Abstract
By getting rid of fiat money and fractional-reserve banking and establishing a completely free market in money and banking, one can vastly improve an economic system. One can essentially eliminate the business cycle. I will discuss the few, minor exceptions below. One can virtually eliminate both inflation and deflation. One can make it harder for the government to interfere in the economy. One can also increase the ability of individuals in the economy to save, accumulate capital, and raise the productivity of labor and standard of living. In this chapter, I focus on these benefits of gold and 100-percent reserves, as well as many others.
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Notes
It should come as no surprise that I rely heavily on George Reisman, Capitalism: A Treatise on Economics (Ottawa, IL: Jameson Books, 1996) for my discussion of the benefits of gold and responses to criticisms of gold. See pp. 928–950 and 954–959.
I also rely on Brian P. Simpson, Trade Cycle Theory: A Market Process Perspective (Ann Arbor, MI: Bell & Howell Information and Learning Company, 2000), pp. 114–125 for the benefits and responses to criticisms of gold and 100-percent reserves. I make one general reference here to these sources on these topics instead of multiple specific references throughout the chapter. However, I do reference these sources where necessary on related topics.
See Michael David Bordo, “The Gold Standard: Myths and Realities” in Barry N. Siegel, ed., Money in Crisis: The Federal Reserve, the Economy, and Monetary Reform (Cambridge, MA: Ballinger Publishing Company, 1984), pp. 197–237. See p. 215.
See Chapters 1 and 3 of Brian P. Simpson, Money, Banking, and the Business Cycle, Volume 1: Integrating Theory and Practice (New York: Palgrave Macmillan, 2014) for a detailed discussion of how fractional-reserve banking causes the business cycle.
See Roy W. Jastram, The Golden Constant (New York: John Wiley & Sons, 1977), pp. 34–37 and 147–148 and Bordo, “The Gold Standard,” pp. 211–214.
Also see Mark Skousen, Economics of a Pure Gold Standard, 3rd ed. (Irvington-on-Hudson, NY: The Foundation for Economic Education, Inc., 1996), pp. 108–109
and Alan Reynolds, “Why Gold?,” Cato Journal vol. 3, no. 1 (Spring 1983), pp. 211–238. See p. 221 in the latter reference.
For a few economists who do this, including John Maynard Keynes, see ibid., pp. 105–107. For a few other economists, see Reynolds, “Why Gold?,” p. 217. For the “new monetary economist forerunners” who do this, see Tyler Cowen and Randall Kroszner, “The Development of the New Monetary Economics,” The Journal of Political Economy vol. 95, no. 3 (June 1987), pp. 567–590. See p. 570. Paul Samuelson and William Nordhaus do this as well.
See Paul A. Samuelson and William D. Nordhaus, Economics, 13th ed. (New York: McGraw-Hill Book Co., 1989), p. 949.
For one last example, see David I. Meiselman, “Is Gold the Question?” Cato Journal vol. 3, no. 1 (Spring 1983), pp. 269–275. See especially pp. 273–274.
For some examples of massive inflations under fiat money, see Phillip Cagan, “The Monetary Dynamics of Hyperinflation” in Milton Friedman, Studies in the Quantity Theory of Money (Chicago: University of Chicago Press, 1956), pp. 23–91. See p. 26.
See Edwin A. Locke, The Prime Movers: Traits of the Great Wealth Creators (New York: AMACOM, 2000), p. 2 for evidence of the fact that the rate of economic progress during the former period was higher than in the latter periods.
See Jesús Huerta de Soto, Money, Bank Credit, and Economic Cycles, translated by Melinda A. Stroup (Auburn, AL: Ludwig von Mises Institute, 2006), pp. 380–381 and 413–416 on mal-investment as well.
George Reisman, “The Stock Market, Profits, and Credit Expansion,” http://capitalism.net/articles/Stock%20Market,%20Profits,%20Credit%20 Expansion.htm (2002). See Section 6 titled “Why the Credit-Expansion Boom Cannot be Sustained.” Article accessed December 10, 2011.
Richard M. Salsman, Gold and Liberty (Great Barrington, MA: American Institute for Economic Research, 1995), pp. 47–48.
See Christina D. Romer, “Remeasuring Business Cycles,” The Journal of Economic History vol. 54, no. 3 (September 1994), pp. 573–609. See in particular pp. 574–576 and 606.
George Reisman, “Mining for the Next Million Years,” http://georgereismansblog.blogspot.com/2006/08/mining-for-next-million-years.html (August 14, 2006). Article accessed June 21, 2012.
George Selgin, Bank Deregulation and Monetary Order (London: Routledge, 1996), pp. 98 and 194.
See Cowen and Kroszner, “The Development of the New Monetary Economics,” p. 585 for the acceptance of this idea by both Henry Meulen and Adam Smith. For Paul Samuelson’s acceptance of this idea, see a quotation from him in Huerta de Soto, Money, p. 778. See also George A. Selgin, The Theory of Free Banking (Totowa, NJ: Rowman & Littlefield, 1988), p. 22 for J. Carl Poindexter’s acceptance of this idea.
Ludwig von Mises, Human Action, 3rd rev. ed. (Chicago: Contemporary Books, Inc., 1966), pp. 767–769.
Roger W. Garrison, “The Costs of a Gold Standard” in Llewellyn H. Rockwell, Jr., ed., The Gold Standard: Perspectives in the Austrian School (Auburn, AL: Ludwig von Mises Institute, 1992), pp. 61–79. See in particular pp. 67–68.
See John Maynard Keynes, The General Theory of Employment, Interest, and Money (Basingstoke, UK: Palgrave Macmillan, 2007 [1936]), pp. 235–236
and F. A. Hayek, Individualism and Economic Order (Chicago: The University of Chicago Press, 1948), p. 211.
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Simpson, B.P. (2014). Gold and 100-Percent Reserves. In: Money, Banking, and the Business Cycle. Palgrave Macmillan, New York. https://doi.org/10.1057/9781137336569_8
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