So, our class erupted into a gold-standard discussion the other day, and being an Austrian-leaning student myself, couldn't find an rebutal to my professor's arguement against the gold standard.
His arguement, essentially: "we don't have enough gold in the world to back every dollar"
Can someone please refute his statement and explain it in depth?
Can someone please explain in depth how we could transition from our current fiat monetary system to a gold standard?
If I am correct, we must first deflate our money supply, and under the gold standard, prices will fall and our purchasing power would increase...
http://mises.com/forums/t/303.aspx
I asked a similar question here. Basically the option is to have semi-fiat, semi-gold dollars, starting wtih $1 as 1/3000 of an ounce. Stop printing more money and gradually work to get the dollar on parity with the market value of the gold in our reserves.And I think that were the US to try to move back to the gold standard, the market value of gold would drastically increase.
I was talking with one of the heads of the Libertarian Party the other day, and he told me it wouldn't be feasible to go back to the gold standard because it would make the cost of products that requrie gold (like electronics circuit boards) about five times more expensive. He thought another metal would be better.
Gold can be divided into miniscule increments. The "we don't have enough" argument is absurd on the face of it. Theoretically, one ounce of gold would be "enough." Certainly, 10,000 ounces would be. And there's a lot more than that.
The dollar could be pegged to gold and redeemable in gold, by basing the value of the dollar on the total money supply as it related to the government's gold reserves. It would not have to be $35 to 1 oz of gold.
But ultimately, arguments for a gold standard are weak. Instead, you should argue for a complete separation of economy and state, i.e. a free market in money. The politicians can't be trusted with a printing press, even with a gold standard.
Agreed.
We don't need a gold standard, we need no more government mandated currencies.
Peace
Thanks guys, really helpful. Is there any free literature regarding the theory of competitive currencies? I'd like to learn more about how it would work.
gfitzy123:Thanks guys, really helpful. Is there any free literature regarding the theory of competitive currencies? I'd like to learn more about how it would work.
I don't know of any literature that specifically talks about how a competetive currency market would work (I'm sure there is some, but I don't know of any), but here are some free full-length books courtesy of Mises.org:
http://www.mises.org/journals/qjae/pdf/qjae6_4_10.pdf
http://www.mises.org/books/goldpeace.pdf
I'm sure there's some literature out there discussing free-market currencies, but I'm not aware of any. I would recommend you check these out, though.
gfitzy123:Is there any free literature regarding the theory of competitive currencies?
It's history, not theory, but Rothbard's A History of Money And Banking in the United States has a section on Suffolk Bank, which was a private bank that took on the role of central bank in New England in the 1820's. The bank was created by cooperating merchants and banks to act as a clearing house for the myriad of competing banknotes being issued by banks all over New England. It ended up powerfull enough to impose reserve requirements on all the other banks and brought about a measure of currency stability. The section on "A Free Market Central Bank" starts on page 115.
Although there would need to be a Constitutional amendment to allow it, couldn't you just select a "basket" of metals, including gold and silver (copper, nickel, etc), and define the currency unit against a fixed weight of these metals? The relative values would be arbitraged by the market to provide a relatively stable store of value. Wouldn't it be much easier to "revalue" against the large quantity of precious and semi-precious metals?
It's history, not theory, but Rothbard's A History of Money and Banking in the United States has a section on Suffolk Bank, which was a private bank that took on the role of central bank in the 1820's. Suffolk bank was founded by cooperating merchants as a clearing house for the myriad of banknotes that were circulating. It eventually became powerfull enough to begin imposing reserve requirements on other banks and brought about currency stability in New England. The section "A Free-Market Central Bank" begins on page 115.
This post might get duplicated. I tried submitting it a little while ago and it got intercepted by the spam filter. Don't know why. ^shrug^
Dangerous Ideas For Men:couldn't you just select a "basket" of metals, including gold and silver (copper, nickel, etc), and define the currency unit against a fixed weight of these metals? The relative values would be arbitraged by the market to provide a relatively stable store of value.
Wouldn't Gresham's Law make short work of such a system? Would it be possible to know that the relative values of those metals have changed on the market, before people started getting rid of the overvalued metal and buying the undervalued one?
As for returning to the gold standard, I think I like the idea Ron Paul pushes - to make gold a parallel currency.
Dangerous Ideas For Men:Although there would need to be a Constitutional amendment to allow it, couldn't you just select a "basket" of metals, including gold and silver (copper, nickel, etc), and define the currency unit against a fixed weight of these metals? The relative values would be arbitraged by the market to provide a relatively stable store of value. Wouldn't it be much easier to "revalue" against the large quantity of precious and semi-precious metals?
This is central planning. Money should exist without government interference. It should simply be, as it was, the most commonly accepted medium of exchange. But if the government is to be involved (and if it is, it will always cheat), why a "basket"? Define the dollar in terms of gold. Silver certificates, non-dollar-denominated, could also be issued, as well as platinum certificates (and coins), etc.
Also, as the commenter above me said, I don't understand how a basket would work without a price fixing mechanism. The bimetallic standard ushered in by the silver fusionists was a government boondoggle that ultimately led to the Fed.
On the issue of 'central planning':
A civil government has to define what 'store of value' it accepts as legal payment for taxes/fines/etc, so it has to be involved at least that far. It wouldn't need to be involved in any 'planning', but only in enforcing contractual obligations and misrepresentations of value on the part of private banks. The U.S. consitution already defines gold and silver as viable metallic stores of value. An amendment would be required to allow anything else.
On the issue of Gresham's law:
If a 'dollar' were defined as a particular weight of gold plus a particular weight of silver plus a particular weight of platinum, etc., it seems that these metals could all vary on the markets due to mining, hoarding, etc. but the overall value of the 'dollar' would be more stable than any of the individual metals themselves.
I don't see how Gresham's law even applies here (although I could stand corrected). Please explain why.
I can understand wanting other currencies (gold only) and I'm not opposed to that, but I am trying to come up with a plausible alternative to convince people who have objections on the grounds of value stability and market manipulation. If one can propose a plausible solution to these problems, one can rebut arguments which nitpick at details like this.
Dangerous Ideas For Men:If a 'dollar' were defined as a particular weight of gold plus a particular weight of silver plus a particular weight of platinum, etc.,
Oh, sorry I misunderstood. I thought you wanted something resembling bimetalism where a dollar was defined as a certain weight of gold OR a certain weight of silver. I think you're right, Gresham's Law wouldn't apply to what you suggest.
JonBostwick: We don't need a gold standard, we need no more government mandated currencies.
gfitzy123: So, our class erupted into a gold-standard discussion the other day, and being an Austrian-leaning student myself, couldn't find an rebutal to my professor's arguement against the gold standard.
I think the reason we went into Iraq was not over the oil, gas is nearly three times the price, but for the gold. The two countries still on the gold standard were Iraq, and Iran. Soon after W did his little charade in a flight suit to announce the war was over, it was announced on the news that Iraq was now a member of the International Monetary Fund. We got Iraq in the usury monetary system. We attacked Iraq and Afghanistan first because they were pretty much helpless, no weapons of mass destruction, and they are on opposite sides of Iran. How convenient.
gfitzy123: Can someone please explain in depth how we could transition from our current fiat monetary system to a gold standard?
Dangerous Ideas For Men: Although there would need to be a Constitutional amendment to allow it, couldn't you just select a "basket" of metals, including gold and silver (copper, nickel, etc), and define the currency unit against a fixed weight of these metals? The relative values would be arbitraged by the market to provide a relatively stable store of value. Wouldn't it be much easier to "revalue" against the large quantity of precious and semi-precious metals?
The Constitution for the United States of America
Article 1
Section 8
The Congress shall have the power To coin money, regulate the value thereof, and of foreign coin, and fix the Standard of Weights and Measure;
Section 10
No State shall make any Thing but gold and silver Coin a Tender in Payment of Debts;
You see, Dangerous Ideas for Men, we do not need an amendment, it is in the body of he Constitution. No body seems to pay attention to this, why would they pay attention to an amendment?
I suspect that what your professor meant was that since the supply of gold is limited there is not enough gold to back an infinite number of printed , worthless paper fiat dollars thus not allowing for an infinite , unaccountable governmental spending spree. He's right. However , his desire to continue just such a system , as we now have , is wrong.
Ed D.:I suspect that what your professor meant was that since the supply of gold is limited there is not enough gold to back an infinite number of printed , worthless paper fiat dollars thus not allowing for an infinite , unaccountable governmental spending spree. He's right.
Perhaps one should take this further and ask, what the results of "creating more money" is and the government spending spree by that... Any scenarios.
Jason,
How would 1 ounce of gold be enough on the gold standard? If 300 million people all wanted to exchange their money for the gold we wouldn't be able to break in small enough pieces. You would have to give everyone a speck of gold dust which would be rediculous.
Trianglechoke7:Jason, How would 1 ounce of gold be enough on the gold standard? If 300 million people all wanted to exchange their money for the gold we wouldn't be able to break in small enough pieces. You would have to give everyone a speck of gold dust which would be rediculous.
Yeah. I was being a bit hyperbolic. But 261.6 million ounces of gold is more than enough. That's what the Treasury has on hand. Even if this is an outright lie, and they only have 1/10 of that, or even 1/100, it's enough.
Sorry I wasn't clear. I meant an amendment that allowed backing a currency by other metals than "gold and silver". I hope that we all return to paying attention to the Constitution. That's an important part of the overall argument.
Torsten:What else then preciouse metals could be used as currency.
Other metals which have widely recognized value could be combined into a multiple-metal currency unit. Please read my other posts to understand the context.
Trianglechoke7:How would 1 ounce of gold be enough on the gold standard? If 300 million people all wanted to exchange their money for the gold we wouldn't be able to break in small enough pieces. You would have to give everyone a speck of gold dust which would be rediculous.
Yes, about 12.8 billion atoms of gold per dollar - it would be ridiculous, but it is possible. Though maybe you could encapsulate the gold in some sort of nanotech container (e.g., inside a Buckyball) to make coins without losing it, and the "tiny speck of gold dust" wouldn't be so ridiculous after all.
Dangerous Ideas For Men:Other metals which have widely recognized value could be combined into a multiple-metal currency unit. Please read my other posts to understand the context.
But why? Why not have a free market in money? Why not revert to money's origins as the most commonly accepted means of exchange? If the government must exist, and it must be funded, then it can accept gold, or silver, or gold or silver, or whatever. But I think history shows that a government-controlled or defined currency cannot avoid abuse, debasement, and ultimate destruction.
Good afternoon,
I dont know if this has been offered as a solution yet but, Rothbards book, The Case for the 100% Gold Dollar does show how to convert all the current dollars into gold.
Really? That's the argument your professor raised against gold as money? What kind of school do you go to?
Jason Dean:But why? Why not have a free market in money? Why not revert to money's origins as the most commonly accepted means of exchange? If the government must exist, and it must be funded, then it can accept gold, or silver, or gold or silver, or whatever.
Why bother about paper money printed by others?
Torsten: Jason Dean:But why? Why not have a free market in money? Why not revert to money's origins as the most commonly accepted means of exchange? If the government must exist, and it must be funded, then it can accept gold, or silver, or gold or silver, or whatever.Why not start trading in with gold as currency? Something I'am offering Mercedes 200D - Price: 3990 grams of Gold. Why bother about paper money printed by others?
Gresham's law. The fact that legal tender is declared equal to gold has driven gold from circulation.
Trianglechoke7: Jason, How would 1 ounce of gold be enough on the gold standard? If 300 million people all wanted to exchange their money for the gold we wouldn't be able to break in small enough pieces. You would have to give everyone a speck of gold dust which would be rediculous.
Easy. Warehouse receipts.
Trianglechoke7: How would 1 ounce of gold be enough on the gold standard? If 300 million people all wanted to exchange their money for the gold we wouldn't be able to break in small enough pieces. You would have to give everyone a speck of gold dust which would be rediculous.
I often wonder why these gold conversations turn into there's only 1 ounce of gold or one dust particle of gold on the planet scenarios. It seems to be more of a phantasy game than anything for mere entertainment.
If it hasn't been pointed out yet (or even if it has) the fact is this: the amount of gold is pointless. The fact is that the gold is just another commodity which is so commonly held as currency, that it's priced in relation to other commodities rather than itself because it's supply is relatively fixed at any given moment in time. Compared to unbacked currencies (tally sticks, wooden nickels, paper bills, and etc) it's viable on those grounds. Thus, prices will valuate no different than if we used unbacked analogs as the mechanism is the same (but without the perpetual artificial expansion of credit that accompanies unbacked currencies).
<rant> I swear people that are anti-gold are downright idiotic in terms of the theory of money that it makes me wonder if they even know what money *is* in the first place. </rant>
"The power of liberty going forward is in decentralization. Not in leaders, but in decentralized activism. In a market process." -- liberty student
ladyattis:<rant> I swear people that are anti-gold are downright idiotic in terms of the theory of money that it makes me wonder if they even know what money *is* in the first place. </rant>
They don't.
gfitzy123: Is there any free literature regarding the theory of competitive currencies? I'd like to learn more about how it would work.
Is there any free literature regarding the theory of competitive currencies? I'd like to learn more about how it would work.
The simple answer is, without legal tender laws, the free market would determine the best money system to use. In the absence of the government monopoly on money, the free market in money is guaranteed to serve consumer needs better for everything people look to money to do.
Why anarchy fails
JonBostwick:Easy. Warehouse receipts.
You can hardly use warehouse receipts as cash. How in the world do you pay for the costs?
scineram: JonBostwick:Easy. Warehouse receipts. You can hardly use warehouse receipts as cash. How in the world do you pay for the costs?
The cost of what? Please be specific.
'Men do not change, they unmask themselves' - Germaine de Stael
gfitzy123:"we don't have enough gold in the world to back every dollar"
It doesn't work that way.
How much gold is there?
How many dollars are there?
Divide and keep it that way. Use that ratio to define the dollar in terms of gold, and only create more money as more gold comes into either the government's treasury/mint, or the open market (depending on whether it's the government or the free market that has the power to coin money).
A warehouse has operational costs. It even tries to make profit. Who is supposed to pay for this while the receipts are exchanged?
malgratloprekindle:Divide and keep it that way. Use that ratio to define the dollar in terms of gold, and only create more money as more gold comes into either the government's treasury/mint, or the open market (depending on whether it's the government or the free market that has the power to coin money).
So you want to enact monetarist style inflation with a set percentage? I understand it may be difficult to conceptualize that a monetary supply need not expand because the point is to increase its purchasing power, not its overall abundance.