I took a long walk the other day and as often happens in such situations I became lost in thought. I mean, really lost, unable to stop thinking and unable to reach any real conclusions, as if the process of thinking was sufficient unto itself. Maybe it is.
The subject was, once again, money. The effort was to try to understand different and conflicting points of view on the subject, to see if some potentially mutually agreeable alternative could be reached. Maybe. Who knows?
Broadly speaking there are two, or maybe two and a half, viewpoints about money, in the sense of money’s origins and nature. One favors a central bank and “money” that is ultimately, and at bottom, a debt from one party to another, so that socially speaking, money expands and then abounds right along with borrowing and lending. The other favors money that is ultimately an asset, a commodity such as gold or silver, such that money remains relatively constant in quantity and cannot expand at all without production of some sort, such as digging gold out of the ground. There’s sort of a middle approach, exemplified by the Ellen Brown crowd, which regards money as something a sovereign can issue at will and needs no further value than that prerogative itself. This middle approach is much more similar to the central bank option than the commodity money approach; that’s why I said two and a half.
The readers here may have gleaned that I favor the commodity approach, but that’s not the subject here. The questions I pondered over my long walks had to do with finding both favor and fault with the alternative monetary approaches.
What can be said in favor of the central bank approach? It tends towards dishonesty, profligacy and waste, but before you get to that point you are apt to see courage, confidence, economic vigor, willingness to take risks and like qualities, that can be thought of as virtues if they are not taken too far.
In contrast, the commodity standard approach tends towards miserliness and timidity or cowardice, but before you get to that point you are apt to see thrift and circumspection, perhaps vigor also, but a vigor more infused with knowledge and even wisdom, qualities that should be thought of as virtues of a sterner sort.
Put another way, both systems allow for both good things and bad, but they tend to favor opposite qualities in either case. Isn’t that interesting?
So under a gold standard system the danger is that you will have a miserly, stingy, hoarding and overall mean populace that is less productive; under the central bank monetary system the danger is that you will have snake oil salesmen, swindlers and crooks running things and profiting while honest people get screwed. I don’t care for either alternative, but notice how neither is a complaint about the monetary system per se, but rather about the collective character of the people. In other words, although I greatly prefer honest, commodity based money, I would rather live under a central bank where people had high character than under a gold standard where people had low character.
One question is the degree to which the monetary system encourages low character, and on that score I think it is quite clear that the central bank system encourages bad character whereas the gold standard system is more or less neutral. By itself it does not encourage miserliness or meanness, but if those things are present or prevalent it does not counter them either; whereas the central bank system fairly encourages the vices associated with it.
Another question, and a very interesting one to me, is the issue of when a virtue gets taken “too far” and becomes a vice. Thrift is a virtue, but taken to the point of stinginess it is a vice. Courage or venturesomeness in economic matters is a virtue, but taken to the point of recklessness or profligacy it is a vice. Chastity is a virtue, but taken too far it becomes a denial of life’s goodness, fruitfulness and beauty – the vice of a shriveled spirit.
One thing that is certainly beyond debate is that our central bank system is in the process of failing. What will replace it, or when, is unclear; but it couldn’t hurt to ponder virtue, how it is attained, how it is maintained, and how doing that might make things better no matter what monetary system we live under.