The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. Wheat is a luxury in underfed civilizations, but not in a prosperous society.
It stands as a protector of property rights. And so the Federal Reserve System was organized in Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.
But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets.
The irony was that sincewe had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame. Federal Reserve Chairman, Alan Greenspan acknowledged he was one of "a small minority" within the central bank that had some positive view on the gold standard.
Even as nominal interest rates dropped, inflation-adjusted real interest rates remained high, rewarding those who held onto money instead of spending it, further slowing the economy. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom.
When questioned in relation to this, however, he has said that in a democratic society individuals have to make compromises with each other over conflicting ideas of how money should be handled.
For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries.
An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions.
Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. Credit, interest rates, and prices tend to follow similar patterns in all countries. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange.
Wheat is a luxury in underfed civilizations, but not in a prosperous society. These improvements have led to rapid growth in subprime mortgage lending; indeed, today subprime mortgages account for roughly 10 percent of the number of all mortgages outstanding, up from just 1 or 2 percent in the early s.
The existence of such a commodity is a precondition of a division of labor economy. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession.
The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. Even though the units of exchange the dollar, the pound, the franc, etc.
They could now use monetary policy to stimulate the economy. If men had no means to store value, i. Credit extended by these banks is in practice though not legally backed by the taxing power of the federal government.
The existence of such a commodity is a precondition of a division of labor economy.
If banks can continue to loan money indefinitely — it was claimed — there need never be any slumps in business. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset.
Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. Australia and New Zealand had already left the standard and Canada quickly followed suit.
But the amount of loans which he can afford to make is not arbitrary:. In his remarkable essay, “Gold and Economic Freedom,” written inAlan Greenspan stated: Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset.
Jan 21, · By Alan Greenspan; An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense - perhaps more clearly and subtly than many consistent defenders of laissez-faire - that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and.
Gold and Economic Freedom. by Alan Greenspan [written in ] If the gold standard had not existed, they argued, Britain's abandonment of gold payments in would not have caused the failure of banks all over the world.
(The irony was that sincewe had been, not on a gold standard, but on what may be termed "a mixed gold standard.
Rather they belong to a rather famous former Chairman of the U.S. Federal Reserve named Alan Greenspan as noted in his rather seminal essay titled “Gold and Economic Freedom”. In it, she included Gold and Economic Freedom, the essay by Alan Greenspan which appears below.
Drawing heavily from Murray Rothbard's much longer The Mystery of Banking, Greenspan argues persuasively in favor of a gold standard and against the concept of a central bank.
Simon hated the gold standard. I later heard him tell a group of us Republican staffers, "I reject your theology of gold." A nice phrase, that.
You can tar and feather me with that phrase any time. ALAN GREENSPAN, THEOLOGIAN OF GOLD. InAlan Greenspan, then under the wing of Ayn Rand, published an article on the gold .Alan greenspan gold standard essay