. The two go hand in hand, for when “money” is no longer a reliable measure; when its qualities are undermined so that its quantities can be manipulated; then, the whole economic and moral foundation of value in wealth comes crashing down. That’s the corrupt economic state we live in, with the fiat system, its breeding ground.
The 50th anniversary of the collapse, on August 15, 1971, of the Bretton Woods monetary system is a momentous moment in the history of money. It should provide an occasion for thoughtful discussion focused on the road to reform, our priceless constitutional foundation, and the restoration of honest money.
Let us avoid an academic food fight among economists over prior international monetary systems. We should not be arguing about the classical gold standard versus the Bretton Woods pegged exchange-rate system, as these are just variations on the more significant theme of gold convertibility and the role of government in regulating money.
We can’t even usefully revert to debating the old fixed-versus-flexible arguments that were part of Milton Friedman’s justification for freely floating rates in the 1960s; the theoretical models for both positions have been mugged by reality.
Instead, we should be talking about money itself — what is its basic purpose, its relationship with productive economic growth — and whether today’s dysfunctional international monetary regime deserves to be designated any kind of system at all.
As the former chief of the International Monetary Fund, Jacques de Larosiere, noted at a conference in February 2014 at Vienna, today’s central bank-dominated monetary arrangements foster “volatility, persistent imbalances, disorderly capital movements, currency misalignments.”
These, he warned, were all major factors in the explosion of credit and leverage that precipitated the 2008 global financial crisis. Such an unanchored approach, he said, does not amount to a “non-system” but something considerably worse: an “anti-system.”
It is time to think creatively about money. We need to remind ourselves what it means as a measure, how it facilitates voluntary commerce and opportunity — how it can lead to greater shared prosperity while remaining compatible with liberty, individualism, and free enterprise. We’re at a moment when everything is on the table. For the wisdom of central bank mechanisms for conducting monetary policy is being called into question just as private alternative monies are making ever more credible bids for legitimacy.
Looking back and looking ahead, we can see that the most relevant and stimulating views emphasize the importance of productive economic activity and an open global marketplace. Money’s crucial role is to provide clear price signals to optimize the rewards of entrepreneurial endeavor and increased human knowledge.
Adam Smith wrote his treatise “The Wealth of Nations” during an age when nations forged a global monetary system by defining their currencies in terms of precise weights of gold and silver. A level monetary playing field arising from a system inherently disciplined by forces outside the control of government — wherein the economic decisions of private individuals are not held hostage to the ambitions of politicians—served profoundly liberal goals such as rule of law, private property, and the equal protection of human rights.
Modern-day visionaries likewise focus on the integrity of market signals conveyed through money. When Elon Musk says, “I think about money as an information system,” he goes to the heart of money’s unit-of-account function and underscores the importance of price signal clarity. When he tweets that “goods and services are the real economy, any form of money is simply the accounting thereof,” he illuminates the same reasoning that caused our constitutional Framers to include the power to coin money and regulate the value of American money, and of foreign coin, in the same sentence of our Constitution that grants Congress the power to fix our standard of weights and measures.
Money is meant to be a reliable measure, a meaningful unit of account, and a dependable store of value. When those qualities are undermined — especially by government — for purposes of redirecting economic outcomes at the risk of global financial instability, the dynamism and productive potential of free-market forces is diminished.
Political arguments in favor of maintaining government control over the issuance of money tend to invoke short-term objectives couched in words such as “stimulus” and the need for central bank “support” for an economy. Such calls are met with somber warnings about long-term “unsustainability” from the monetary authorities who nevertheless indulge them.
“But thou shalt have a perfect and just weight, a perfect and just measure shalt thou have,” goes the passage from the Book of Deuteronomy (25:15), “that thy days may be lengthened in the land which the LORD thy God giveth thee.” The biblical injunction against dishonest measures can be interpreted as alluding to sustainability not only in economic terms but also in the moral realm.
As noted by Robert Bartley, editor of the editorial page of The Wall Street Journal for more than 30 years, economist Robert Mundell was correct in his assessment that the only closed economy is the world economy. It’s time to start building an ethical international monetary system.
Originally posted on NYSun