I'm a bit of a soft-core libertarian, and an economist in particular.
A lot of reading and discussion I have read has let me with a number of questions regarding the worshipped "gold standard."
1) Gresham's law states that "bad" easy currency will crowd out "good" hard currency by default and market mechanics. A gold standard couldn't prevent this unless EVERY other currency became tied to the gold dollar.
2) Monometalic gold currency became a stepping stone to fiat money when the Brits took down the concurrent silver standard that kept them alligned properly - so a pure gold standard wouldn't be enough.
3) Why stop there? why not fixing copper? why not iron? or lead? EVERY good inflates fluctuates on a market. gold included. if you fix EVERYTHING, then nothing inflates. Multimetalic or Panmetalic currency standards should be even more stable than anything else!
4) Why stop at metals? why not link currency to aggregate production? though central planning is impossible on a human level, tracking aggregate production is getting easier by the day with computers - VIOLA! instant currency control. end to inflation - track market prices and adjust!
5) It still boggles me that Austrians pass such negative judgement on ALL forms of currency "inflation," however light - in a gold standard, printing more dollars only devalues them if the total amount exceeds stores of gold. So "inflation" where more money is printed to keep up with aggregate production ISN'T inflation, by the same token.
6) A General Question: What happens when technology and automation/robotics eliminates most productive work? agriculture after the industrial revolution and robotic assembly lines are good examples of how this could happen.
1) answered above. Gresham's Law is a variation on shortages that always arise when the government restricts the movement of prices. Murray Rothbard covers this in his 1984 video.
2) I don't know what you mean by this, but I can tell you that the market is best to decide which monies will be best for the market. Those monies which are accepted most widely will be the most useful. This has a tendency of eliminating the number of competing currencies as it is inconvenient to carry around various different monies, or have to have bank accounts backed by different commodities.
3) Price fixing is a sure way to ensure that those monies (commodities) which are under valued are hoarded and bartered (at melt value if exchanged at all) and those which are over valued remain in circulation. This is the fundamental problem with bimetallism when that means that the ratio is fixed by government and not allowed to fluctuate in response to the market's change in valuation.
4) Once you solve the problem of calculation of your aggregate production, you can sign up with every socialist country in the world to fix their information problems too. Sorry, but a handful of economists and technocrats can not amass the knowledge necessary to plan an economy or even a currency. In your current knowledge deficient state, the best you can hope for is to cause a bunch of business cycles as you attempt to find the right combination of factors to include in your estimate of aggregate production. You will constantly be wrong and like the army, fighting the last war, or in this case the last business cycle.
5) Aggregate production, should you figure some way to measure it, is not orthogonal to your monetary injections. Since you will have a certain percentage of positive growth in aggregate production (at least your measurement thereof) for every injection of money, you will constantly have the "proof" that more money is needed. This will encourage monetary injections above the real increase in the aggregate production and business cycles will commence. I don't see much difference between your aggregate production targeting and price level targeting of the Fed in the 1920s. It is a disaster waiting to happen. Hayek and Mises warned against attempts to maintain price stability, for this can only be obtained through inflation which results in changes in the relative price levels between various goods. Your aggregate production measurements will see this relative price movement and be as confounded by it as the Fed was in the 1920s, totally oblivious to the mounting malinvestment.
6) What happened to the horse whip and buggy makers after the automobile? I think they went into producing things that people actually want. No amount of robotic automatons or technological advancement will eliminate the needs for entrepreneurial action in determining the present and future wants of their potential consumers and arranging the factors of production to bring these goods to market. Until we are all in the garden of eden, there will be scarcity (certain things will be scarce even there) and the need for human action. Even in a world of superabundance due to mechanization, there are certain scarce resources which will need to be allocated rationally. Examples include standing room, and land in general, the use of every human's body, the waste products of production (most fundamentally, entropy). These and many others will prove to provide opportunity for plenty of human action and opportunity for productive work even when most goods are as free as country air. Be happy that the more roundabout production processes involving automation have been financed by saving in the past, for this has increased the real wealth of everyone in society, even the assembly line worker who is looking for a new line of work. Restrictions on the mobility of labor and restrictions on the movement of wages are what cause the most consternation when production processes are lengthened in a growing economy (or shortened in a shrinking economy).
You're under the hold of various misconceptions. First, Austrians advocate free markets in money, meaning whatever consumers choose is what they'll use. Second, the gold standard is a shackle on government, not on individuals within the market. Most of us believe the government has no role in interfering in the money market, whatsoever. In all likelihood a multimetallic standard will emerge. Thirdly, in such a regime money substitutes (i.e. banknotes) are backed by some commodity or other, most likely 100% (to avoid bank runs.) Finally, Gresham's law has to do with government price controls on currencies (a price floor on one and a price ceiling on the other.) So what happens is one currency might be under-/overvalued relative to the other, leading individuals to buy up the undervalued currency. Rothbard explains this in Man, Economy & State. Gresham's law is irrelevant otherwise.
Freedom of markets is positively correlated with the degree of evolution in any society...
But the discrepancy between the English monometalic gold standard and the European dual gold-silver standard is precisely where it is relevant - people will trade the market to short one against the other.
Thanks for support on the multimetallic concept - it's been stewing in my brain a while. But what about the pan-production standard?
Ultimately, how does a fiat system tied to aggregate production differ from owning stock in a company [aside from liquidity]?
Indeed.
I.e. money backed by the state's ability to extract wealth from the population?
Please see my other post on taxation theory - tax is a value payment for the service of government.
The gold upon which the currency is based is "owned" by the government, but [theoretically] the government is "owned" by its constituency. Ergo, it isn't a matter of what can be extracted BY government, but what the total market itself provides that is simply monitored by the government.
It's coerced extraction of wealth.
We do it to ourselves! We owe it to ourselves! In reality, specific individuals will be forced to cough up some wealth for the government to satisfy redemption claims. This is utterly unlike a normal reserve bank, where clients deposit a commodity in the bank, and whereby, depending on the arrangement outlined, the bank can either loan out the money for a specified period or must keep it in its vaults at all times.
Joe, please actually answer the questions I post, not your own dogma.
Stop bringing your slant - this is theory, not practice here.
There is no "dogma" involved. I am stating what taxation is. If you don't like it, too bad. Otherwise I suggest you familiarize yourself with the fundaments of the Austrian School. Don't even think you're going to get away with accusing me of a particular "slant" on here. And it is Jon, not "Joe".
The dogma is that you are ranting about taxation on a post about currency theory.
I am not TALKING about taxation here.
You also seem to have done the same thing on the other post - using a discussion about economic value to discuss public and private goods.
Again, please address the question, Jon [sory about that typo] or not at all.
I have a suggestion for you: curb your attitude.
No, it's called pointing out the obvious.
I know you're not. I am explaining what is necessary for a currency backed by aggregate productivity to be redeemed. To achieve this end the government must tax wealth.
It was in relation to a specific claim you made.
I have.
Igor83185:1) Gresham's law states that "bad" easy currency will crowd out "good" hard currency by default and market mechanics. A gold standard couldn't prevent this unless EVERY other currency became tied to the gold dollar.
False. Grasham's law only applies to government monies.
http://en.wikipedia.org/wiki/Gresham%27s_law
Igor83185: 6) A General Question: What happens when technology and automation/robotics eliminates most productive work? agriculture after the industrial revolution and robotic assembly lines are good examples of how this could happen.
Are you for real? Marx was worried about this a century and a half ago.
Igor83185:4) Why stop at metals? why not link currency to aggregate production? though central planning is impossible on a human level, tracking aggregate production is getting easier by the day with computers - VIOLA! instant currency control. end to inflation - track market prices and adjust!
You don't seem to have a grasp of what is being discussed when people talk about backing a money with gold. A dollar bill can not be redeemed for a portion of "aggregate production."
A gold standard would simply mean that paper money is redeemable for a certain amount of gold, and governments can't print more bills than the gold they are holding. Its really very simple.
Peace
JonBostwick: Igor83185:1) Gresham's law states that "bad" easy currency will crowd out "good" hard currency by default and market mechanics. A gold standard couldn't prevent this unless EVERY other currency became tied to the gold dollar. False. Grasham's law only applies to government monies. http://en.wikipedia.org/wiki/Gresham%27s_law
I actually, among others, read that article - that's what I am talking about: government money: the "good" Gold standard Dollar vs. other "bad" non-commodity backed monies from other countries.
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JonBostwick:Are you for real? Marx was worried about this a century and a half ago.
And how many of you are factory workers or are engaged in manual labor? The majority of modern production of physical goods is done through automation. Marx was worried a century and a half ago and look what happened to factories - he was right - Tremendous efficiencies are gained through automation at the cost of no-longer-necessary jobs.
So yes. I am for real. So was Marx. Though I am far from a Marxist.
JonBostwick: You don't seem to have a grasp of what is being discussed when people talk about backing a money with gold. A dollar bill can not be redeemed for a portion of "aggregate production." A gold standard would simply mean that paper money is redeemable for a certain amount of gold, and governments can't print more bills than the gold they are holding. Its really very simple.
On the contrary - whenever I use money, I am redeeming a dollar for it's worth in aggregate production. That's the entire point of currency. Additionally, the government [any government?] 'owns' a fair amount of other capital, land, resources, you name it. All of these would be capable backing a currency, would they not? why limit it to gold? That is the essence of my question - why not open it to much broader and therefore more stable standard?
Igor,
You sound like you are here to lecture and change our ways. The government has no legitimate claim of ownership and a dollar is not worth any aggregate production.
I vote that this thread be moved to the Newbie section in the off-chance that Igor honestly wants to learn basic economic principles.
Charles Anthony:You sound like you are here to lecture and change our ways. The government has no legitimate claim of ownership and a dollar is not worth any aggregate production.
I wasn't talking about ownership, and I certainly wasn't suggesting changing your ways.
I was asking a question: why ONLY gold? why not ALL governent assets, if you are considering gold to be one?
Charles Anthony:I vote that this thread be moved to the Newbie section in the off-chance that Igor honestly wants to learn basic economic principles.
I find that a bit offensive, to say the least. To attack someone making an honest inquiry because what he says doesn't entirely fit within your framework? I am sorry if what I said upset or offended anyone, but please, don't go all rabid when the word "government" or "tax" is mentioned, especially when my point is not to assert that the government should exist, but that, given the choice, isn't a monometallic gold standard less stable than a broader asset based one?