Letters and Replies

Regarding “The End of Central Banking, Part II”
To the Editor:

In reading Richard M. Salsman’s “The End of Central Banking, Part II” [TOS, Summer 2013], I was puzzled by the phrase “inflation-adjusted” used in describing the period 1879–1913. If there was no central bank, who did the inflating? The states are not permitted to emit paper currencies. Was the inflation (if it can be called that) a result of federal interference in the gold/silver exchange ratios? In order to have inflation, there must be some monetary debasement; indeed, monetary debasement and inflation are synonymous.

Also Dr. Salsman suggests redefining the dollar as 1/1500 of an ounce of gold (or some near approximation of the market value at the time of conversion). Would it not be better to dispense with the dollar altogether and instead just specify the quantity of gold in some existing standard unit of mass, say the milligram? So if the market price of gold at the time of conversion were $1,500/ounce, then the currency would be convertible to 20 mg gold on demand.

The dollar has been defined (and redefined) in the past, adding an unnecessary layer of complexity and enabling exploitation by statist power lusters. If we were to retain the dollar, wouldn’t this just happen again?

Thomas da Silva

Tamworth, Virginia

Richard M. Salsman replies:

I used the phrase “inflation-adjusted” to accurately describe growth in real income in the United States during the era of the classical gold standard (1879–1913) so it could be compared easily to the lesser growth in real income in the subsequent, inflation-ridden decades ruled by the Fed. My article also makes clear that inflation was nebulous from 1879 to 1913.

“If there was no central bank,” Mr. da Silva asks, “who did the inflating?” Inflation, in the sense that I used the term there, is a decline in the purchasing power of money, resulting in a general and prolonged rise in prices. Inflation can occur even without a central bank, due to government policy (see the Civil War period) or due to bad banking practices. But inflation is both improbable and inconsequential as long as money is defined in terms of a fixed weight of gold (or silver), and the monetary standard is not debased by government printing of fiat money.

Mr. da Silva suggests we should “dispense with the dollar” as the name of the U.S. currency or unit of account. It is true that the meaning and substance of the U.S. dollar (and other currency names abroad) have changed in the past century, due to government devaluing the currency and then emptying it of its initial gold content. But to dispense with currency names at this point would sow more confusion. Widely accepted terminological usage is crucial to a successful monetary system. To dispense with the “dollar” would deprive the monetary identity of a specific, well-recognized name. Much like the role played by a word in concept formation, the role of a currency name (denomination) in setting a monetary identity is a final yet indispensable requirement for clarity and certainty.

Governments debased money in the past century not because money was denominated in “dollars,” but because governments controlled the currency, printed fiat money, and became more statist. The solution to our current monetary disarray is to expunge statism, not the dollar.

Richard M. Salsman

Durham, North Carolina

About Richard M. Salsman

Richard M. Salsman is president of InterMarket Forecasting, Inc., a visiting assistant professor of political economy at Duke University, and a senior fellow at the American Institute for Economic Research. Previously he was an economist at Wainwright Economics, Inc. and a banker at the Bank of New York and Citibank. Dr. Salsman has authored the books Breaking the Banks: Central Banking Problems and Free Banking Solutions (1990), Gold and Liberty (1995), and The Political Economy of Public Debt: Three Centuries of Theory and Evidence (2017). He is also author of six chapters and scores of articles. His work has appeared in the Georgetown Journal of Law and Public Policy, Reason Papers, the Wall Street Journal, the New York Times, Forbes, the Economist, the Financial Post, the Intellectual Activist, and The Objective Standard. From 2010 to 2013 he authored seventy-eight op-eds as a regular essayist at Forbes.com. Dr. Salsman earned a B.A. in economics from Bowdoin College (1981), an M.A. in economics from New York University (1988), and a Ph.D. in political economy from Duke University (2012).

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