PhD. “Dollar Standard” was a dismal failure. Let’s return money to the market.


“A currency, to be perfect, must have an absolutely invariable value.” –David Ricardo

So much time has been lost, and so much progress has been lost, because of a fundamental misunderstanding about life. Economists believe that due to the existence of paper money and central banks, we have somehow left the era of “barter economy” in the past. Except we didn’t.

With commerce, it is always and everywhere production for production’s sake. Reduced to the essentials, I have bread and I want your wine. Except you don’t really care about my bread; you really covet the butcher’s meat. Money is the value agreement that allows all three of us to trade even though our desires are very different.

All of this explains how money is born. Precisely because the demand for my bread by others is not uniform, the money has been put on the line by the producers. Not being a creation of the state, money was invented as a commonly accepted measure of value that producers of goods and services widely accepted. To this day, we work for money which in itself has no value. Its value comes from its acceptance by other workers and producers of goods and services. In short, these days we work for dollars simply because those dollars are exchangeable for real goods and services.

Which explains the Why behind the currency defined by gold. The latter is not some sort of ancient concept so much as the end result of a millennial search among producers for a measure whose value was largely unchanging. Indeed, given that all trade is based on barter between producers, the best way to facilitate many exchanges between producers is to have a monetary form that retains its value over time, across cities, states and even countries. Put simply, gold has come to define money not by magic, but by market forces. The producer market around the world has found gold to be the most consistent of all commodities due to unique stock/flow characteristics, and therefore uniquely suited to serve as a medium of trade.

This is useful to mention given the popular complaint among financially confused people about money today. When gold is mentioned as a way to reintroduce the stability of paper money, those who have no idea about currencies offer dismissive responses like gold is “a 19and solution of the century. That doesn’t make much sense.” Such an answer says a lot, but not about money. Instead, it exposes how limited understanding of money is among self-proclaimed monetary commentators.

To profess that gold is a look back at more primitive times is like waking up one morning and saying that the measure that is the foot no longer meets our 21st century needs. Since the origins of the foot date back to 2575 BC. BC, isn’t it time to invent a new measure? Wouldn’t a new measure of length make us more productive, smarter and above all taller? The answer to the previous question is no, no and no. A foot is just a measurement. That’s it. It cannot alter reality as much as it can reflect reality. No doubt we could redefine the foot to 6 inches so that most adults could claim a height somewhere north of 10 feet tall, but in reality our height wouldn’t change one iota.

That’s why the halfway serious would scoff at a “new” or an “old” foot as a path to greater productivity, knowledge, height, or anything else. A measurement is just that.

It’s high time to start looking at money the same way again. Money defined by gold is not a rush to an ancient and primitive past so much as a return to money, par excellence. The purpose of money is to measure value, which means good money is stable as a measure. Gold is the commodity that market participants have once again touted as the most monetary of all measures, precisely because the value of the commodity itself is so constant. To be clear on this, when the dollar price of gold moves, it is the value of the dollar it is valued in that moves, not the gold itself. It’s quite a reminder that a dollar whose value is defined by gold is not a 19andconcept of the last century as much as a recognition of the realities of the market.

At the same time, it is not a rigid recognition. Anyone who supports and understands a gold-defined dollar would never be closed-minded about gold as a definer. In other words, if there is a raw material known to be more stable than gold, let’s migrate to it. Better yet, let the market migrate to the product that makes the most money, money. And since the money measuresthe most perfect money is that which can claim the least variable value.

It’s a long way of saying that money without a stable definition is the real rush of the past, and unstable at that. Economists and those who allow their drool want us to believe that a Ph.D. The norm that money is managed by economists focusing on “supply” is the monetary best-case scenario. No, it’s actually a horrific step back from central planning. Leaving the money in the hands of economists is quite the obnoxious vanity of giving economists the power to plan production. We tried the latter. It failed. Tasking economists with planning the supply of what is determined by production fails in the same way. Always.

The markets have spoken of money. For fifty years we have ignored markets, only to allow economists to plan for what is logically a market phenomenon. With $7 trillion in currency trading per day, it’s obvious the doctors have made an impressive blunder. It is time to return the question of money to the real markets.


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