Making Economic Sense
Making
Economic Sense
by Murray Rothbard
(Contents
by Publication Date)
Chapter 96
A Gold Standard for Russia?
In their eagerness to desocialize in 1989, the
Soviets called in Western economists and
political scientists--trying to imbibe wisdom from the fount of
capitalism. In this search for
answers, the host of American and European Marxist academics were
conspicuous by their
absence. Having suffered under socialism for generations, the Soviets
and East Europeans have
had it up to here with Marxism; they hardly need instruction from
starry-eyed Western naifs who
have never been obliged to live under their Marxist ideal.
One of the most fascinating exchanges with visiting
Western firemen took place in an
interview in Moscow between a representative of the Soviet Gosbank (the
approximate
equivalent of Russia's Central Bank) and Wayne Angell, a governor of
the Federal Reserve Bank
in the U.S. The interview, to be published in the Soviet newspaper
Izvestia, was excerpted in the
Wall Street Journal.
The man from Gosbank was astounded to hear Mr.
Angell strongly recommend an
immediate return of Soviet Russia to the gold standard. It would,
furthermore, not be a phony
supply-side gold standard, but a genuine one. As Angell stated, "the
first thing your government
should do is define your monetary unit of account, the ruble, in terms
of a fixed weight of gold
and make it convertible at that weight to Soviet citizens, as well as
to the rest of the world."
Not that the Gosbank man was unfamiliar with the
gold standard; it was just that he had
imbibed conventional Western wisdom that the gold standard only be
restored at some indistinct
point in the far future, after all other economic ills had been neatly
solved. Why, the Soviet
financial expert asked Angell, should the gold standard be restored first?
Wayne Angell proceeded to a cogent explanation of
the importance of a prompt return to
gold. The ruble, he pointed out, is shot; it has no credibility
anywhere. It has been systematically
depreciated, inflated, and grossly overvalued by the Soviet
authorities. Therefore, mark or even
dollar convertibility is not enough for the ruble. To gain credibility,
to become a truly hard
money, Angell explained, the ruble must become what Angell, with
remarkable candor, referred
to as "honest money."
"It is my belief," Angell continued, "that without
an honest money, Soviet citizens cannot
be expected to respond to the reforms," whereas a "gold-backed ruble
would be seen as an honest
money at home and would immediately trade as a convertible currency
internationally."
With the ruble backed solidly by gold, the dread
problem of the inflationary "ruble
overhang" would wither away. The Soviet public is anxious to get rid of
ever-depreciating rubles
as soon as consumer goods become available. But under a gold standard,
the demand
for
rubles would greatly strengthen, and Soviets could wait to trade them
for more consumer goods
or Western products. More goods would be produced as Soviet workers and
producers become
eager to sell goods and services for newly worthwhile rubles.
Without gold, however, Angell warned that the
Soviet reform program might well
collapse under the blows of rampant inflation and a progressively
disintegrating ruble.
The man from Gosbank was quick with the crucial
question. If the gold standard is so
vital, why don't the United States and other Western countries adopt
it? Angell's reply was
fascinating in its implications: that the dollar and other Western
currencies "have at least a
history of gold convertibility" which enabled them to continue through
the Bretton Woods
system and launch the present system of fluctuating fiat currencies.
What, then, is Mr. Angell really saying? What is he
really telling the Soviet central
banker? He is saying that the United States and other Western
governments have been able to get
away with imposing what he concedes to be dishonest
money because of the remnants of
association these currencies have had with gold.
In contrast to the ruble, the dollar, the mark,
etc., have still retained much of their
credibility; in short, their governments are still able to con their
publics, whereas the Soviet
government is no longer able to do so. Hence, the Soviets must return
to gold, whereas Western
governments don't yet need to follow suit. They
can still get away with dishonest money.
It would have been instructive to ask Mr. Angell
about the myriad of Third World
countries, particularly in Latin America, who have been suffering from
severe currency
deterioration and hyperinflation. Aren't those currencies in nearly as
bad shape as the ruble, and
couldn't those countries use a prompt return to gold? And perhaps even
we in the West don't
have to be doomed to wait until we too are suffering from
hyperinflation before we can enjoy the
great benefits of an honest, stable, noninflatable, money?
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