Thursday, December 16, 2010

Ron Paul's monetary oddities

Ron Paul, incoming chairman of the House subcommittee that oversees U.S. monetary policy, holds monetary views that don't make any sense. Here's an excerpt of an interview by Wall Street Journal reporter Sudeep Reddy:
The panel you’ll be leading hasn’t gotten much attention in the past. What can a subcommittee chairman really do?
I think it’s more calling attention and getting information and acting as oversight. There will be legislation that we can talk about. We can talk about auditing the Fed. Even in the other committees, everything is a reflection of popular demand. There’s getting to be a bigger demand now for more information. I’d certainly like to have competition with the Fed to legalize competing currencies. That’s not going to happen, but we sure can talk about it. Most people recognize that the dollar reserve standard, there’s nothing permanent about it. Even the international bankers are talking about a new currency or using gold even. The big question is should we move further away from national sovereignty and our constitution and give it to an international body and try some crazy Bretton Woods standard again, which is doomed to fail. Or should we look to our traditions and have sound money.
Me: The gold standard historically depended strongly on international cooperation, as is discussed in vast detail in Barry Eichengreen's book Golden Fetters. Central banks engaged in frequent, coordinated actions to stabilize the price of gold vis-a-vis their respective currencies and maintain a set of fixed exchange rates. It was a souped-up version of the later Bretton Woods system, which Paul in this same paragraph decries. What exactly is his problem with Bretton Woods -- that it required too much international cooperation? The classical gold standard required more cooperation. He's worried about national sovereignty, so therefore he wants to make the dollar readily convertible into gold? Does it occur to him that maybe China would say "OK, convert all our vast dollar holdings into gold"? No, it doesn't, apparently.

As for "competing currencies," let's leave aside the huge unanswered question of whether having to change currencies or calculate rates multiple times a day could make for an efficient monetary system -- let's focus instead on what it has to do with national sovereignty, which Paul claims to want to protect. How exactly would having various currencies issued by various entities -- say, the Citibank Citidollar, the Walmart Wally, the Ken Silber Silver Peso -- enhance the sovereignty of the United States? Would the federal government accept tax payments in all these currencies? Would China, again, not have enhanced clout in the international monetary system now that there is no substantial U.S. monetary authority to counterbalance it? Of course, if you want an anarchocapitalist society, as some of Paul's supporters do, then you might not care about national sovereignty, but Paul claims it's sovereignty he's defending. This is the gold standard of self-contradiction.

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