Contrary to what is commonly assumed, Austrian economics and Austrians scholars themselves are not necessarily in favor of gold-based monetary systems. The problem with fiat money is not that it isn’t gold, but that it’s fiat money. In general, Austrians favor free-market money, which may or may not mean gold specifically.
On a practical level, however, free-market money is often synonymous with gold because gold often functions very well as money. Theoretically, commodity money could take the form of many things, so long as they could function as money. (Friday’s Mises Daily article noted that Germany in the 1920s tied its currency to rye bread at one point.)
The upcoming referendum on the Swiss Central Bank’s gold holdings (on November 30) has been lauded by Ron Paul, for example, because, as Paul notes “People are starting to talk about gold more and they should… [The referendum] is one more step in the direction of proving that paper money, fiat money, money created by politician out of thin air to subsidize big government and monetize debt is going to end.”
On a practical level, tying the Swiss currency to gold makes sense since tying the money to a commodity limits the discretion of the central bank in inflating the money supply. The vehement objections by the Swiss government and the central banks also illustrate just how inconvenient commodity money is for governments.
Could the Swiss currency be tied to some other commodity? Certainly. But what makes the referendum important from an economics and public policy perspective is the fact that it will essentially be a referendum on the public’s faith in fiat money. The November 30 referendum may indeed fail. A great many people, including Swiss people, are frightened that even a small commodity-money-based limit on central banks might lead to an end of the gravy train. The Swiss central bank and its friends in Bern are happy to play up these fears.
