More Gold

I've written about what a terrible idea the gold standard is in the past.  Today, I was reminded of a particularly good distillation of why the mystical power of gold is mistaken by Keynes.

The argument Keynes made was that a depressed economy could be stimulated if the central bank or Treasury were to bury bank notes far underground in designated areas around the country.  They would then sell the right to excavate those bank notes to the private sector.  The private sector would then put unemployed people to work digging for those bank notes.  Given that there's no reason those bank notes won't retain value, that's an expansionary exercise.  And the private sector would certainly do it, especially at times like this, simply because the demand for safe assets like bank notes is so much greater right now than the demand for consumer goods (as reflected by the super-low interest rates on Treasuries.

Now, is this a productive use of government resources? Of course not.  You could do qualitatively the same thing by hiring those same private sector companies to build bridges or rail networks or to create wireless internet networks in big cities.  But government spending is disfavored by the powers-that-be.

Before you go out and dismiss this as a stupid idea, as Keynes notes, digging up buried bank notes is essentially what the gold mining industry is.  We devote a whole lot of resources to digging up ore, extracting shiny yellow metal from it, and melting the shiny yellow metal and sending it to sit in big bank vaults in the Swiss Alps and under the New York Fed in downtown Manhattan.  But Ron Paul would tell you that we've valued gold for a long time.  And it's fungible.  And there's a limited amount of it.  Which is all well, good, and irrelevant.