Complaints with the Gold Standard

[AutoDas]

Why gold? Why not bronze, silver, cobalt, iron, zinc, nickel, copper, or platinum?
Having gold back up your money is a waste of resources. You may not recognize it, but even our money today is backed by the special recipe paper it is printed on. Gold shouldn't just sit in a vault (and this gets rid of the Federal Reserve, how?) when it has properties unique to it.
An economy shouldn't have to mine the Earth of its resources for it to expand. The reason a gold standard doesn't inflate as much is because there is no growth. The Constitution does not have all the answers.

 

[steve005]

its not to just get gold, the point is to link the dollar to something of value, therefore limiting how much the government(or federal reserve) can print out.

 

[RSLudlum]

An economy shouldn't have to mine the Earth of its resources for it to expand.

And how does one suppose to produce a product to sell without obtaining the resources from the earth to produce it???

I guess we could mine the moon for Fe and Ti..... yeah that should be quite cost-effective

 

[Bruno]

Why gold? Why not bronze, silver, cobalt, iron, zinc, nickel, copper, or platinum?
Having gold back up your money is a waste of resources. You may not recognize it, but even our money today is backed by the special recipe paper it is printed on. Gold shouldn't just sit in a vault (and this gets rid of the Federal Reserve, how?) when it has properties unique to it.
An economy shouldn't have to mine the Earth of its resources for it to expand. The reason a gold standard doesn't inflate as much is because there is no growth. The Constitution does not have all the answers.

You mean our money is backed by the ink it is printed on? Not much security if you ask me. Unless you want to be able to go to the bank and say, "give me a dollar's worth of that special ink."

Ron Paul advocates backing not only by gold, but also by other commodities as well. The idea is to have currency backed by something so governments can't just print more and flood the market, devaluing the currency.

 

[Fox McCloud]

The idea is to have currency backed by something so governments can't just print more and flood the market, devaluing the currency.

Yup...as someone (as an extreme example) said, it would be better if we had a sand-backed currency (1 dollar for every grain of sand on the earth) than to have a fiat-based currency.

It's an extremist example (and a horrible one at that), but you have to tie it to something, or else the government will run amok.

I personally like the idea of gold and/or silver...but that's just me.

 

[kyleAF]

Why? Many reasons, but mainly that it's been accepted in the human psyche throughout history as a store of value. If the market can convince itself that zinc is a good alternative (it isn't, as it will corrode away), then by all means, let's do it.

Competing currencies is the way to go, WITHOUT government subsidies of a particular currency (don't want unfair advantages / disadvantages).

The most important reason: It limits money creation, which is the scourge of a stable and prosperous society.

And not mining from the earth? Come on, think that one through for a few more seconds... I'm environmentally conscious, too, but the earth is the source of materials. The main problem right now is careless use of oil / coal / gas, not gold mining.

 

[Zippyjuan]

Let's use plutonium! Nobody would dare steal it.

 

[Bruno]

From a coin collecting book I'm reading from 1976:

"Among the earliest known forms of money is the cowrie shell, widely used in China, Africa, India, and even Europe. unlike many other types of money, the cowrie waas in virtually unlimited supply since the ocean itself was its source. In the Maldive Islands during the tenth century, historians of the period record that when the royal treasury was drained, coconut palms were thrown onto the sea. The mollusk inhabitants of the cowrie shells would crawl aboard the palms, and women of the islands would then drag the branches back onto the beach. There, the shiny, colorful cowrie shells would be abandoned by their occupants, and the natives would gather them up to add to the treasury (like printing money out of thin air - what we are doing now)

the precise value of cowries is difficult to determine, but it is clear that their use was widespread. In Uganda, near the thrun of the nineteenth century, two large cowrie shells could be used to purchase a wife; but, as with all currency, overabundance resulted in a decline in value, and by the 1860's a glut of cowrie shells brought the price of a wife up to some 10,000 cowries."

Good read and chart here: http://www.thedailygreen.com/environmental-news/latest/oil-gold-commodities-47041507

The Price of Oil Hasn't Budged Since 2001 (If You Pay for Black Gold with Gold)
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By Dan Shapley

The American Geological Institute Workforce Program has published an interesting analysis of world oil prices.

As we know, the price of oil has risen steeply. We pay more dollars for the same amount of oil. Those who purchase in Euros also pay more, though not as much as we pay in dollars. But if you compare the spot prices of oil to gold, there has been almost no increase.

As AGI wrote:

"The steep increase in the price of crude oil in the United States remains a headline issue, along with the falling US dollar. The drop in the dollar has caused concern in oil-producing countries which use it as the economic basis for the commodity, and often their currency. The chart below shows the spot market price of crude oil per barrel (BBL) in US dollars and in euros from 2001 to today. The price of oil has grown faster relative to the dollar than to the euro. Yet, a portion of the rise in oil prices is due to the fall of the value of the dollar. The graph also shows the number of barrels of crude oil per cost of an ounce of gold, demonstrating the parallel growth in commodity pricing.

 

[NaT805]

The market decides what to use.

 

[Zippyjuan]

It is choosing electronic money today.

 

[Carehn]

Why are we debating this?????

 

[Carehn]

An economy shouldn't have to mine the Earth of its resources for it to expand..

How then do you propose we make fine things like computers, autos, and such? Are you one of those All Gore nuts???

 

[Bruno]

I think it was more of an education and sharing of ideas. Seems like we were all agreeing anyway, since we haven't heard from the OP.

I've learned more about monetary policy in the last few months from those here and their recommended readings than I did through college, and I'm grateful for it.

 

[AceNZ]

Why gold? Why not bronze, silver, cobalt, iron, zinc, nickel, copper, or platinum?

Why gold and not some other metal?

1. Gold has a long history of being used as money
2. Gold is easily divisible
3. Gold is rare, which limits the quantity of money that can be created
4. Gold is malleable, so it can be easily formed into coins
5. Gold is heavy, which helps impart a feeling of value
6. Gold is attractive
7. Gold has a unique color that makes it easy to differentiate from other metals

Having gold back up your money is a waste of resources.

No it's not.

You may not recognize it, but even our money today is backed by the special recipe paper it is printed on.

Sure, but a $100 bill costs the same to print as a $1 bill: about four cents. There is no practical limit to how much money can be printed. Besides, most money is digital these days anyway, with a near zero cost of creation.

Gold shouldn't just sit in a vault (and this gets rid of the Federal Reserve, how?) when it has properties unique to it.

If gold was used to back money, it could still be used industrially; it doesn't ALL have to "sit in a vault".

A gold-backed currency by itself wouldn't get rid of the Fed. To do that would also require abolishing fractional reserve banking.

An economy shouldn't have to mine the Earth of its resources for it to expand. The reason a gold standard doesn't inflate as much is because there is no growth.

Additional gold is not required to grow an economy on a gold standard! You don't need more gold to have more wealth. In a growing economy, the money becomes worth more. Prices go down.

 

[seapilot]

And how does one suppose to produce a product to sell without obtaining the resources from the earth to produce it???

I guess we could mine the moon for Fe and Ti..... yeah that should be quite cost-effective

Actually it would be cheaper to mine NEO (Near earth Objects or Asteroids). The iron ones have more gold, cobalt, platinum than all the producing mines on earth. One would pay off the entire national debt of the US.

Also the side benefit is that would be one less space rock to slam into the earth. When resources are depleted like Platinum here on earth there will be another space race to get to the NEOs first. My bet is on china or russia, dont know if NASA will have a budget by then.

http://en.wikipedia.org/wiki/Asteroid_mining
http://miningasteroids.com/

 

[Paul Revered]

Why gold? Why not bronze, silver, cobalt, iron, zinc, nickel, copper, or platinum?
Having gold back up your money is a waste of resources. You may not recognize it, but even our money today is backed by the special recipe paper it is printed on. Gold shouldn't just sit in a vault (and this gets rid of the Federal Reserve, how?) when it has properties unique to it.
An economy shouldn't have to mine the Earth of its resources for it to expand. The reason a gold standard doesn't inflate as much is because there is no growth. The Constitution does not have all the answers.

You hit the nail on the head. The reason why gold doesn't inflate; is because there is no growth. the vast majority of the worlds gold was discovered thousands of years ago. The California gold rush; was merely a drop in the bucket. The amount of 'found gold' in the world, is a relative constant. This is why it is such an effective means of exchange. Everything that is being traded, can be assigned a value, that is relative to the constant. It serves as a measure. If trade is based on a currency that is not a constant; it has the same effect as the butcher putting his thumb on the scale.

 

[sratiug]

Why gold? Why not bronze, silver, cobalt, iron, zinc, nickel, copper, or platinum?
Having gold back up your money is a waste of resources. You may not recognize it, but even our money today is backed by the special recipe paper it is printed on. Gold shouldn't just sit in a vault (and this gets rid of the Federal Reserve, how?) when it has properties unique to it.
An economy shouldn't have to mine the Earth of its resources for it to expand. The reason a gold standard doesn't inflate as much is because there is no growth. The Constitution does not have all the answers.

The argument that an economy cannot expand without inflating the currency, espoused by many, is ludicrous. They are saying that if more is produced this year than last year, but no money is added, the economy hasn't really grown. But it has. Each individual product may be worth slightly less monetary value, but the value of the money increases. The value of the overaul economy increases. The only difference is the added value is spread to all holders of money instead of only those getting the freshly painted bills.

The argument implies that the only way to make money is to print it out of paper or dig it out of the ground to make gold coins. Under a gold standard you can still make money by making other things and selling them or performing services so that you are paid in gold. In that way you are increasing the total value of all the gold and "inflating" the value of the money supply just as suredly as inflating the supply of the money.

Copper and nickel coins were used under the gold/silver standard. A "dollar" is an ounce of silver. Pennies and nickels and all were worth fractions of ounces of that silver "dollar", like paper silver certificates.

 

[Acala]

In praise of gold

In addition to those virtues already mentioned,

Gold does not corrode or tarnish

Because of its extreme density, it is difficult to counterfeit with any cheaper materials

It's rarity allows it to have a practical value to mass ratio - using iron as money becomes impossible when buying, for example, a house. You would need several truck-loads of iron. Although I suppose it would be hard for a thief to steal any serious amount of iron money. You wouldn't need a vault for your money. The vault would BE your money. You could have an iron-backed paper money, with ton-denominations and secure yards full of billions of ingots of iron, but the vast quantities of industrial uses for iron combined with the super-abundance of iron in the Earth's crust, would make the exchange value of iron highly unstable.

That having been said, the market should be left to choose its currency with the only restrictions being prohibitions against fractional reserve banking and minting coins with fraudulent content markings, for which public hanging ought to be the mandatory punishment.

 

[brandon]

Two shells for a wife? Not a bad deal at all!

 

[polomertz]

You guys are sort of missing the point. The Constitution was written in a way so that IF, AND ONLY IF, the government decided to coin money, it must only be gold & silver. The people can use WHATEVER the hell they want. There would be no legal tender laws, & whatever the people found to be of value, could use as a means of exchange. We could argue for ages on what is the best thing to use as "money" but it doesn't matter because each of us is supposed to be able to use whatever we want. Some things have different values for different people. We have a choice, but government, on the other hand, doesn't have the same choices we do and is supposed to be constrained to gold & silver (or whatever is constitutional at the time.) That doesn't mean that we can't add or subtract from that list depending on what the free market came up with as money as changing The Constitution is Constitutional.

Also, how can anybody here say that you can't have good growth with sound money? You could theoretically run the entire world's economy on 1 ounce of gold and have plenty of growth. You actually see the benefits of your growth much closer to home as prices will continually fall. In my opinion, the thing that makes money best is when it's HARD to get/mine/produce. Basically, you can have tons of growth, even if your GDP remains exactly the same denomination because everything costs less.