Gold vs Discretion

Congressman Ron Paul and Charles Partee, then member of the Federal Reserve Board of Governors, debate the Gold Standard at the first Mises Institute conference, held on November 16-17, 1983.
Dr. Paul begins with the issue that many who reject outright the idea of the central planning of any area of the economy “whole heartedly endorse the same concept with central planning in money,” which he points out is doomed to the same fate as centrally planning farming for a nation.  He goes on to discuss the issues of morality and trust in a monetary system, and to advocate for a return to sound money with gold.
Charles Partee is also an advocate of gold, but to be used in another capacity. Instead, Partee would have the price of the U.S. Mint’s gold eagle float, so that its price could be used as an “indicia of public attitudes towards financial conditions in the country” (at the time of the video, gold had fallen to half of its 1980 high of $850/oz, down to an average for the year of about $425, so this point might play differently now); and while he desires a slowly rising money supply to go along with population growth and productivity growth, if it came down to “choosing between a blind confidence in the technology of gold production, and the efficacy of management,” he “come[s] out for management.”

Here are some of the more relevant quotes transcribed:

PAUL

8:35 “[T]he money sustains every single transaction.  It is a participant in everything that we do; it is the unit of account that we have to measure every transaction.  All our services and all our goods are measures in terms of the unit of account.  And if we believe that we and plan centrally, and determine that unit of account, without the market participating, I think we get what we have now: very chaotic conditions which are bound to get more chaotic after a period of time.  So I don’t believe that central planning in money can be successful.  I happen to believe and accept the ideas of the Austrian School of Economics.  As Mises in particular explained, that the business cycle is precisely caused by central planning of money, and that the booms and busts are inevitable.  That as we drive the economy this year and for next year’s election you will see conditions improve, but sure enough you will see the consequences of the inflation we have today.”

11:26 “By what moral right do we have to create purchasing power out of thin air? Whether it’s done by the creation of credit or Federal Reserve notes, or whether it’s the creation of SDR’s on an international scope, by what right do they do this?  Is it any more moral to dilute the value of your purchasing power of the money you hold in your wallet, than it is for the farmer to dilute the milk supply with water? …I happen to believe also because it’s a moral issue more than an economic issue, it is for this reason that the people have lost trust in their government, trust in the banks, trust in business, trust in themselves, and that we are a nation of distrust… It is the issue of trust in people and trust in money that must come before you can start talking about nickeling and dime-ing it trying to get back to a balanced budget, because that certainly hasn’t worked.”

13:38 Was he reading my blog posts back in 1983?

PARTEE

19:35 “Ron Paul and I have debated this issue informally, and sometimes more formally.  And we were not only both members of the Gold Commission, but since my name is Partee and his name is Paul, we sat next to each other at all of the meetings and exchanged notes and that kind of thing.  And even agreed on some issues, for example the recommendation for the printing of a Gold Eagle, he and I agreed on.  But the difference, as you’ll see, that what I wanted it for was to have an indicia of public attitudes towards financial conditions in the country; and therefore I wanted its price to be able to vary, that is it would be a fixed weight but its price would vary, and the variation in its price would be an indicator of developing attitudes in the public toward financial conditions.  You destroy that indicia value when you have a gold standard, of course, but for this purpose, why it would have been quite worthwhile.”

21:55 “And I have also four points and they are directly on the question of a gold standard. My first point is that what time has shown that the world, or the United States, or any individual economy needs for its monetary standard, is one that will expand gradually, over time, in line with population growth and with increased production in the society.  If you have something that expands too rapidly, and that of course is a very, very grave threat with paper money, why you’ll have inflation!  But if you have something that expands too slowly, you’ll have persistently downward bias on the price level of the country, and history has shown that that stultifies production and new thinking and private entrepreneurship rather than reviving it.

So that what we want is something that will expand gradually, over time as the population and the production of the society expands with that time.

Gold, in my view, only very roughly approximates this particular test.  It is true that there is a gradual increase in the gold stock – that is as we’re able to identify it over time because it is not destroyed, by and large, and because new production is a small proportion of the stock of gold.  But the rate at which at which the gold stock expands is subject to a great many variables – the discovery of new gold, the development of alternative non-monetary uses of gold – that make, in fact, the correspondence between this need for gradually growing monetary standard and the supply available for monetary purposes of gold to meet.

24:26 “That’s why, for example, over the years the concept of gold as a part of the money supply was supplemented with silver as a part of the money supply in order to get more money.  That’s why, over time… banking developed. And the bankers took gold, and issued promissory notes backed by gold in return.  And that was of course, where paper money started.  It started in the private sector, not in the government sector.  And it was the abuse of the use of paper money, in the private sector, by private sector participants, that resulted in this becoming a government monopoly I think, in every major country in the world today, and for a good many years past.”

25:31 “In any event, it seems to me, that what we want to have, rather than this imperfect relationship between the growing supply of gold and the growing need for money, what we need to have is something that will show some flexibility, some elasticity, that is subject to some management.  And so when it comes down to … choosing between a blind confidence in the technology of gold production, and the efficacy of management, I come out for management.”

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