The Austrians are obviously having a field day right now, and they’re right about some things, in particular that a totally fiat currency is probably not such a good idea.  But as to what should replace it, gold, or even gold/silver is picking an arbitrary commodity that is from the modern point of view, no different from any other, and is putting the growth of the money supply at the mercy of future mining technologies and mining strikes.  If a gold standard were ever adopted, the pressure to get off it would immediately mount during the next period of expansion, as in the late 19th century.
As an alternative, some have suggested making a class of intrinsically valuable things (unlike gold, which is really not very useful–its value is really conventional to an almost similar extent to paper) the currency, or the backing for the currency.  Such as barrels of oil.  This is an idea in the right direction, but still too timid and tied to a specific commodity whose future is doubtful.  A really right approach I think is to make UNITS OF ENERGY itself the basis for the currency, and make the currency redeemable in units of energy, delivered in a form agreed upon by the participants to the transaction.  This was suggested, for example, several decades ago by the late geologist M. King Hubbert.
Scott, for your next interview with an Austrian economist, I suggest you ask them about this notion.

1. Scott Horton posted the following on September 28, 2008 at 11:07 am.

   I will ask about a couple of those notions. First, I know Ron Paul is not hell bent on Gold, but on commodity money of whatever description the market comes up with. Second, gold is sorta just a fiat currency like paper - in the sense that it isn’t all that useful for industry, etc., but it’s an element, it’s impossible to manufacture out of something else, it’s divisible in unlimited numbers of different quantities, and markets for the past 5,000 years or so have judged it the perfect store of wealth. As to whether the economy has to have more currency to grow, why can’t prices just fall? And I’m really no expert on this, but did Higgs not address that England’s attempt to go back to a gold standard after the war was thwarted by their other govt. policies, rather than because the time for a gold standard had simply passed? Nixon finally killed ours after 10+ years of war and socialism. Wouldn’t it have been fine as far as the regular economy is concerned without all that? This, I think, is the most often if not most important reason cited by Paul, restraining government spending. As far as units of energy being currency, I don’t know why not. It seems like most of the wild swings in energy are really swings in our paper dollars.

   1. MikeL posted the following on September 28, 2008 at 11:37 am.

      Yes, the best thing to serve as real money will emerge in a free market, whether that thing is gold or something else. But look at what has happened over human history: gold has independently evolved as the commodity of choice in many different societies. Think about how amazing that is. Such a convergence of monetary systems, in cultures that weren’t even connected through telephones or email or the Web, suggests that a stable commodity-backed currency could very easily emerge in our present, very well-connected and interlinked economies. Don’t worry, it’ll happen if we just get the State out of the way.

   2. Wolfgang Bohringer posted the following on September 28, 2008 at 12:10 pm.

      Libertarians such as Ron Paul would scare the Left a lot less if they always pointed out that there should not be a Gold-legal tender monopoly enforced by the bayonets of the state.
       

Scott, I love how you often ask of libertarians a lot of the tough and seemingly obvious questions that nobody else asks.  For example, when you asked Higgs to refute the near-universally held belief that WWII lifted us out of the depression, Higgs says that the depression lasted straight through the War and we weren’t saved from the depression until 1946 and de-mobilization.  And then you (and I’ve only heard you do this so far) responded with the obvious question, something like: “But they didn’t de-mobilize the whole New Deal.”  And especially Higgs–Mr. Ratchet Effect–should know that.  How is it that a heroin addict can keep increasing the dose–as the Rothbard clip tells us–bigger and bigger futilely trying to achieve the previous highs and then, all of a sudden he reduces his dosage by, say 10% or 20% or even 50% from his all time high dosage of the previous day, and then he’s on the road to recovery? and thriving with a new heroin habit that starts out at a ratcheted in level 50% higher than when he started suffering the bad effects of the previous cycle??  It doesn’t make sense.  The Austrian explanation and the addiction metaphor don’t quite work for me.I can speculate on some ideas about how the Austrian School explanations of what everybody else calls “macro-economic” phenomena are so unsatisfying.  I think it has to do with the fact that the Austrians improperly try to apply their insights to the paradigm and language of “macro-economics” while at the same time the Austrians actually disprove and reject that paradigm and language.Here’s some bits of explanations that we’ve heard that might be consistent with Austrian insights of how the U.S. went from poverty in the 1930s with a government addiction of size X to everybody eating well, having a TV and emulating Leave it to Beaver in the 1950s with a Government Addiction of size 10X:  - Maybe the source of the vast increase in U.S. wealth occurred during those 20 years due to massive infusions of cheap and stolen resources from bringing new Imperial colonies on line?- Maybe increases in technology (that occurred for whatever reasons) increased productivity which increased living standards despite the bad effects of having a government addiction 10 times bigger than 20 years before?  This is what I think I’ve heard from some Austrian-ish people responding to those who point to the low price inflation of the 80s and 90s.I thought Higgs’ response to your important objection was not responsive and I wish you would have tried to make him zero in on it.Here’s another way to look at it that I think is consistent with Austrian theory: At any moment in time–whether TV tells us that a panic is in progress or not–War and Inflation is “working” for some people and hurting others.  From this point of view, in the lower PRICE inflation, pre-panic days of the 50s and 80s, the Leave it To Beaver families were really suffering hyper-price-and-stag-flationary effects because the prices of their TVs and cars would have been decreasing rapidly if not for increasing Government Control.  Likewise, the yuppies of the 80s and 90s were suffering “hyper” inflation paying 2% more per year for stuff that they should have been paying 2% or 5% less for each year, given all of the technological and productivity improvements and influx of Imperial loot that was also going on.

1. Wolfgang Bohringer posted the following on September 28, 2008 at 12:06 pm.

   I knew that was going to happen!!  Everytime I paste from Notepad here it turns it into 1 giant line with no cr/lfs!
    
    

   1. Scott Horton posted the following on September 28, 2008 at 12:43 pm.

      Yeah, I shoulda followed up one more time. I think the way I remember it is that by the end of the thirties, the interest rates were artificially high, as they at some point, I forget which, had realized that continuing to inflate wasn’t working and they had gone the opposite direction way too far of course so that by the time of the war, they finally made money cheap enough to start flowing around again for the war machine. Then when the war ended and the war controls were lifted the people’s productivity was reletively unleashed. But that is about a college freshman understanding right there. Also, of course, there were improvements in transportation, new technologies, imperial colonies and so forth as you mention. Next time I talk with any of these guys, I’ll try to remember to zero in on that.

      And you’re right that Ron Paul et al should be very clear that they don’t want a govt monopoly gold standard, but a market one. Someone was just objecting over at the AWR blog about that too.

I believe Peter Schiff is one of them. Also, the bailout must be a good idea…because Warren Buffett says so. After all, if he had the money…he’d buy it himself. Lol. I love his little deal with Goldman Sachs. What a dirt bag that old man is. He tries to make himself out like Mr. Humble … oh, I am so like everyone else because I drink Coke and live in this same house (except I have 65 billion dollars , or however much he has now) That guy is so full of shit. He is totally self serving and ruthless.

Well, see, all the banks HAVE to buy stock in their local Fed district bank and they can’t sell it. The profits made from the district banks (at least supposedly) go to the treasury. The open market committee does all the deciding. They all come from Wall St. of course, but are nominated by the president and confirmed by the congress. They have police power. So, it is a cartel, but the defining attributes are really government ones. They named it the Federal Reserve System to disguise the fact that it’s a central bank in the first place, but in essence it’s no different than the Bank of England. It operates on behalf of certain private interests, but that doesn’t make it different than any other govt. agency. The banks of course benefit because they get mandated low rates and reserve ratios and the “lender of last resort” no matter how terrible they are at running their businesses, as we can see today.