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Are Ron Paul's Competing Currencies the Answer to Monetary Mischief?

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(Image credit: Getty Images via @daylife)

Filling up my car yesterday morning, it was a small shock to see the $67 end result. The surprise was only small mainly because expensive gasoline has been the norm since at least 2004.

Importantly, and as readers of this column know well, there’s nothing about gasoline that’s presently expensive. Measured in the constant that is gold, gasoline (leaving out the various taxes imposed by cities, states and the feds) is pretty much the same price as it was in 1971 when President Nixon committed the ghastly error of unhinging the dollar from gold.

Since then, and during periods of dollar weakness – think the ‘70s and the ‘00s – commodities priced in dollars have risen substantially. Considered in today’s terms, gasoline isn’t expensive, rather the dollar in which it’s priced is cheap. The measuring rod that is the dollar has shrunk, which means the amount of dollars necessary to fill a tank has risen substantially.

Many, including this writer, argue that the simple fix for this is to redefine the dollar in terms of something real; gold the logical choice given the latter commodity’s historical stability rooted in highly unique stock/flow characteristics. If so, as in if the dollar were suddenly as constant in value as the length of the foot or minute in time, gasoline prices would fall on the way to a stable, predictable price.

If this is doubted, consider that gold in 1971 ($35), 1981 ($480), 2010 ($1176) and today ($1600) has been fairly consistent with regard to its purchasing power. Though the value of the dollar has collapsed since 1971 as evidenced by the price of gold, an ounce of the yellow metal fairly consistently buys 15 barrels of oil; an ounce today worth roughly 17 barrels.

Assuming a dollar redefined as 1/800th of an ounce of gold ($800 gold’s 10-year average), the price of a barrel of oil would soon enough correct down to roughly $53. The latter price wouldn’t return us to the better days of the ‘80s and ‘90s when the dollar was much stronger, but it would quickly expose our economy sapping rush to the real (all the hype about North Dakota would end with great speed) as non-economic, and the positive result would be a reorientation of investment back into the more profitable, less easy to tax intellectual economy. The late, great Warren Brookes referred to it as the “economy of the mind”, and it’s certainly true that we were much better off in the ‘80s and ‘90s when a strong dollar made the commodity economy yesterday’s news.

After that, a return to some form of gold standard is arguably something that most libertarians would agree with. Correctly of the view that the federal government should operate within strict limits laid out in the Constitution, explicit within the aforementioned document is the enumerated Congressional power to “coin money, regulate the value thereof.” In giving the dollar a gold definition, Congress would simply be doing its job.

Importantly here, there are naysayers, including the great Rep. Ron Paul. Easily the foremost (only?) libertarian in Congress, Paul would prefer competing currencies. Just because the Constitution enumerates certain powers to the feds doesn’t mean the federal government should allocate to itself those powers. Figure the Constitution allows the feds to oversee a money-losing Post Office that screams for privatization, so if the post office should be handed over to private industry, why not money too?

The arguments for competing currencies are surely sound. Anything governments can do, profit-motivated private actors can do better, and then it’s also the case that history is littered with governments debauching the very currencies they’re charged with maintaining in terms of stability. It’s certainly true that competition is always a positive and would be for currencies, plus it’s not as though private banks haven’t historically issued currencies – successfully.

And then it’s surely true that far from a source of stability, our Federal Reserve is the living embodiment of economic chaos. Absent a central bank, it’s easy to see where private actors would quickly fill in as lenders of last resort, banks would be better off without Fed oversight that never works to begin with, the economy would no longer suffer a banking system weakened by bailouts or an economy weakened by central bank distorted interest rates, and then even assuming no competing currencies, the Fed’s abolishment would almost certainly be a rising dollar event. The dollar is the most important price in the world, so let’s get that price out of the devaluationist hands of the Federal Reserve.

All of the above makes sense to this writer, but it seems at the core of the competing currency movement is a misunderstanding of money not totally unlike that which we see from the Treasury and Fed in our present fiat money system. Competing currencies presume that money is supposed to rise and fall; its price a function of the issuer’s credibility. This is wrong, or at least much less than ideal.

Indeed, lost in the money debate is the simple truth that money is solely a measure. Money has shrunk in value a great deal since 2001, and as a result money prices expressed in dollars have risen in the commodities most sensitive to monetary error. The dollar measure has been shrinking, hence the price of the commodity that is gasoline is high. Gasoline once again hasn’t changed, but the dollar has – for the worse.

Looked at in the above light, while there are doubtless companies that compete to sell us rulers, the foot is still a foot. Numerous watch companies seek our business, yet once again a minute is a minute. The currency debate presumes a quality about money that’s perhaps not very useful if the money is anything but stable. The only perfect money per David Ricardo is money that doesn’t change in value, and while gold isn’t perfectly stable, it’s the closest we have; thus explaining its historical use as a money measure.

Competing currencies ultimately presume a “better” dollar, but dollars shouldn’t be good or bad, they should simply be unchanging much like the foot and minute are always 12 inches and 60 seconds. In that case, assuming the goal of private money is to achieve a dollar that is like a minute in terms of its fixity, let’s go with it.

Absent that, and presuming a private dollar billed to do more than maintain a singular value, it should be at least be asked what’s the point? There can be no “best” ruler so long as a foot remains a foot, and there should be no “best” dollar; instead we should have a dollar known for its prosaic nature as a constant measure of value. Nothing more, nothing less.