If you've ever wondered exactly what inflation is and why it occurs, it would pay you to read Murray Rothbard's What Has Government Done to Our Money? Inflation is caused by an artificial increase in the supply of money---basically, the total number of "notes" issued by the federal reserve---because a greater supply of money chasing the same amount of wealth leads to a decrease in the value of each unit of money.
Rothbard argues quite clearly that the government monopoly of the money supply is the root cause, and that the only way to ensure that money is not devalued is to allow individuals to answer for themselves the question, "What is money?" It is likely that people will choose gold and/or silver, upon which a banking system with notes based on that standard will arise to make the transport of money easier.
Under such a system, the market would ensure that any misbehaving banks---i.e., those that create notes not backed by gold or silver---were punished through the loss of customers and faith. The federal reserve system, by contrast, has no competitors and therefore people cannot simply choose to store their money in a different, more responsible bank.
2 comments:
Did you see this little piece of history?
http://www.clubforgrowth.org/blog/archives/039807.php
Rather pointless article, but interesting, I didn't know that there was an attempted switch from the gold standard at the turn of the century.
We haven't truly been on the gold standard since WWI, as Rothbard indicates in his essay. Any perceived failures of the gold standard after that date must be attributed to being on a partial gold standard, similar to the way the problems with the CA energy market a few years ago were due not to deregulation but to partial deregulation.
Besides, I'm arguing for no standard at all except that determined by the market itself. Giving government the sole authority to mint money is the very source of the power to distort the money supply, and while a gold standard would effectively be about as good as a market-determined standard, it would still have the cloud of populist uncertainty around it, as the article you linked illustrates. Better for government simply not to have the ability to tell you which money you must accept.
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