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Comment by CWuestefeld | Hacker News Reader

The rules of the game that the gold standard requires [say] that if you have an unfavorable balance of trade, you contract your currency. That's what no government can do--they'd rather go off the gold standard. In fact, I'm convinced that if we restored the gold standard now, within six months the first country would be off it and, within three years. it would completely disappear.

I wonder to what degree we can use this to explain the PIIGS problems in Europe. Of course, they don't have a gold standard. But for a given nation in the Euro, the value of the currency is fixed: they have no means of manipulating it to take pressure off their fiscal problems.

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What Hayek said is that the bubbles popped pretty early on (which is a good thing) because they could not be maintained and continued by the institutions that existed back then. That the bubbles popped is a good thing. A gold standard keeps the inflation stable, because gold can't be printed. Hayek goes on to say that a gold standard would not work because governments have an incentive to "cheat" and blow up giant bubbles, which cannot be done successfully with a gold standard.

I think that currency should not be issued by governments at all, the absence of government issued money would mean competing currencies, and in a situation where gold competes with other currencies, gold often wins the confidence of the people.

That would be an interesting item to deregulate. I've always been fascinated that the U.S. government doesn't mandate an official language [1] and just incidentally uses English for most purposes (with Spanish becoming increasingly relevant). As far as I can tell, it hasn't caused any major problems for the country and may be a better way to handle the issue. Could currency be the same way?

[1] Language being another item that governments tend to regulate.

I don't have a link handy on my phone, but The Economist discusses this issue in an article this week about Europe's existential crisis with the currency system. I think one of Italy's ministers mentions joining the EU specifically to force the parliament to quit running budget deficits, so tying their own hands was probably part of the deal for everyone to some extent.

I think this is the story you're referring to: http://www.economist.com/world/europe/displayStory.cfm?story...

and yet countries have gone on the gold standard before and maintained it for hundreds of years.

many countries have also accepted having the value of their currency set to a standard beyond their control. China's was pegged to the dollar for a long time, despite its long term debasement by the US, which has lost a lot of its value since it became the reserve currency at Bretton Woods.

It turns out that gold doesn't screw you over as much as relying upon the US dollar.

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