I do not take hard currency idea seriously. Hard currency is a wacky idea. I generally think supporters of hard currency, gold standard advocates being the worst, as non-serious discussants of monetary policy. Hard currency is inflexible and it will exert unnecessary pain in time of crisis. If we had a hard currency all over the world during the last financial crisis, we would have easily experienced the worst depression in modern times. Worse than the 1930s Great Depression.
It would be worse because the world’s economy was so much bigger in the 2000s than it was in the 1930s and given real prices of commodities associated with hard currency, gold and silver specifically, the supply of hard currency could not accommodate the demand for money. The world’s economy would be much smaller than it was at every single point of modern history even without any crisis.
I am a libertarian but unlike too many libertarians, I prefer fiat money to gold standard. I have rationalized my position before.
On top of that, I am a monetarist because I understand the basic operations of modern monetary policy and its implications. I accept the lesson taught by Milton Friedman and Anna Schwartz: in times of crisis, expand the money supply. Under hard currency, the expansion is almost impossible while deflation, which as damaging to general welfare as hyperinflation is, is always a real threat.
Although I am generally reluctant to admit it, I do ultimately support previous quantitative easing exercises in the United States and other similar money supply expansion in other parts of the world. The fear of expansion is always about high rate of inflation but it is quite clear for the past few years that there is a considerable unmet demand for money that money supply expansion does not create any kind of noticeable damaging inflation. Until inflation becomes a credible threat, I will not oppose money supply expansion by too much.
In other words, I think Federal Reserve chairman Ben Bernanke has done a great job. Bernanke given his scholarship is the right man for the job.
So, I take it as a demerit when Mitt Romney said he would not reappoint Bernanke to the job if he is elected as the next President of the United States. And I take it as a huge downer for the Republicans to bow to unreasonable crowd that is the Tea Party and then push for gold standard.
This may force me to reassess my bias with respect to US politics.
I have a Republican bias just because of Republicans’ economic policy has typically been closer to my preference (notwithstanding the Clinton’s years that blurred the line; I do consider Clinton as the best President in recent times). At least, the rhetoric is. And I do think the selection of Ryan Paul as exciting. This election has catapulted libertarian understanding to the national front farther than Ron Paul has ever done.
But the contemporary Republican view on monetary policy might be too much for me.
There are many great economists within the Republican camp at the moment. It is the responsibility of these economists to advise the Republicans of the folly of gold standard.