Friday, September 30, 2011

Objectivism and the Gold Standard

Ayn Rand and Alan Greenspan both assumed that the government would be the only source of money.  Even in Atlas Shrugged when John Galt hands Dagny Taggart his own five dollar gold coin it bears the semata of the United States of America.  “On whose authority?” she asks.  “It says right there,” Galt replies.  The absence of private money in Ayn Rand’s capitalist utopia is curious. 

US 1/10 Gold Eagle,
modern US $5,
older US $5
Nothing requires that money be issued by a government, though there is utility in that for that institution.  While gold proved most useful in the industrial age, and may well continue through the information age, historically, gold only served a special function relative to silver.  Historically, silver was the universal metallic money.  Gold, like copper, was a convenience. 

Moreover, a truly agoric coinage would announce only its weight and fineness and not be denominated in money of account.  If by law the “dollar” is 412 ½ grains of silver, then the definition of the dollar can change by law.  Historically, this is well-known.  Debasements are the rule as government expenditures outrun their incomes.  The coinage suffers as their denominations increase. 

On the other hand, it is important to note certain seeming contractions to Gresham’s Law in the 19th century United States.  Silver half dimes circulated alongside nickel 5-cent coins.  Silver and nickel 3-cent coins also passed equivalently.  When the government changed the weight and fineness of the coins in 1834, it declared that all issues of whatever standard were alike legal tender and it made little difference.

In fact, the first gold coins of the United States did not state their money of account value in dollars until 1807 ($5 half eagle), 1808 ($2½ quarter eagle) and then 1838 ($10 eagle).  They were gold coins, nothing more or less.  Likewise, the British sovereign did not and still does not have a mark of value. 

Size of a half dollar and
potentially more useful.
As a large economic entity – even when limited by a constitution – the federal government of the United States easily should benefit from issuing its own currency, as would General Motors, Microsoft, or you.  There is nothing wrong with government money, but it is not necessarily the only money.  While a gold-backed federal currency would be inherently strong the government has the opportunity to consider and issue a variety of moneys – and historically, it has done so.  Gold and silver, of course, both came from the Mint as did minor and token coins in base metal.  However, through the 19th century and up to the Great Depression, paper promises were backed in gold, and in silver, and in only the credit of the United States.  Some of those unbacked promised paid interest; others did not.  No objective test can show that one kind is “moral” but another not, as long as people have a right to choose. 

But the government does not need to issue its own money.  In 1800 and 1802 republicans in the Senate attempted to shut down the Mint as a drain on the Treasury.  Trade and commerce were carried by foreign coins, largely Spanish dollars and their factions.  Meanwhile, even into the 1830s, merchants along the East Coast kept their books in pounds-shillings-pence, not dollars and cents.  Gold and silver coins from Britain, France, Spain, and Portugal were legal tender until 1857. 

Problems in money and banking generate much discussion among libertarians and objectivists.  Working the Libertarian Party tent at the Ann Arbor Street Fair in 2009, I heard one of my comrades denounce the Federal Reserve and declare that only the government has the right to create money.  Rather than engage in all of that, I offer these links. 
Also here on Necessary Facts:


  1. Have you read this?

    He studies numismatics and indicates that metals were not used as money, and that the metals were present in coins in such wildly varying amounts that they could only have been tokens. The gold or silver was used to give the tokens durability, not value. Their value came from the debt they represented.

    Most had no face-value and we simply stamped with the name of the issuer.

  2. Thanks for the link. I could quibble with a few points, but overall, it brings an interesting perspective to the problem of the origin of coinage in particular and money in general.

    What is Money? From The Banking Law Journal, May 1913. by A. Mitchell Innes.