Objectivist Monetary Policy

[CWilliams]

How would currency and monetary supply be controlled in an ideal 'Objectivist' society. I imagine that, under a truly laissez-faire capitalist government, the government would have no control over currency at all. 

Would there be a Gold Standard such as described in 'Atlas Shrugged', and if so how would this work? (I struggle to grasp the concept of it working at a national level).

I always liked Milton Friedman's idea of mechanical system producing money at a steady rate as opposed to the government having direct control. 

[CrowEpistemologist]

There would be no "gold standard" as there would be no standard at all which is controlled by the US government. In a fully free system, the US government would not be involved in the  business of currency at all.

 

I've mused here about an "amalgam currency" in which private financial institutions would create currencies that would be competing mixes of different financial instruments. You would see a car for sale for "5000 Apple Dollars, 9600 Microsoft Credits, 1200 Bitcoins, ...". This sort of practice is already in place all over the world where lots of different country currencies are in common.

 

It's important to think of the US dollar as "just another investment" and not "money". Money is just stored value, nothing more. It can be stored in an infinite number of ways.

 

The US government itself would need to standardize on a currency to extract its necessary fees, but it could change that standard just as well as any private company could.

 

Ayn Rand's guest writers spoke a lot of gold etc. but this was primitive thinking. Gold is just another investment instrument like any other, not some mythological "standard". Ayn Rand and her followers of the 60s were freaking about the then-novel parlor trick of a government inflating its currency. Now any serious investor prices a currency's inflation expectations in. Investing in the US dollar is no different than investing in USD.

[softwareNerd]

How would currency and monetary supply be controlled in an ideal 'Objectivist' society. I imagine that, under a truly laissez-faire capitalist government, the government would have no control over currency at all.

Pretty much.

 

Would there be a Gold Standard such as described in 'Atlas Shrugged', and if so how would this work? (I struggle to grasp the concept of it working at a national level).

In Objectivist literature from Rand's time, the essay to read is "Gold and Economic Freedom" - by Alan Greenspan, published in "Capitalism The Unknown Ideal". Most of that essay is pretty standard stuff that might be found in a (pre-1929) Economic textbook. Being a philosophy, I don't think Objectivism supports a gold standard as such. Rather, as presented by the essay,  the choice of gold evolved naturally from the nature of money and the nature of gold. If modern society or technology leads people to choose something else as money, without any type of government involvement influencing the choice, and if that choice is rational, Objectivism would be fine with that too.

 

I always liked Milton Friedman's idea of mechanical system producing money at a steady rate as opposed to the government having direct control.

If it were really mechanistic and not subject to the judgement of people like Greenspan, Bernanke and Yellen it would probably be a significant improvement. I doubt it would ever be implemented in that form though. Best to keep the government out of the game.

 

Edited November 13, 2014 by softwareNerd

[andie holland]

Governments got into the currency business when it became evident that private currencies competing against each other were unstable. This, btw, is the passed- on wisdom of the late Middle Ages, not some Keynesian fantasy. In other words, bitcoms are fun until different ones begin to compete, establish highly variable exchange rates,  and refuse to redeem. That's why the dollar is called 'legal tender'. 

 

But at least you're correct that gold does nothing but add yet another unit of speculation into the mix. Spain, where I am now, still speaks of the gold disaster of the 1600's as elemental in bringing down the kingdom. 

 

So Atlas' heroes were wrong: gol cannot represent any value other than its own worth at any particular moment.

 

Yet if any money represented 'value', then prices would be expected to adhere fairly closely to the particular quantity of valuation. But they don't. 

 

That finance people believed that they did until the '87 crash is indicative of how data was pushed and shoved into a nice Gaussian curve. Then the mean, median, and mode, so nicely aligned in dead center at the apex of Mr Bell, wold suggest that value' is represented by a vertical drop down to the horozontal axis.

 

Now we know that the reality of prices is quite different; the math of statistics from the likes of such as Levi and Cauchy oblige bizness skool peeple to learn real math. There is no value behind prices because they wildly fluctuate without warning.

 

This leaves us with what the smart set knew even in Roman times with their chits: money represents nothing but buying power. if there's too little in circulation. you simply print more. 

 

Otherwise, you're laboring under the false assumption that any particular amount of money, at any particular time, 'truly' represented 'value'. Therefore, playing with the money supply distorts the 'natural' amount. Worse than a metaphysical fairy tale, this story is created by bankers to store up the putative value of their own loans.

 

Andie

 

[softwareNerd]

Governments got into the currency business when it became evident that private currencies competing against each other were unstable.

What historical example are you talking about?

[andie holland]

What historical example are you talking about?

The logic seems to run like this: the government has no use of minting money if there's enough precious metal in circulation. 

 

In 2000 BC, China created the first universal currency.because it found out otherwise; gold would disappear from circulation, be hoarded, and speculated. This would cause unstable prices. 

 

Ditto Rome, who went to chits.

 

Then came medieval Europe's turn, particularly with the Hansa payoffs to various kings. The Portuguese, Spanish, and Venetian League were also confounded by the Chinese demand for American gold; the Europeans had nothing of interest to trade in return for their silks and spices.

 

So by necessity, all the European states began to mint, with the proviso of 'legal tender'. Gold was used for external transactions in default of exchange rate treaties. 

[softwareNerd]

The logic seems to run like this: the government has no use of minting money if there's enough precious metal in circulation. 

It's not an argument I would make, because governments cannot solve any such shortage any more or any differently from a non-governmental agency. Token currencies (paper currencies or electronic currencies today) which are claims to actual values (as opposed to being fiat) have the potential to remove any argument of shortage, because they can be based on a variety of values and even "baskets" of values. The possibilities are infinite.  

 

The rational justification for government mints is really an issue of "weights and measures". Coins minted by all and sundry cannot be trusted: they amount to the use of non-minted precious metal. Of course history shows that governments abuse this function. Governments do have a role to play in preventing fraud etc., but it really does not have to run the mint to perform this role. And surely it does not have to take on the role of devaluing money. 

 

The government's role is to lay down the law to enable clear definition and common understanding of contracts involving money. If people want to accept Exxon "Oil Certificates" issued against reserves, then they base this upon some contract that defines their rights as holders of such certificates. If they want to use bit-coins, more power to them. Value-based money, non-value based money that is still "scare' by definition... whichever way it plays out is fine, as long as there is no fraud and coercion involved.

[andie holland]

It's not an argument I would make, because governments cannot solve any such shortage any more or any differently from a non-governmental agency. Token currencies (paper currencies or electronic currencies today) which are claims to actual values (as opposed to being fiat) have the potential to remove any argument of shortage, because they can be based on a variety of values and even "baskets" of values. The possibilities are infinite.  

 

The rational justification for government mints is really an issue of "weights and measures". Coins minted by all and sundry cannot be trusted: they amount to the use of non-minted precious metal. Of course history shows that governments abuse this function. Governments do have a role to play in preventing fraud etc., but it really does not have to run the mint to perform this role. And surely it does not have to take on the role of devaluing money. 

 

The government's role is to lay down the law to enable clear definition and common understanding of contracts involving money. If people want to accept Exxon "Oil Certificates" issued against reserves, then they base this upon some contract that defines their rights as holders of such certificates. If they want to use bit-coins, more power to them. Value-based money, non-value based money that is still "scare' by definition... whichever way it plays out is fine, as long as there is no fraud and coercion involved.

Well, yes, given your well-explained iff's, then a privatization of the currency would be possible. So to reiterate:

 

* All certified currencies must be accepted by the buyer 

** Weights and measures are no longer an issue because there is no intrinsic value of the currency, anyway.

*** Speculation against various currencies must be tightly regulated.

**** re exports--a strong agreement that other nations might accept the various moneys

***** re imports-- Will other nations follow this trend? If so, how would our population exchange all of the various coinages?

 

Please, again, keep in mind that during the late middle ages gold and silver was weighed to confirm value; it therefore  made no difference of the provenance. 

 

My view is that privitization would involve a rubegoldberg mechanism of rules and regulation for the sake of an idea. it's therefore un-pragmatic from an ergonomic pov. But then again, isn't privitization supposed to make things easier?

 

My rather limited view of Rand says 'not necessarily'--that moral principles supersede practicality, as evinced by her one-sided argument with Hayek. 

 

Andie