on goldbugs and free-market money

I'm curious to read Richard Powers's bestselling novel, The Goldbug Variations. I found what I thought was a review of it in The Village Voice: an article called "The Goldbug Variations" by Julian Dibbell. The piece has nothing to do with the Powers novel, but it is a review of sorts, both of the book Cra$hmaker and of the sound-money movement in general.

Dibbell describes Cra$hmaker as "a book for sound-money cranks."

He continues:

An ultra-wonky libertarian sub-subculture, the sound-money crowd stakes its ideological identity on the proposition that today's paper currencies, backed only by government debt and the laws that make them legal tender, are the fraudulent cornerstone of the welfare state. By printing money at will, goes the logic, the government raises revenues that citizens would never pay knowingly, through the hidden tax of inflation. The full argument is complicated, but the proposed solution isn't: Also known as goldbugs, sound-money cranks demand a return to the days when money had to be mined before it was minted.

So far his facts are accurate, even if I disagree with his judgments. Smug and condescending, yes. But not ignorant. Somehow he's both knowing and naive.

He makes a grave error however when he says this:

Where your average libertarian fetishizes the Bill of Rights as the only part of the Constitution that really matters, goldbugs cling to an even smaller patch of text: Article I, sections 8 and 10, enshrining gold and silver as the exclusive coin of the realm.

Nope. Sorry. First of all, libertarianism is what produced the Bill of Rights. It is not a product of those ten amendments. Secondly, howevermuch overlap there is between American libertarianism and the strict constructionism of constitutional conservatives, the two are not the same. Some of us are fans of the Articles of Confederation, and see 1787 as a nationalist coup against the then-dominant belief in a near-anarchistic decentralism. (And some of us don't give a hoot for American history at all, and base our libertarianism entirely on the Non-Aggression Principle.) But third and most important, neither the ethics nor economics of the free market depend in any way on a mere document. And as Austrians are increasingly inclined to emphasize, advocacy for a gold standard is the combination of (1) advocacy for free-market money, and (2) a prediction about what commodity money the free market will choose. I know at least one prominent Misesian who thinks the market would choose silver. Personally, I think it's more than mere coincidence that history keeps producing bimetallism or its equivalent -- two moneys for smaller and larger purchases or investment. More than once it's been tobacco and whiskey rather than silver and gold. (I mentioned this to my friend Clinton and he replied, "Tobacco and whisky -- putting the fun back in fungible!")

I even argued in my second article for Mises.org that paper could beat gold under unusual circumstances.

The last paragraph of Dibbell's review begins, "In the end, then, the readers likely to get the most out of this long, strange trip may well be those of us who, unlike the average sound-money nut, have never come so close to the edge of consensus reality that we fell off."

I'm not even going to bother with the frightening implications of an appeal to "consensus reality" on a political question that has been constantly and very expensively propagandized for more than a century. Even on less manipulated issues, I've never been very impressed by What Everyone Knows or How Everyone Thinks. I prefer appeals to facts and reason, which you'll notice are far more abundant outside the mainstream. As I've said elsewhere, reality itself is not subject to majority rules. (This by the way was exactly the issue in the Methodenstreit between the Austrians and the Historicists. Austrians believed then and still believe that economic laws are unbreakable and unchangeable: they are part of the fabric of social reality. Historicists seem to have believed that if enough people wish for something really hard, they could make it come true. Think of Tinkerbell in the stage production of Peter Pan, except the Historicists were talking about the control of prices rather than resurrection of fairies.)

When I started calling myself a goldbug, I thought it was a reclaimed word.

Our enemies like to paint us as paranoids and fetishists. But isn't it puzzling that however much they may disagree with free-market arguments on other issues, they rarely sink to calling us bugs and nuts and cranks on those issues?

I'm not denying that there are paranoids and conspiracy nuts in the sound money movement. All movements outside or against the mainstream attract more than the average portion of head cases. (And of course, not all conspiracy theories are crazy.) But the argument for sound and depoliticized money is just a special case of the argument for free markets in general. Nothing nutty about it.

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PS I took the above image from Paul van Eeden's "What is a gold bug?"

Turns out I'm wrong about the reclaimed status of the word. The term was what the McKinley supporters called themselves in the 1896 presidential campaign between Republican William McKinley and Democrat William Jennings Bryan. Bryan's supporters in the "Free Silver Movement" called themselves silver bugs. It's an interesting read. Have a look.

But the history of the terms helps highlight an important divide in the sound-money movement. Bryan and the silver bugs weren't advocating a free-market bimetallism. Theirs was an inflationist scheme based on price-fixing (requiring a fixed exchange rate between silver and gold coins, rather than allowing supply and demand to determine the real market value of silver). McKinley and the gold bugs were right to oppose the price fixing, but wrong to oppose bimetallism. There's nothing unsound about silver money and nothing inflationist about free-market bimetallism.

There are those still among us who, like McKinley's supporters, want a gold standard implemented by a central government. They are not advocating free-market money: they are advocating a central plan based on gold. The political goldbugs and the anti-political goldbugs have a lot in common, but ultimately, we disagree on the nature of gold and the importance of choice.