Here’s a letter to the Baltimore Sun:
Flaws aplenty infect Peter Morici’s dismissal of the value and prospects of Bitcoin (“The Bitcoin myth,” March 4). None, however, is as uninformed as is his claim that “[d]etractors of paper money have always been fixated by the absence of gold to back it up, but they fail to recognize what really makes a currency accepted and secure – the government guarantee and the good sense of the sovereign not to abuse its franchise.”
Forget the many historical instances of the sovereign debasing the coinage and unleashing hyperinflation – from Nero in ancient Rome to Mugabe in modern Zimbabwe. Look instead only at the relatively stable U.S. dollar. During the 34 years of the classic-gold-standard era in the U.S. (1880-1914), the dollar lost only 3 percent of its value. In contrast, during the past 34 years (since 1980) the dollar has lost 65 percent of its value. Even more revealingly, since the 1913 creation of the Federal Reserve – an institution designed and operated by Uncle Sam allegedly to maintain the purchasing power of the dollar – the dollar has lost 96 percent of its value.
Contrary to Prof. Morici’s claim, “sovereign” control of money, unrestrained by gold convertibility or other such safeguards, has been anything but a guarantee of stable money.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
I thank George Selgin for constructive feedback on an earlier draft of this letter.
UPDATE: I calculated the dollar’s loss of value, 1880-1914, from the figure given by Michael Bordo in his essay “Gold Standard,” in the Concise Encyclopedia of Economics. There, Bordo reports that over the years 1880-1914 the average annual rate of inflation was 0.1 percent. In private correspondence, my colleague Larry White – using the CPI calculator at this site – reports that the dollar lost no value between 1880 and 1914. Indeed, if I’m reading this site correctly, the value of the dollar increased slightly over the course of those three and a half decades.
Either way, of course, the point stands: the dollar’s value has plunged far more while under the management of the “sovereign” in whom Peter Morici counsels us to have faith than under a non-political constraint (such as gold) that Morici ridicules as irrelevant.