Gold is no solution

[Seraphim]

Thank the Fed for that.

The Federally backed credit spigot was opened. Hence the roaring 20s and the Great Depression. Artificial supply of credit was available and it produced one of the largest booms in history and when the magic fairies and pixel dust wore off, one of the largest crashes in history.

The gold backed link was PURPOSELY destroyed. Creating more notes in relation to the stock of gold and general economic production was required to destroy faith in gold and STEAL it from the American people.

The inflation of the 1920's was merely a byproduct of excess credit creation. Thank the Fed and the Fed Gov't.

You also see a large increase in inflation in 1920 similar in size 1933.

 

[Athan]

Nonsense the free market doesn't produce gold money it produces credit. Gold money come from sovereigns. The

You completely misunderstand that commodity backed money doesn't require it to only be gold backed. As long as it is backed by SOMETHING as Hayek recommended.

 

[Zippyjuan]

In a commodity backed monetary system, the price for that commodity is basically set by the government (the offical exchange rate between the unit of currency and that commodity- say $20 an ounce of gold). That distorts the market for that commodity and does not allow it to adjust to changes in supply and demand. In this case, the price of gold is not allowed to fluxuate. The dollar is not currently backed by gold but by everything you can exchange your dollars for and you don't have to to through the bank to get the exchange. If you wanted to trade your dollars for gold in a gold backed currency, you went to the bank to do it.

 

[Seraphim]

Hence the call for free market money and free banking. Not a Govt gold standard.

In a commodity backed monetary system, the price for that commodity is basically set by the government (the offical exchange rate between the unit of currency and that commodity- say $20 an ounce of gold). That distorts the market for that commodity and does not allow it to adjust to changes in supply and demand. In this case, the price of gold is not allowed to fluxuate. The dollar is not currently backed by gold but by everything you can exchange your dollars for and you don't have to to through the bank to get the exchange. If you wanted to trade your dollars for gold in a gold backed currency, you went to the bank to do it.

 

[Zippyjuan]

How would a "free market" commodity backed money work?

 

[Seraphim]

Pick your favorite money and find a bank that uses it to issue bills of credit.

How would a "free market" commodity backed money work?

 

[matt0611]

How would a "free market" commodity backed money work?

Easy, firms (could be banks or not) introduce their own private commodity-backed money (most likely based on gold or silver) and people choose which ones they want to use.

 

[Danan]

In a commodity backed monetary system, the price for that commodity is basically set by the government (the offical exchange rate between the unit of currency and that commodity- say $20 an ounce of gold). That distorts the market for that commodity and does not allow it to adjust to changes in supply and demand. In this case, the price of gold is not allowed to fluxuate. The dollar is not currently backed by gold but by everything you can exchange your dollars for and you don't have to to through the bank to get the exchange. If you wanted to trade your dollars for gold in a gold backed currency, you went to the bank to do it.

That's not the same as price fixing the price for specific products, though. It would be more accurate to say that the price of money is set by the government as the value of the commodity. The value of the commodity and, even more importantly, the relative price of that commodity could still flow freely and would only be determined by subjective valuation of individuals.

All it really does is making the commodity the de facto (and also de jure - which I'm not in favor of) denominator of the system and all prices are relative prices in relation to the commodity. So in effect the price of the commodity would be 1, because it would only be measured in terms of itself (or any fixed fraction or multiple of 1 that the government decides). The important point is that it doesn't interfere with relative prices in regards to all other goods and services.

And I also prefer free market money and banking. The effect would be roughly the same, though.

 

[Acala]

The dollar is not currently backed by gold but by everything you can exchange your dollars for and you don't have to to through the bank to get the exchange.

No, the dollar is not currently "backed" by anything. For a paper currency to be "backed", it must have a fixed exchange rate with a given commodity (or, problematically, multiple commodities). The fact that the dollar has, at the moment, exchange value for a multitude of goods does not make it "backed" by any of those goods since the exchange rate floats and could, theoretically, change dramatically at any time. Having a paper dollar in hand does not legally entitle you to a damn thing.

 

[matt0611]

No, the dollar is not currently "backed" by anything. For a paper currency to be "backed", it must have a fixed exchange rate with a given commodity (or, problematically, multiple commodities). The fact that the dollar has, at the moment, exchange value for a multitude of goods does not make it "backed" by any of those goods since the exchange rate floats and could, theoretically, change dramatically at any time. Having a paper dollar in hand does not legally entitle you to a damn thing.

Exactly, the "dollar" bills we have represent no tangible asset, they are "notes" that entitle you to nothing (except other similar notes).

 

[torchbearer]

isn't fractional reserve inherently inflationary?

 

[matt0611]

isn't fractional reserve inherently inflationary?

Yes. But it has limits. I'm not for fractional reserve banking though as I believe its immoral and fraudulent.

 

[torchbearer]

Yes. But it has limits. I'm not for fractional reserve banking though as I believe its immoral and fraudulent.

well, yeah, how can you loan out what you do not have?

 

[SilenceDewgooder]

I am no expert in currency, but Aristotle makes sense to me.

Aristotle's currency attributes:

A good currency should be durable, portable, divisible/consistent (fungible), and have intrinsic value.

Value, as always, is perception.

Currency, in general, is an accepted medium to resolve obstacles in bartering.

You should take whatever steps you have deemed necessary. If other people agree, work together; if other people disagree, respect their views as individuals and move on.

 

[Danan]

well, yeah, how can you loan out what you do not have?

Because of the principle of contractual freedom. I can always offer you to pay you $50mio. in 5 years for $1,000.- today and also specify in the contract that in case I'm broke in five years you don't get anything. If you voluntarily agree to this deal, that's your problem.

 

[Zippyjuan]

well, yeah, how can you loan out what you do not have?

You can't. Fractional reserve lending, by definition, means that you are lending out less than what you have, not more. You are required to keep a fraction of your depostits on reserve and not lend them out. If the reserve requirement is ten percent and you have $100 worth of deposits, you can loan out $90 of that.

 

[Zippyjuan]

Easy, firms (could be banks or not) introduce their own private commodity-backed money (most likely based on gold or silver) and people choose which ones they want to use.

Which would mean that such a firm would have to own that gold and silver and be willing to give it away if people wanted to trade in their notes with them. What is their incentive to do that? They would also need a large amount of the commodity if they wanted to back any significant amount of their currency at a level which would allow it to circulate a lot. If you hoped to capture one percent of M1 money supply with your alternative currency, you would need $250 billion worth of it. http://research.stlouisfed.org/fred2/series/M1/ Total current value of US Gold reserves is about $139 billion. http://data.worldbank.org/indicator/FI.RES.TOTL.CD

 

[Zippyjuan]

Exactly, the "dollar" bills we have represent no tangible asset, they are "notes" that entitle you to nothing (except other similar notes).

"Silver certificates" and "gold notes" were not tangible assets either. Like current fiat money, they could be exchanged for assets.

 

[matt0611]

"Silver certificates" and "gold notes" were not tangible assets either. Like current fiat money, they could be exchanged for assets.

Negative. They were "backed" at a guaranteed rate. They were like warehouse receipts for a certain guaranteed amount of gold or silver by the issuer of the certificates. That's completely different than being able to trade for a good at a floating price on the market.

 

[TaftFan]

Yes. But it has limits. I'm not for fractional reserve banking though as I believe its immoral and fraudulent.

How is it immoral and fraudulent when nobody is being mislead intentionally? People may make assumptions but they shouldn't.