A revolution is afoot. I mean, of course, that I will begin hosting a new series of bar events next week. Thursday, May 17 (at 8pm), the Dionysium (sister series to the popular events by that name held in Austin, TX) begins with main speaker Brian Doherty, talking to me (your Dionysium host and moderator) about his new book Ron Paul’s Revolution: The Man and the Movement He Inspired.
It happens at 2 Havemeyer St. (three blocks east of Bedford Ave., the easily-reached first subway stop into Williamsburg on the L), on the second floor, directly above the space soon to house the bar Muchmore’s. Enter through the side door on N. 9th St.
Though my libertarian views and Brian’s are well known, the Dionysium is a non-partisan crucible of skeptical analysis and varied entertainments – and Brian has a sense of humor – so join us even if you are merely bemused by the one remaining non-Romney candidate for the Republican nomination and want to know whence he came.
For the already-initiated, though, I will try addressing some of the tough questions such as “Is it time to jump ship and root for Gary Johnson or Mitt Romney?” and “Why the conspiracy theories among Paul fans?”
One of the most important topics to the diehard Paul fans, though – one of interest as well to the CNBC viewers who saw me participate in an online video panel about Paul, Occupy Wall Street, and other political matters last week – is:
The Weirdness of Currency
One reason that, as you may know, I’ve been arguing online with the so-called “liberal-tarians” is that some of them have now begun encouraging people to argue in terms of “social justice,” but that term is not merely a synonym for “concern for the poor.” It comes with a great deal of decidedly anti-market, anti-libertarian baggage – it’s precisely the redistributionist mode in which people who do not learn economics like to spout off about economic matters, and we are all poorer for it.
With the possible exception of Marxism, this is about the last intellectual tradition libertarians should be encouraging if we want to educate people about economics – a bit like trying to encourage secularism through immersion in theology, or a free market in labor via the labor theory of value.
But I will confess that the Ron Paul rhetorical approach to teaching listeners about economics is not exactly the one I’d pick either. He started out as a gold bug, and for him, as for some of his biggest fans, all of economics seems to rotate around the distinction between the Federal Reserve and gold-backed, non-inflating currency. You can describe the economy that way – and I’m all for a free market in competing currencies – but it’s a highly idiosyncratic way of introducing people to economics, when most of them haven’t even tackled such basic concepts as mutually-beneficial exchange (the real key, in my opinion), property rights, supply and demand, regulation, and so forth.
Furthermore, I was reminded by David Graeber’s book Debt – which, for all the negative things I said about it in my blog entry reviewing it, does a nice job of teasing apart currency’s varied, bundled-together functions – that fiat currency (that is, currency that is produced by the government and isn’t exchangeable for more basic commodities the government keeps in storage) isn’t the problem per se, inflation is.
This is an important point for the Paulite gold bugs tokeep in mind, lest they become convinced that all paper money (regardless of whether government produces it) is somehow “fraudulent” absent a peg to a commodity like gold that is (often) valued in its own right. But the great thing about a gold standard is not that the gold makes the money “real” in some sense – since any currency people agree to continue using as the conventional marker of debts and value is plenty real enough, even if people use Styrofoam or check marks.
The great thing about gold is simply that if we know how much gold each paper dollar is worth, the government cannot (without committing outright fraud) arbitrarily print more dollars (without finding a corresponding amount of new gold), thus making inflation (which undermines the value of the dollars you already have by suddenly producing more dollars elsewhere in the world) less likely. In other words, if you knew for sure the number of paper dollars – even ones produced by the government – was unchanging, even dollars backed by nothing would be fine for trading purposes and would carry little danger of economic disruption.
In fact, since the desirability of something increases once it’s clear it will be used as currency – and thus, for instance, the value of gold increases as it begins looking more likely people will trade with it instead of dollars – you could argue that even gold is in some sense a fiat currency, or rather, that at least part of the value of any chosen currency will always be the fact that it has (somewhat arbitrarily) been chosen as currency. It’s just much harder to inflate gold, since you can’t just print more of it.
Graeber understands the point about even gold being partly a store of subjective, arbitrary value when used as currency. Paul understands the point about the importance of having a currency that is not easily inflated. I’m not positive, though, that either entirely gets the part of the picture that the other man sees. We might describe these as in some sense the “Occupy” vs. “Tea” theories of money. Getting this point wrong could doom the economy under various imaginable scenarios – as could continuing to muddle along our current inflationary path, of course. Sometimes I get nervous.
Fiat Currency Is Not Just Smoke and Mirrors
Some of the most hardcore Paulites think they’ve been shafted over the past century (A) simply because there are more bills in circulation and thus each is only worth, say, a hundredth of a century-ago bill (an idea that can be shown to be false just by looking at our standard of living or taking a sort of monetarist/Friedmanite second look at how currency works) but also (B) simply because fiat currency is not exchangeable for gold.
And what I’m coming to realize is that many of them have, I think, almost fallen for the erroneous Robert Anton Wilson view of “the problem” with fiat currency – that is, that it’s a hollow thing supported by mere faith. But this is not true: as long as it has exchange value, that is its real value (if people use it in anticipation of it being recognized and accepted in exchange for goods and services by others, it’s doing its job – like a road sign, if it means the same thing to all users, it doesn’t matter that its shape and color were arbitrary to begin with).
Again, the reason smart libertarians presumably think something like a gold standard would be good is just that we want dollars pegged to something that prevents arbitrary inflation by being fixed but, crucially, NOT because the value of the thing the currency is pegged to is actually worth the entire value of the goods and services being traded.
Even if you’re literally trading pieces of gold as currency, their primary value will be their exchange value from their use as currency – the expectation people will use them to trade with you again in the future – not some use-value of gold as a replacement for, say, food or cars.
And I think the cranks overlook this difference and thus think we’ve somehow been robbed of nearly 100% of GDP – or maybe I should say 50% of GDP (since half of all value, they imagine, should be in the form of gold) – all because of the chicanery of the creation of “illusory” money. That’s why they’re so worried that there might be no gold in Fort Knox, for instance – but that doesn’t really matter that much, not in any fundamental economic way, aside from the ordinary problem of large-scale inventory mishaps, etc.
(Anti-Paul critics are making the same mistake, I think, when, as some recently have, they say, “There’s not enough gold in the world to have a gold-based currency anymore” – they, too, are speaking as if the currency’s use-value independent of its use as currency, independent of its use as a marker, must be as great as that of all the commodities it represents.)
Long story short: we just want a rule against unpredictable inflation (or new dollars flowing unevenly into favored parts of the economy, basically just loan-seekers) – but we shouldn’t think, the way many of the Paulites (and perhaps Paul himself?) do, that we’re currently engaged in a valueless pseudo-economy that needs to be replaced by a “real” one.
Getting this wrong seems like another one of those things that could accidentally ruin the world at some point.
In Fact, You Could Use Smoke and Mirrors as Currency with No Problem
If “peg to gold” is a good idea, the important word is “peg,” not “gold” per se.
In other words, paper money would be as good as gold if, say, you could guarantee with nanite markers or something that each $1 bill was “1 of only 100 trillion in circulation,” with no inflation occurring (or none without very predictable creation and distribution of them). The problem is the inflation and, again, metal’s harder to inflate but not use-valuable in any important way. Anything hard to make more of arbitrarily would do, even if it were an ugly, unpleasant, useless substance. The death penalty for printing new bills would also likely do the trick – or just the awareness of there being even more competing currencies than we now have (this would be my preferred route away from the current system, and it is Paul’s as well).
One can see how fixed exchange rates without gold are an invitation to, in effect, counterfeiting by central banks themselves (since then you don’t just have more yuan, you have more equally-dollar-valuable yuan). Floating means that while there’s no promise they won’t inflate there is at least an honest expectation of exchange rates changing in accord. China hovers somewhere confusingly between fixed and floating – haggling over it all with the U.S. and other countries as it inflates – in recent years.
More disturbing to me than any international currency spats, though, is the cynical domestic use of inflation to manipulate relatively short-term economic behavior (we should no more be manipulating people’s behavior this way than we should be trying to alter the makeup of the construction industry by periodically changing the official length of an inch).
It’s Curtains (and Men Behind Them) for You!
There is perhaps no more cynical creature on Earth than the leftist who works in the financial sector – a very common phenomenon here in New York City, as you might imagine. And I was alarmed when one in the very bookclub with which I read Graeber’s Debt defended inflation precisely on the grounds that it dupes people into believing that their long-term return on transactions is bigger than it really is. This fellow club member is in real estate of all things and is convinced that far fewer real estate deals would occur if people weren’t deluded by inflationary calculations – and he wants those deals to occur.
To that, I can only say: was he in suspended animation for the past five years? We laissez-faire types get accused of being the destroyers of the economy and here’s a left-leaning man endorsing duping people into making more real estate deals than they would if they had an accurate picture of reality? Didn’t that, you know, cause some problems of some sort recently?
But to cynical left-wing financial sector types, the only kind of business there is is that which is kept in motion through mass delusion. They don’t really believe that most economic activity is a reflection of people’s real desires.
In the end, the best guard against inflation is really currency competition, as Ron Paul told Paul Krugman on Bloomberg TV the other day. Get the government out of it all and, in a sense, you don’t need to worry about pegging, just choosing which currency you’ll use if some inflate and others don’t.
And with that complicated issue settled once and for all, we can use the Dionysium (Thursday, May 17, 8pm, at 2 Havemeyer St.) to talk about the fun things.