The gold double standard
On liberty-themed radio shows and sites, one often hears the claim
that fiat currencies don’t last long, and in some generous but
inaccurate cases, that a fiat currency has never lasted more than a
couple hundred years.
The English tally sticks were an example of a fiat currency that lasted more than 500 years.
Before you say that it wasn’t a currency because it didn’t circulate
widely, how is circulation between the citizens of England and the
government not widespread circulation?
The gold double standard is this: pointing to examples of fiat
currencies failing, and completely overlooking examples of failed gold
standards. The argument is that it was government’s fault for historical
instances of gold standards failing. Ah, but isn’t that the same blame
foisted upon most fiat currencies as well?
One aspect of the gold double standard is the use of word association
of fiat currency with fractional reserve banking. That is, the lending
of more fiat currency than the fraction of reserves held. Where did
fractional reserve banking originate? From goldsmiths, not fiat currency bankers.
One of the primary arguments against a fiat currency is that it is
doomed to fail because governments will progressively issue more
currency than is in productive demand, and that a gold standard is
necessary to tie the government’s hands in limiting the increase in the
money supply. But how did the gold standard prevent the Great Depression
starting in 1929?
Some will argue that the gold standard in effect in 1929 only backed
the currency by 35-40%, and that its failure resulted from less than
100% backing. However, with 100% backing, where does the money come to
pay the compound interest demanded from bankers on their loans of gold?
An insidious consequence of a 100% gold reserve standard with
compound interest is that those who own the gold will eventually control
all the money supply.