Gold standard NOT a good idea?

[Gilby]

If the US adopts a gold or silver standard, we have to then collect the metal and store it some place, correct?There needs to be physical gold somewhere in the United States that the paper money represents.

The federal government does not have the power to emit bills of credit, so no, there would be no paper money. They just need to buy some gold, mint them into coins, and then sell them.

Does the United States have gold in its stores right now? Where would this gold be stored (Knox?).

None of us know as they have not audited Fort Knox for a long time. The balance sheets do show that the US does have some gold and silver, but none of us know if they physically hold it all. The Federal Reserve presumably holds some of the gold as collateral for the debt, but even that gold is likely leased out to others.

The bottom line is that we can not trust government to hold gold for us and issue paper money, because as we have seen, they just issue more money than they have gold and we get all these economic problems.

 

[zinite]

The federal government does not have the power to emit bills of credit, so no, there would be no paper money. They just need to buy some gold, mint them into coins, and then sell them.

None of us know as they have not audited Fort Knox for a long time. The balance sheets do show that the US does have some gold and silver, but none of us know if they physically hold it all. The Federal Reserve presumably holds some of the gold as collateral for the debt, but even that gold is likely leased out to others.

The bottom line is that we can not trust government to hold gold for us and issue paper money, because as we have seen, they just issue more money than they have gold and we get all these economic problems.

Thank you very much for your reply.

In my very unprofessional opinion, I see a few problems with actual gold or silver in circulation. Didn't past civilizations have problems with people shaving gold coins down? Wouldn't vendors and private citizens then have to have balances and scales to verify the authenticity of the weight? Gold in circulation seems to be a step backwards....

 

[Gilby]

Thank you very much for your reply.

In my very unprofessional opinion, I see a few problems with actual gold or silver in circulation. Didn't past civilizations have problems with people shaving gold coins down? Wouldn't vendors and private citizens then have to have balances and scales to verify the authenticity of the weight? Gold in circulation seems to be a step backwards....

Only the government is restricted to use of gold and silver as their legal tender. The free market can choose anything they want to use. If it is not feasible to use gold and silver coins, then the free market will figure something out. For example, the use of electronic transactions (such as credit/debit cards) would be easy to offer many possibilities. What I would envision is being able to have a bank account where my assets could be in a number of different funds the bank offers. The banks could offer me a fund that meets my specific goals. It could be all in stocks. It could be all in bonds or CDs. It could be all in commodities that are physically stored by them. Or it could be any mix of any kind of financial instrument. When a transaction is done electronically, it's simply the sale of my asset, through a market maker, for the asset the seller wants. If I didn't want to use electronic payment, maybe due to privacy concerns, I could use gold or silver coins, or a commonly recognized note or warehouse receipt. The free market will determine an index that will be used for pricing. It may very well be a specific unit of gold or silver, or it could be a basket of financial instruments. My opinion is that it should be a basket of commodities that is well defined on how the composition is changed from year to year so that it will not be subject to regulation by a single entity.

 

[sickmint79]

aside from ft knox i believe the reserve banks (esp the one in NY) have gold.

 

[zinite]

Thank you very much Gilby, you've been very helpful!

 

[nexalacer]

Thank you very much for your reply.

In my very unprofessional opinion, I see a few problems with actual gold or silver in circulation. Didn't past civilizations have problems with people shaving gold coins down? Wouldn't vendors and private citizens then have to have balances and scales to verify the authenticity of the weight? Gold in circulation seems to be a step backwards....

I think this concern was very valid in the past, but with today's technology there would be a very quick solution to the problem. But due to the weight of metals, I honestly believe some sort other solution would develop so that people would not have to carry tons of metal on them all of the time.

 

[johngr]

Thank you very much for your reply.

In my very unprofessional opinion, I see a few problems with actual gold or silver in circulation. Didn't past civilizations have problems with people shaving gold coins down? Wouldn't vendors and private citizens then have to have balances and scales to verify the authenticity of the weight? Gold in circulation seems to be a step backwards....

The technology exist to deal with shaving coins (which is used already with numismatics).

 

[Bradley in DC]

Price stability is the main rationale given for a 'discretionary' monetary policy. ..

Now, here's the kicker: how can one assure this so-called "price stability" if the supply/demand situation is always in flux (as it is in the real world)? Price controls are supposed to be the antithesis of capitalism, and yet it seems that central banks assume that their job is to manipulate the money supply in order to keep prices constant. It's a subtler approach than price controls, but isn't it more or less the same thing in the end?

We don't support a "discretionary" monetary policy nor a governmental policy forcing (general level) "price stability" so, as usual, your premise is false.

 

[Bradley in DC]

The one advantage of a gold-based money system over a fiat-based one is that governments cannot conjure it out of thin air. But by the same token, the fact that there is less flexibility to adjust the money supply in a gold-based system means that in times where there are too few or too many goods and services relative to the amount of gold money circulating, price stability can suffer greatly.

The "too few" and "too much" arguments belie a hostility to the "subjective value theory" at the foundation of the Austrian School of Economics from its founding by Carl Menger 140 years ago. We Austrians are explicitly arguing AGAINST government enforced (general) price level "stability." Read up on Hayek's triangles to understand why and how the Fed created the booming '20s and the Great Depression.

 

[smartguy911]

Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which-through a complex series of steps-the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

Read the complete article by Alan Greenspan (1966)