Did Ron Paul call for bimetallism?

I didn’t watch the debate, but I see talk of Paul and bimetallism on my Twitter feed.  Note that bimetallism is better than a pure gold standard, as it is less likely to bring dangerous deflation.  Under bimetallism, you fix a gold-silver parity.  Eventually the equilibrium price for gold and silver, vis-a-vis each other, will deviate from that parity.  People will hoard the legally undervalued money, and the legally overvalued money will circulate as a medium of exchange (“bad money drives out good,” as they used to say).  Think of it as randomizing your medium of account: you get whichever medium of account is more inflationary (less deflationary), gold or silver.

Here is Milton Friedman defending bimetallism.

Every now and then some joker comes along and wants to legally fix the price of forty different commodities and use that as money, etc.  Think of it as another path to stimulus and maybe quite a credible one!

Comments

Paul has said elsewhere that fixing both metals together is a bad idea, but fixing a basket of commodities (usually gold and silver) is the way to go.

So instead of fixing 1 dollar = 1 gold unit =1/40th silver unit, he wants to do something like 40 silver units and 1 gold unit = 1 dollar unit.

Interestingly, that would have the opposite effect - in the long run the currency will inflate only as much as the least inflationary component.

System Error!

What? That hoary relic is back again? Fortunately, Ron Paul lacks the rhetorical skills of William Jennings Bryan. I wonder what other ideas will make the leap from Progressive Populism to Libertarianism.

In the last 4+ years I haven't heard him call for anything other than allowing competing currencies. I'd go a step further and settle for the right to contract and maybe not charging capital gains on gold and silver.

What? Bob Knaus? That hoary relic is back again?

Somehow it's okay for politicians to yak in self-contradictory terms about everything including war and then muck it up entirely, but Ron Paul is expected to be an economics Phd.

The farther one's idea is from the mainstream, the more strongly one has to be able to defend it. In a way, this makes sense. For which statement would you demand more evidence: "It's raining right now" or "an alien spaceship just landed in my backyard"?

It depends. What if it s obviously not raining?

Here in Texas, the closest thing we've seen to rainclouds in a month are actually blankets of smoke spewing out from our many firestorms. My money's on the aliens.

Well, given the shutdown of the space shuttle program, an alien spaceship is more likely than a US one.

Indeed attempts to live again old debates about systems of commodity currencies are ridiculous. In relation to currencies, the challenge today is to improve the performance of modern systems of payments in which currencies do not play a significant role. For some time (say the next 50 years) currencies will still be used but increasingly their use will be limited to means of payments in local, small transactions --as the Panamanian balboa (see wikipedia entry). Technological changes have already made possible a substantial reduction in the use of currency, but some interests are delaying progress. I hope Econ Departments replace their courses in monetary economics with courses in the economics of payment systems (in addition to courses in financial economics).

Without some kind of standard, what is to stop people from just making stuff up, I mean, other than the people we pay to have the monopoly of just making it up?

So, you like Bitcoins then?

EB
My main reason for reading this blog is your comments - you are almost the only macroeconomist that makes any sense to me. I fully admit that macro has always evaded my understanding. I believe you have touched on one of my earliest and most obvious misunderstandings. Virtually every economics 101 text contains a section on how "credit cards are not money" yet I've never understood it. Yes, the bill must be repaid (eventually, and with the caveat that bankruptcy remains an option). But to the extent that people desire to spend more (or less), their unused credit lines permit them to do this regardless of the wishes of monetary authorities. I think you are referring to payment systems that go far beyond credit cards, but I am lumping these together as technological innovations that make traditional monetary policy far less relevant today than appears in macro theory.

Am I off base?
Dale

Free Silver 16 to 1!

Yep, no uncertainty arising from creating a new unit of currency. None at all.

You shall not sacrifice us on a Cross of Gold!!!

Something to think about: East Coasters, particularly New York bankers, formed the backbone of the anti-silver contingent. How much of WJB's line was innocent, and how much anti-Semitic?

I have never seen any evidence that anti-Semitism was an important motivator of the populist movement. Do you know of any?

Perhaps the people who were harmed by the depression and deflation of the 1890s somehow noticed what was happened, and pursued their interests accordingly. Crazy?

*what was happening. Gah.

I believe Ron Paul's preferred policy is to abolish the whole idea of a standardized currency, by in particular abolishing the legal tender act. This is quite a bit different, and he explicitly advertises it by claiming it would have deflationary effects since "people are free to accept the medium of exchange of their choice, and are likely to insist on payment in something of real value." That seems like a much more dangerous idea.

It would be an interesting experiment of sorts, to repeal those laws, but to leave standing the requirement that all federal debts must be paid in dollars. Ultimately, "fiat" currency is still backed by the necessity of paying taxes. I expect that the dollar would remain the dominant medium of exchange, but various groups might be able to float private currencies backed by physical goods (gold), transactional utility (BitCoin, essentially backed by its efficacy in illicit transactions), or even services e.g. Delta could pay its employees in (transferrable) SkyMiles.

I don't know that it would ba particularly good idea, but it has interesting ramifications.

How many jobs has gold at three time or more the cost of mining, extraction, and refining created?

After all, anyone can be a gold miner in America because the General Mining Act of 1872 still allows gold mining on all public land not otherwise dedicated to a specific use. Bimetallism might drive up the price of silver if the other metal was silver, but platinum is the one that really needs the price boost, but no matter, those can also be mined as well. And you don't need to pay the government anything to take from the public's land - it is free gold, silver, platinum,...

William Jennings Bryan got outvoted for a spell...

Never misunderestimate the insensibilities of congressmen, Fed Chairmen, and presidents.

In general, Congressman Paul has called for an alternative to statist control over the monetary system by collectivists, central planners, et al. The institution of hard asset backing for Federal Reserve Notes likely would place the monetary system in the (invisible) hands of the (gasp!) market.

Sorry, but Paul wants a "market statist" currency for whatever the people tell him to use if for.

Give it up man, "statist" has become the new imperialism. So overused it has become a joke.

Because you apparently think you're smarter than the man that invented the gold standard . . .

Between 1792 (Coinage Act) and 1900 (Gold Standard Act) US coinage was under "bimetallism." Do you have any idea of US GDP growth rates in those 100-plus years?

Central planners, clueless professors, collectivists, politicians, et al fear and loathe the gold standard. It denies them "control" over monetary events. A commodity/metallic standard may be unworkable, but worse: it limits opportunities for graft.

I am with those who say that if you listen to Ron Paul carefully you will see that he is for private currency backed by whatever people want it backed by.

"Every now and then some joker comes along and wants to legally fix the price of forty different commodities and use that as money, etc."

was that a dig? in the early 1940s Keynes had proposed a Reserve Currency called the Bancor based on a basket of commodities...

Why not take the floating exchange rates we have today, and replace fiat currencies with metals? So 1 troy oz of gold would be 44 troy oz of silver, 1 troy oz of platinum is 2.4 troy oz of palladium, etc. Heck, why limit it to just precious metals, and include base metals like copper as well? When fiat currencies are finally done away, I think government debt will still be around. Its just that investors will only fill their portfolios with bonds of trusted countries (Canada, Australia, Singapore, etc.). Countries like Greece and Italy will have to pay loan shark rates if they want to enter the credit markets.

See post above.

Fixing the ratio of gold to silver makes as much sense as the United States Treasury keeping its book value for gold at $42/oz while the stuff goes for $1800 + on the free market. Richard Fernandez said it right: "Neither the seas nor the markets retreat on royal decree."

Tyler - Please direct your attention to: http://www.ronpaulforums.com/showthread.php?314862

In short, no he didn't. Paul was asked maybe 3 questions during the MSNBC "Parry 'Mouth of the South' vs 'Mittens' Romney" debate, all of which were along the lines of "if we eliminate such-and-such federal program, clearly many people will die. Would you be willing to take responsibility for that many deaths?" Paul did manage to force a few tangential comments in about monetary policy: apparently Bachmann claims she will reduce gas prices to $2/g as President; Paul rebutted that we can drop it to a dime - a silver dime.

The moral to this debate: We the media will do our best to proliferate the left vs right stereotype as the "us vs them" conflict makes for better TV. I hear the next debate is being promoted by Don King.

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