Economics Questions

Re: I am confused

Clayton — Tue, 02 Feb 2010 18:32:49 GMT

Hizaki:

So is then gold, as a medium of exchange, feasible?

Please note that, as much as they try to hide it, central banks and other international banks still do use gold as a medium of exchange. Central banks try to hide it by only leasing the gold and playing other sorts of paper games with the gold. But, at the end of the day, there are physical transfers of gold and silver that occur between central banks and other international banks every day for settlement of balance of payments. What do you think they're doing with all that gold in the NY Fed vault? It's not just sitting there doing nothing, as Warren Buffet seems to think.

Clayton -

Re: I am confused

Clayton — Tue, 02 Feb 2010 18:27:40 GMT

Hizaki:

Yes, but I cannot convince anyone who is anti-gold standard with that line. They would just come back with a statement like this:

"2008 GDP = $14.2 Trillion and that does not count the additional $8-900 billion that is floating in circulation or the $12.3 trillion worth of debt that would need to be addressed or some portion of the $1.6 trillion that trades hands on Wall Street every day.

See this is the problem with "Gold Standard" types. Their own documentation says you can not do it by artificially increaseing or decreaseing either the price of gold or the value of the dollar... Then they completely ignore the fact that there is not enough of this particular commodity in the entire world to accomplish their fairytale."

These are the symptoms of collectivist thinking - all persons must be forced to transfer their money into this or that form ... and since the collectivist social engineer can't imagine how everyone holding dollars could be forced to use gold, therefore, we can't have gold as money.

The solution is currency competition. Just like not everyone has to drive Toyotas or not everyone has to use Sprint cellphones (thank God), so not everyone has to use gold under currency competition but they can if they like (unlike in today's system where gold is essentially useless because of legal tender and other issues). And that's the root issue... allowing people to use gold (or gold notes, silver, silver notes, etc.) if they want. Of course, most people would not switch out of dollars for some time, even if currency competition were legalized. But the dollar would not survive long... without any use of force, coercion or central planning to "force" people to use something that is "in too short supply."

Clayton -

Re: I am confused

filc — Tue, 02 Feb 2010 18:18:30 GMT

Hizaki:

So is then gold, as a medium of exchange, feasible? How about a gold backed currency at this stage (since we inflated our money supply at an unprecedented rate)? Would Rothbard's idea of converting at an artificially low rate be realistic?

Such questions are best left to entrepreneurs. In that way the market will discover what the most feasible currency is.

Re: I am confused

Hizaki — Tue, 02 Feb 2010 15:45:18 GMT

So is then gold, as a medium of exchange, feasible? How about a gold backed currency at this stage (since we inflated our money supply at an unprecedented rate)? Would Rothbard's idea of converting at an artificially low rate be realistic?

Re: I am confused

baxter — Tue, 02 Feb 2010 05:15:23 GMT

"It's very simple, any volume of <insert currency> can represent any volume of goods. You don't need to increase or decrease the supply of your <insert currency>. "

True within reasonable limits. From Mises' Theory of Money and Credit http://mises.org/books/tmc.pdf:

"even if it were true that half of the money in a country could perform the same service as the whole stock if the value of the monetary unit were doubled, yet it is doubtful if a similar proposition could be asserted of the case in which its value was increased a million-fold, or diminished to one-millionth, in inverse correspondence with changes in the quantity of it, since such a currency would hardly be capable of fulfilling the functions of a common medium of exchange so well as the currencies in actual use; that we should try to imagine a commodity money of which a whole ton, or one of which only a thousandth of a milligramme was equivalent to a dollar, and think of the inconveniences, the insuperable obstacles in fact, which the employment of such a medium would inevitably place in the way of commerce."

Re: I am confused

Hard Rain — Mon, 01 Feb 2010 20:05:08 GMT

filc:

Hizaki:
nor do I have a very good ability to channel my points through to battle their nonsensical arguments.

We all have this issue. Just come here and we can bash out an argument together.

Boo! Collectivism! Boo!

Re: I am confused

filc — Mon, 01 Feb 2010 20:02:35 GMT

Hizaki:
(beyond basic university level macro and micro)

Thats more than most!

Hizaki:
nor do I have a very good ability to channel my points through to battle their nonsensical arguments.

We all have this issue. Just come here and we can bash out an argument together.

Re: I am confused

Hizaki — Mon, 01 Feb 2010 19:48:37 GMT

Thank you filc, that is pretty much what I was looking for. I am not an economic expert (if it wasn't obvious by now) but the Austrian school of thought makes so much sense. My problem is that I do not have sufficient background in economics (beyond basic university level macro and micro) nor do I have a very good ability to channel my points through to battle their nonsensical arguments.

Your messages made perfect sense. Thank you.

Re: I am confused

filc — Mon, 01 Feb 2010 19:32:10 GMT

Hizaki:
completely ignore the fact that there is not enough of this particular commodity in the entire world to accomplish their fairytale.

Because the person who posts this has no fundamental understanding of what a unit of exchange is. The volume of gold in the world is inconsequential. But strictly speaking units of exchange represent an arbitrary quantity of wealth in an economy. The concept that we need "sufficient" gold to represent our wealth screams of not having an understanding of what the person is talking about. Let me spell it out.

If we have:

100 units of wealth and

100 units of currency.

Than 1 unit of currency represents 100 units of wealth. The economy works around that.

If instead we have

100 units of wealth

50 units of currency

Than 1 unit of currency represents 2 units of wealth. The economy adjusts and simply works around it. People may need to exchange with .5 units of currency and so forth.

Again if we have:

1000 units of wealth and

10 units of currency

Than 1 unit of currency represents 100 units of wealth. This currency has a high purchasing power. Since the unit of currency is scarce in comparison to the volume of wealth the market will naturally adjust by trading lower volumes of currency. Like .25 units of currency for a soda, and so forth.

It's harshly simple concept and it amazes me that people struggle with it. However any volume of currency can represent any volume of wealth. Now the volume of currency available globally may effect it's desirability as a currency.

Re: I am confused

filc — Mon, 01 Feb 2010 19:21:42 GMT

Hizaki:
So how do you refute an argument where a person persist that there is not enough gold to represent all of our "wealth" or our entire economy? I had someone on here sort of answer that but it is still not clear to me. Below is a quote (directed at me) form a person I am currently arguing with on another board:

The refutation is asking that person how much gold they think needs to exist to represent the wealth of a nation. Than ask him if more gold represents a greater amount of wealth than would making infinite amounts of gold equally make infinite amounts of wealth?

Ultimately his answer will be arbitrary. Any volume of gold can represent any volume of goods. The less gold there is the greater the purchasing power per unit you will have, the more gold there is the less purchasing power per unit. As a nation gets wealthier they don't need MORE gold. They will experience gradual deflation as an economy gets wealthier, people's unit of gold will buy more goods.

Hizaki:
The above quote saying we just don't have the gold to represent our entire economy with.

It's very simple, any volume of <insert currency> can represent any volume of goods. You don't need to increase or decrease the supply of your <insert currency>.

This incredibly simple fact is what sends most monetary cranks off the deep end. They think units of currency create wealth. If that were true we could just have the fed Print as much money as was physically possible and we would sling shot ourselves to wealth. We know it's not true and recognize that business cycles and inflation will be what actually happens.

Re: I am confused

Hizaki — Mon, 01 Feb 2010 19:20:31 GMT

Yes, but I cannot convince anyone who is anti-gold standard with that line. They would just come back with a statement like this:

"2008 GDP = $14.2 Trillion and that does not count the additional $8-900 billion that is floating in circulation or the $12.3 trillion worth of debt that would need to be addressed or some portion of the $1.6 trillion that trades hands on Wall Street every day.

See this is the problem with "Gold Standard" types. Their own documentation says you can not do it by artificially increaseing or decreaseing either the price of gold or the value of the dollar... Then they completely ignore the fact that there is not enough of this particular commodity in the entire world to accomplish their fairytale."

Re: I am confused

Hizaki — Mon, 01 Feb 2010 19:10:16 GMT

So how do you refute an argument where a person persist that there is not enough gold to represent all of our "wealth" or our entire economy? I had someone on here sort of answer that but it is still not clear to me. Below is a quote (directed at me) form a person I am currently arguing with on another board:

"I was hoping he would try to answer. Obviously he has no answer. His answer is somehow we could make all that wealth (meaning our economy) represented by a finite amount of gold. It just makes no sense."

The above quote saying we just don't have the gold to represent our entire economy with. My main issue is that I need a very good understanding of how this shift would take place (from our current fiat system to a gold standard or any standard) because that is the area the anti-gold standard crowd always attacks and the area not extensively discussed within the pro-gold group. They also argue that our economy is ever expanding and a limited commodity, like gold, would restrain that growth.

I just read an article by Rothbard where he says it is very important to discuss how the shift would take place (below, at or above market rate). Here is the link (the part where he discusses this is towards the end of the article.

http://mises.org/rothbard/genuine.asp

The part which is important in the article is titled “Which Gold Standard?”

Re: I am confused

Bogart — Mon, 01 Feb 2010 18:36:33 GMT

The best solution is to drop legal tender and then let the market decide what money is. This is Ron Paul's solution to the issue what to do without a central bank. Consumers are extremely competent at making complex decisions involving very subtle trade-offs, they are certainly better than a central planner. Then the whole concept of a gold standard becomes not relevant as does how to adopt one. People will simply write the own contracts in any money form they wish.

I do not believe the pro-gold folks and their argument that there will be chaos if people can use different forms of money as it will make current contracts in fiat currency valueless, I ask how is that different than the inflated fiat currency? I think that people will certainly narrow the choices from however many down to 10 in a matter of hours to days and probably narrow that further in a matter of weeks.

Re: I am confused

Clayton — Mon, 01 Feb 2010 18:29:59 GMT

NewLiberty:

Step 1: Let people transact in gold. No sales taxes, capital gains taxes, legal tender laws.

That's it.

Yep, no central planning measures needed. I would only add that gold is not the only monetary commodity and any commodity should be permitted to be used as money, duty-free.

Clayton -

Re: I am confused

NewLiberty — Mon, 01 Feb 2010 18:20:46 GMT

Step 1: Let people transact in gold. No sales taxes, capital gains taxes, legal tender laws.

That's it.