Ask Dr. Ruwart

Question:

"Dr. Ruwart, could you address a few concerns I have about a return to the gold standard?

"First question: Suppose there were two islands unaware of each other's existence. Both used gold as their currency, but one had ten times as much as the other. Once they do discover each other, wouldn't the inhabitants in the island with less gold suddenly find themselves at a major disadvantage economically?"

My short answer:

"Not necessarily. If the island with less gold had a higher production capacity, it would trade goods for gold and both islands would benefit."

Second question:

"How would a Libertarian government institute a gold standard? You couldn't issue an edict: as of tomorrow, all paper money is worthless."

My short answer:

"A libertarian government wouldn't need to institute a gold standard. No laws would force people to use paper money, so competition in currency would begin. People would turn to the money which kept its value best, most likely gold."

Third question:

"Would it be necessary for banks to ship gold every time two individuals engaged in commerce?

My short answer:

"No. Historically, banks have cooperated in establishing clearing houses so that individual transfers are unnecessary. Today, this mechanism is in place for paper currency as well."

Fourth question:

"Would a Libertarian government take responsibility for converting the gold into coins, ensuring the accuracy of their weights and purity?"

My short answer:

"They probably wouldn't have to. Private mints would most likely use a professional organization to certify their coins in order to insure weights and purity. Clearing houses would refuse to give banks full credit if they accepted coins from disreputable mints, so the good money would drive out the bad."

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