Gold
Standard
Some
commentators have suggested that for a stable money system all
currency should be backed by 100 percent gold reserves. I do not
believe that this is necessary. The gold standard is an old
technology, which is not really relevant in a world where money
transactions are mostly electronic. However, it is now a redundant
technology. Paper and coins are also becoming redundant.
Electronic banking in association with ATMs and EFTPOS is now the
most efficient method of recording financial transactions.
In the modern world, most money is
a book-keeping entry in the ledger of a bank. Mostly that entry is
a digital record on a computer file. There is no direct connection
to gold. I am not worried whether the bank has reserves of gold.
My only concern is that the bank is honest, and does not make
transactions between accounts that are not legal or have not been
authorised by the owner of the account.
It should be remembered that
money is proof of an claim to goods or services. In the
gold-money economy, holding gold was a portable record of my claim
to those goods and services that I had earned by
selling goods or services (including my labour). My gold is a way
of proving that I have sold some goods or services to someone and
am therefore entitled to obtain goods and services to the same
value from some other person or person in the same society. Gold proved to be an inefficient way of recording or
proving that entitlement. People
wanted gold because it was a portable record of a financial
transaction.
However, even with gold-based money, theft can still
occur. A gold standard does not automatically eliminate
theft, as banks and the government still have the potential to
cheat. Those who do will still have to be identified and
prosecuted for theft. Commodity money only works, if
their is a legal framework that enforces contracts and punishes
theft. A gold standard can only work within a legal and
institutional framework.
Legal Framework
Rather than putting effort into
establishing a legal and institutional framework to support a gold
standard, we should concentrate on a legal framework that will
support a sound money system, regardless of money technology that
prevails. The solution is not a particular technology, but a legal
framework that will constrain any money technology. Rather
than regressing to a gold standard, the civil government should
introduce laws that will make theft in any money system into a
crime.
A sound legal framework that prevents
theft is inescapable.
Most modern money is electronic (digitally recorded on
a bank's computer system). This brings tremendous
efficiencies in terms of trading. Rather than going back to
the old technology of commodity money, we should implement a legal framework that
would achieve the same result in a world of electronic money. We need a legal framework,
which makes electronic money function
in a way that prevents the government or the banking
system from inflating the supply of money. I believe that implementing the principles outlined in this
article would achieve this result (see Trade).
We cannot avoid some government
involvement. The problem with most money systems is that they
allow theft. One of the few legitimate roles of the civil
government is to punish theft. The only role of civil government
with respect to money is to prosecute and punish
theft. What I have tried to do is show how this could
be done. |