The Federal Reserve puts on a conference in the idyllic location of Jackson Hole, Wyoming. Of course it’s all about how best to centrally plan our little lives for us, and who is to be sacrificed to whom.
The American Principles Project and the Atlas Network Sound Money Project, provided a much needed alternative in the Jackson Hole Summit. By choosing the same time and place as the Fed, Steve Lonegan capitalized on the publicity. In fact, the #jacksonholesummit hashtag was trending on Twitter the first day of the conference, so it was a big success.
There were many great talks. Larry White observed that the government used to weaken the banks with restrictions, but now does it with privileges (think about that for a moment). MP Kwasi Kwarteng talked about fiscal discipline as a prerequisite for the gold standard. Judy Shelton asked the question that should be on top of everyone’s mind: what if central banks are wrong?
Forget the blah blah of the Fed, this is what the world needs to hear. From the turnout and energy, I believe next year will be even bigger and better.
One idea always comes up in a discussion of sound money. The Fed manages the dollar based on (in theory) unemployment and consumer prices (CPI). Instead, couldn’t it just use the gold price?
In my talk, I explained why not.
A few months ago, the Supreme Court struck down an unjust New Deal era raisin planning board. This committee takes grapes from farmers, to drive up the price. If it later sells the grapes, the farmers may get paid. It’s looting, plain and simple, and the Court rightly tossed it into the dustbin of history.
I said to the audience, “we need a monetary policy for the same reasons we need a raisin policy: taking from people is good, bureaucrats are incorruptible, and central planning works well providing food in North Korea.” Sometimes the best way to make a point is to be facetious.
Even if central planners somehow found the right gold price, they still don’t obtain the same result. Blasting the people with scalding hot effluent is not the same as a hundred million individual decisions to take afternoon tea. Forcing a feeding tube down someone’s throat and dosing him with nutrients isn’t like simply letting him eat. Coercive methods don’t have the same effect as freedom on mind, body, or soul.
The idea is that the Fed should increase the money supply when the price of gold falls below the target and decrease the money supply when the gold price rises. OK, but what are the mechanics? The Fed cannot gift anyone with newly printed dollars, much less make your bank account balance drop. The Fed can buy or (in theory) sell bonds.
It is true that if the Fed buys bonds, the money supply increases. However the bond price also rises, which means the interest rate falls. I have written about the harm this does to innocent people here, here, and here. That hot and dirty water splashes all over, inflicting collateral damage.
In the real gold standard, if you don’t like the interest rate or banking risk then you sell a bond or withdraw your gold coin. This forces the interest rate up. The time preference of the people has real teeth.
However under the dollar, what can you do? At least a bond pays something. If you sell it, then you get cash which pays nothing. Savers are disenfranchised. No wonder interest has been falling for three decades.
The debate of a Fed managed dollar based on unemployment and CPI, vs. a Fed managed dollar based on the gold price is a false alternative. To modify an analogy from Ludwig von Mises, it’s like choosing between drinking a glass of cherry flavored potassium cyanide vs. strawberry flavored cyanide.
We need the real gold standard. We need a free market in money.