Legal Commentary

Price Stability

By Matt O'Brien

Just to continue with Friday's theme of this country's questionable monetary policy of the last 30 years I found an interesting passage in Alan Greenspan's book, "Age of Turbulence." The former Fed chairman  briefly discusses the heyday of the gold standard when price stability, for the most part, was pretty consistent until the world abandoned it during the Great Depression.

"I have always harbored a nostalgia for the gold standard's inherent price stability ... But, I've long since acquiesced in the fact that the gold standard does not readily accommodate the widely accepted current view of the appropriate function of government - in particular the need for government to provide a social safety net. The propensity of Congress to create benefits for constituents without specifying the means by which they are to be funded has led to deficit spending in every fiscal year since 1970 ... For the most part, the American people have tolerated the inflation bias as an acceptable cost of the modern welfare state. There is no support for the gold standard today, and I see no likelihood of its return."

Never say never.

Now, I will put on my undergraduate college cap to paraphrase Adam Smith, who said a neutral currency is vital in a capitalist system. Perhaps one day, our economic system will find another price stabilizing force, may be in the form of an electronic medium.

Full post as published by Vertical Pulse on January 07, 2008 (boomark / email).