I was listening to the music at Avo's with a couple friends last Wednesday. Sloan Down asked me, "Why don't you write a column about how the government should have a sound monetary policy?"
Before I could reply, Seymour Sharpe said, "You'd have to be careful because most people think 'sound monetary policy' is code for going back to the gold standard."
I nodded sagely. "That's what I thought he meant."
Sloan asked, "What's wrong with gold? At least then our paper money is backed with something tangible instead of mere promises."
"Gold isn't any more valuable than any other promise to pay," said Seymour. "Gold has a long history of people using it in place of straight barter for trade goods, but just having a traditional value doesn't mean it'll be worth anything tomorrow. The price of gold isn't any more dependable than the price of anything else. For a truly sound policy, you'd need to base money on something with intrinsic value."
"Pshaw," snorted Sloan. "Gold has more intrinsic value than paper."
"Nope," said Seymour, "it just has 15,000 years of tradition. About the only things with intrinsic value are food, water, and air. Everything else: cars, horses, banjos, are only worth what you think you can use them for or what other people think they can use them for. The give and take interaction of all our various uses, ideas, and value systems is what determines price, which is just basically communal worth."
Sloan shook his head. "Gold is always worth something. It's pretty."
Seymour laughed. "So's Michelle Pfeiffer."
"Or a theorem in fractal geometry," I chimed in. They both stared at me like I was crazy.
"Just ignore him," said Seymour to Sloan. "Now if you were stuck on a desert island without any food or water or gold, which would you want first?"
"That's a survival situation," said Sloan, "not real life."
Seymour shrugged. "It's a situation that demonstrates intrinsic value. But suppose you're on the island with plenty of food and fresh water and you can also get one of three pretty things: a gold nugget, Michelle Pfeiffer, or," he smiled at me, "Mandelbrot's book, The Fractal Geometry of Nature."
"Ooooooh. Hard choice," I said.
Sloan gave me another one of those looks, then said to Seymour. "Okay, I see your point. Gold only has relative value. But what would you base a sound monetary policy on then?"
He shrugged. "Faith. Belief that the real estate and stock markets will climb. Trust that our politicians won't devalue the supply of money. Hope that we'll each negotiate common values, just as we do when assuming that gold will always have some monetary value over and above its use as an alloy or electrical conductor."
"Shoot," said Sloan. "I'd rather put my faith in a rock than in blockheaded Congressfolk or stonewalling bureaucrats."
"Me too," said Seymour, "but we don't have any choice. Actually, we never have had any choice. Those people can mess up the price of gold or silver just as easy as they can louse up the worth of our dollars or the national trade balance. The key to having a sound money system is retaining control of taxes and spending."
"You mean controlling Congress," said Sloan. "The people who buy our votes with mailings, press conferences, and roads paid for with our own tax dollars. That's code for frustration." He stood. " I believe I need another beer."
"Me, too," said Seymour. "We'll leave Mike stranded here and let him fantasize about fractals." They walked off laughing.