NEW YORK (
) -- I have always been fascinated by Ron Paul, and Paul's fascination with what is called
The Austrians don't hold with experiments or research. They know what they know through deduction. Their principles and policy prescriptions don't change, any more than that of a Marxist may change. They just don't accept evidence contrary to theory.
This is particularly true regarding the money supply. Paul, the Texas congressman and former Republican presidential candidate, famously insists that money can only be backed by precious metal, preferably gold. He was most upset over the
"Nixon shock", which took America off the gold standard and made the dollar a "fiat currency." It's what inspired Paul to get into
politics, which happened in Houston while I was at college there.
I am not an economist. I cover technology, and one of the guiding principles in the field I cover is Moore's Law.
co-founder Gordon Moore first propounded it in a 1965 magazine article as a description of progress in integrated circuits. Based on what engineers knew then, he estimated the number of circuits on a given slice of silicon might double every year or two, at the same cost, as far ahead as he could see.
The picture is a detail from Moore's article, now maintained by Intel, of a salesman selling some strange contraption called a "home computer." Moore estimated this might happen 10 years in the future, in 1975. It did.
Since then, of course, all kinds of technology have been touched by the same doubling effect. The number of bits carried by optical fibers, or transmitted by radios, keeps increasing. The number that can be stored on a hard drive keeps increasing. We sort of take this for granted.
It's all very deflationary. Computers in warehouses are like rotting fruit, losing value as they're stored. Michael Dell fought this in the 1990s by waiting until someone ordered a PC before his company,
would make it. Mass customization kept prices in line with falling costs.
Most of what I have covered, throughout my career, involves the effort to deal with the natural deflation in Moore's Law. Windows "bloatware" forced people to buy new PCs to get new features. Rapid upgrade cycles in smartphones are all about making use of the abundance Moore's Law provides.
Here is something you may not know. Most of the fathers of Silicon Valley, including Moore, were Republicans. David Packard, of
, was Nixon's first
deputy secretary of defense. Defense contractors were all aware of Moore's Law and its implications because they worked with technology all the time. They were a key part of Nixon's base.
If the supply of money is fixed while the value of technology keeps going up, its price must, of necessity, go down. As technology impacts upon other areas of business, they feel the same deflationary effect. As we've seen in the last several years, deflation is much worse for an economy than inflation. Wages have a tendency to lead prices down. People lose their jobs as companies can't make money at new prices.
This was true in the 1930s. It's why Democrats abandoned Austrian economics for Keynsianism. It became doubly true in the 1970s, as Moore's Law took hold, and so Republicans abandoned Austrian economics and money backed by metal. It was this betrayal of the Austrian School that created Ron Paul and his war within the party that young people today find so attractive.
But here's the deal. Moore's Law can't be rationalized against Austrian economics. Rapid change, massive increases in productivity, can't be set against the steady-state theories of the Austrians and result in anything but deflation, unemployment and failure.
Yes, it's risky having government control the money supply. There is always a risk of hyperinflation. But there's a cure for that: elections. Denying Moore's Law, as Ron Paul still seeks to do, makes as much sense as denying global warming, or evolution, or science itself.
Gold's not money. This I know. It's Gordon Moore who told me so.