When the price of gold was first set at its present level of 35 an ounce in 1934, this price was well above the free market price of gold. In consequence, gold flooded the US, our gold stock tripled in six years, and we came to hold well over half the worlds gold stock. We accumulated a surplus of gold for the same reason we accumulated a surplus of wheat-because the government offered to pay a higher price than the market price. More recently, the situation has changed. While the legally fixed price of gold has remained 35, prices of other goods have doubled or tripled. Hence 35 is now less than what the free market price would be. As result, we face a shortage, rather than a surplus for precisely the same reason that rent ceilings inevitably produce a shortage of housing-because the government is trying to hold the price of gold below the market price. Of these various techniques, only the freely floating exchange rate is fully automatic and free from governmental control.
Each recession, however minor, sends a shudder through politically sensitive legislators and administrators with their ever-present fear that perhaps it is the harbinger of 1929-1933. They hasten to enact federal spending programs of one kind or another. Many of the programs do not in fact come into effect until after the recession has passed. Hence, insofar as they do affect total expenditures, on which I shall have more to say later, they tend to exacerbate the succeeding expansion rather than to mitigate the recession. What if we had cut taxes instead of raising them?
Education: if the government pays for all or most schooling, a rise in income simply leads to a still larger circular flow of funds through the tax mechanism, and an expansion in the role of government. Finally, but by no means least, imposing the costs on the parents would tend to equalize the social and private costs of having children and so promote a better distribution of families by size.
Government could require a minimum level of schooling financed by giving parents vouchers redeemable for a specified maximum sum per child per year if spent on approved educational services. Parents would then be free to spend this sum and any additional sum they themselves provided on purchasing educational services from an approved institution of their own choice. The educational services could be rendered by private enterprises operated for profit, or by non-profit organizations. The role of the government would be limited to insuring that the schools met certain minimum standards, such as the inclusion of minimum common content in their programs, much as it now inspects restaurants to insure that they maintain minimum sanitary standards.
If present public expenditures on schooling were made available to parents regardless of where they sent their children, a wide variety of schools would spring up to meet the demand.
Equally important, the major problem in the US in the 19th century and early twentieth century was not to promote diversity but to create the core of common values essential to a stable society.
What is of paramount importance is the philosophy behind the Invisible Hand it is the responsibility of the rest of us to establish a framework of law such that an individual in pursuing his own interest is, to quote Adam Smith again, led by an invisible hand to promote an end which was no part of his invention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.
The American Republic is the oldest contemporary government in human history. It has had great success because it is able to conform to cultural changes (end of slavery, womans progression, drug culture, etc.) and still retain a judicial system which keeps some balance of law and order. The brilliance of this system is that states have certain rights and the federal government has limited rights. The federal system is a loose glue whose basic rules of government are laid out in its constitution. Anything less specific should be solved by the individual state. The problem confronting the Republic today is that the lines of checks and balance are getting murkier by every year. The state-federal system works well when it is run properly. In the US, not all roads lead to Washington as they do in socialistic countries like France, where if anything needs to be accomplished it must be first approved by Paris. The states should be given precedence to handle their own problems. As events unfold, it will be interesting to see if this system of de-centralized government will prevail. Only history will tell.