|
|
|
|
|
|
Historically, the device that has evolved most frequently in many different places and over the course of centuries is a commodity standard; i.e., the use as money of some physical commodity such as gold or silver, brass or tin, cigarettes or cognac, or various other goods. If money consisted wholly of a physical commodity of this type, there would be, in principle, no need for control by the government at all. The amount of money in society would depend on the cost of producing the monetary commodity rather than other things. Changes in the amount of money would depend on changes in the technical conditions of producing the monetary commodity and on changes in the demand for money. This is an ideal that animates many believers in an automatic gold standard. |
|
|
|
|
|
|
|
|
Actual commodity standards have deviated very far from this simple pattern which requires no governmental intervention. Historically, a commodity standardsuch as a gold standard or a silver standardhas been accompanied by the development of fiduciary money of one kind or another, ostensibly convertible into the monetary commodity on fixed terms. There was a very good reason for this development. The fundamental defect of a commodity standard, from the point of view of the society as a whole, is that it requires the use of real resources to add to the stock of money. People must work hard to dig gold out of the ground in South Africain order to rebury it in Fort Knox or some similar place. The necessity of using real resources for the operation of a commodity standard establishes a strong incentive for people to find ways to achieve the same result without employing these resources. If people will accept as money pieces of paper on which is printed "I promise to payunits of the commodity standard," these pieces of paper can perform the same function as the physical pieces of gold or silver, and they require very much less in resources to produce. This point, which I have discussed at somewhat greater length elsewhere,1 seems to me the fundamental difficulty with a commodity standard. |
|
|
|
|
|
|
|
|
If an automatic commodity standard were feasible, it would provide an excellent solution to the liberal's dilemma: a stable |
|
|
|
 |
|
 |
|
|
1A Program for Monetary Stability (New York: Fordham University Press, 1959) pp. 48. |
|
|
|
|
|