Gold standard NOT a good idea?

[jonahtrainer]

When you make something the token of exchange (e.g. money), it suddenly acquires something other than its intrinsic value. A house is worth a house. An ounce of gold is worth an ounce of gold. And a piece of paper with something printed on it is worth exactly a piece of paper with some ink on it.

However, in the case outlined, gold as money 'depreciates' in terms of the number of houses it can buy (since there are fewer houses relative to the amount of gold, just as in the case where there are too few american goods and services relative to the amount of dollars).

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.

If you can accept that checks-and-balances and jawboning can ensure that a central bank will not irresponsibly inflate (or deflate - the equivalent of hoarding gold under a gold standard) the money supply, then a fiat money system is not necessarily inferior to a gold-based one and even has some important advantages.

Yes indeed. This is a very interesting proposition and it would be fascinating to know what sorts of mechanisms RP intends to introduce to make such possible. If I understand correctly, this has something to do with removing taxation on such instruments?

Forcing government money to compete with privately-created money would force the government to improve the quality of its own money greatly or risk going out of the game (and losing control) entirely. However, you do not want to [immediately] abolish the government's capacity to create money either, because you also want to force privately-created money to also compete with the goverment's!

While I agree that there are grains of truth to be found in the charges and faults levelled against the Fed, I don't think it is as wanton and rapacious as some people (who probably have their own vested interests and agendas as well...) try to paint it as.

You really need to do some study in Austrian Economics and the Liberty philosophy with 'fruits of labor' agency principle.

“A power over a man’s subsistence amounts to a power over his will.” - The Federalist No. 79 (Alexander Hamilton).

Alan Greenspan understands and elucidates in simplicity the argument:

This is a very interesting issue. This issue was debated, incidentally, in the United States in 1976, and the conclusion was that we should hold our gold, and the reason is that gold still represents the ultimate form of payment in the world. It is interesting that Germany in 1944 could buy materials during the war only with gold, not with fiat, money paper. And gold is always accepted and is the ultimate means of payment and is perceived to be an element of stability in the currency and in the ultimate value of the currency and that historically has always been the reason why governments hold gold.

- Alan Greenspan, The Architecture of International Finance May 20, 1999, U.S. House of Representatives, Committee on Banking and Financial Services

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 antagonism toward the gold standard.

- Alan Greenspan, Gold and Economic Freedom, The Objectivist (1966)

The Ancient Metal of Kings will reclaim its role as money in the Information Age. The nature and efficiency of money is rapidly changing.

 

[plopolp]

I never understood the argument about using paper money in order to achieve "price stability". One could only achieve stability in average prices, according to some measure. But noone trades in average goods! So it wouldn't help anyone achieve "stability". Relative prices continue to fluctuate.

And furthermore, the use of credit expansion means that for example morgaged housing will increase much more in price than perishable consumer goods, so this "average price stabilization" might actually INCREASE the variations in prices between different kinds of goods and assets!

Or is there something I am missing here?

 

[Broadlighter]

"2) the danger of private interests being able to hoard gold and control/manipulate the money supply"

This makes me think of someone taking his gold into a shack and not coming out. Eventually, you have to come out and trade. Your survival depends on it.

 

[Broadlighter]

One of the things I don't understand about the Federal Reserve or any Central Bank is if they have the government's blessing to create money out of thin air, why do they charge ANY interest on it?

They do very little to print the money up, so the principle loan payments coming back are going to be mostly profit to them, anyway. Am I missing something here other than charging interest to create the need for more loans and justify their existence?

 

[fsk]

Anyone who suggests a gold standard is evil is spewing 100% pure propaganda. In the days of a free market, gold and silver were what the market chose as money. It is government interference in the market that is the true problem.

 

[jon_perez]

I tend to agree more with the points made in a section of the article below about how a fiat standard is not necessarily evil or that a gold one is necessarily a good thing:


http://www.nowandfutures.com/false_data.html

"It appears at first glance that locking a currency value to an amount of gold is a great way to limit the ability of government or central banks to print too much money and create inflation, and of course there's some truth to that... and a partial truth can be very dangerous."

 

[lucius]

Anyone who suggests a gold standard is evil is spewing 100% pure propaganda. In the days of a free market, gold and silver were what the market chose as money. It is government interference in the market that is the true problem.

Agreed, I am new to studying monetary policy, but this is the way I am leaning now.

 

[murrayrothbard]

There seems to be mass confusion about what a gold standard is or how it came about. Money arises naturally out of a barter economy. It is NOT because some high and mighty person somewhere decreed that "there shall be money! and it shall be gold!". There is no instrinsic "moniness" about gold. There are physical properties of gold and other metals that make them almost ideal as a medium of exchange (relatively rare = high 'value' p/unit weight, divisible into arbitrarily small homogenous units = easy to produce a wide variety of 'sizes', etc.) Money is simply a generally accepted medium of exchange. That is it. There is nothing mystical about it. It doesn't have been designed or planned. It is a natural phenomenon.

As distinct communities / societies begin trading with one another, there is a natural pressure to arrive on a single money commodity. Competing monies is still a system of partial barter. The "gold standard" came about by the extension of trade throught the world in the 18th and 19th century.

In politics a "gold standard" means that a state issues some kind of money substitute (certificate, etc) that represents a fixed weight of gold and readily convertible into said amount of gold. That's all it is. There is no reason whatsoever for the state to be involved in the money business. There only reason the state is in the money business is to manipulate it in favor of itself and its fellow travellers.

 

[lucius]

There seems to be mass confusion about what a gold standard is or how it came about. Money arises naturally out of a barter economy. It is NOT because some high and mighty person somewhere decreed that "there shall be money! and it shall be gold!". There is no instrinsic "moniness" about gold. There are physical properties of gold and other metals that make them almost ideal as a medium of exchange (relatively rare = high 'value' p/unit weight, divisible into arbitrarily small homogenous units = easy to produce a wide variety of 'sizes', etc.) Money is simply a generally accepted medium of exchange. That is it. There is nothing mystical about it. It doesn't have been designed or planned. It is a natural phenomenon.

As distinct communities / societies begin trading with one another, there is a natural pressure to arrive on a single money commodity. Competing monies is still a system of partial barter. The "gold standard" came about by the extension of trade throught the world in the 18th and 19th century.

In politics a "gold standard" means that a state issues some kind of money substitute (certificate, etc) that represents a fixed weight of gold and readily convertible into said amount of gold. That's all it is. There is no reason whatsoever for the state to be involved in the money business. There only reason the state is in the money business is to manipulate it in favor of itself and its fellow travellers.

Big fan of your book...just kidding! I really enjoyed 'The Case Against the Fed', wish more would read it.

 

[murrayrothbard]

Big fan of your book...just kidding! I really enjoyed 'The Case Against the Fed', wish more would read it.

LOL. Yep I am the ghost of murray rothbard We just got the internets here in the afterlife....

 

[dmspilot00]

Has anyone here watched "The Money Masters" on Google video? It was made in 1996 I think, and it actually does not advocate a gold standard, saying that gold is easily manipulated by the large banks. What they propose is that the power to print money be returned to Congress--allowing us to have a credit-based, instead of debt-based, fiat currency. The supply, they said, could be increased at some specific rate, like the population growth rate. The idea is modeled after Colonial Script, a fiat currency that was used successfully in the colonies until the British tried to abolish it, sparking the Revolution.

I don't know whether I agree or disagree with the ideas put forth in the video, but they were very interesting and I was hoping to widen the debate here. Their proposal is toward the end of the video (3 hrs) if you don't want to watch the whole thing.

 

[plopolp]

The weakness with their plan is their assumption that politicians won't misuse the power over the currency. Only the market place is capable of delivering an inflation free currency (or close to it), through the process of competition and consumer choice. Sure, gold is not perfect. But it's pretty fail safe! Inflation will take place as a function of mining operations which is pretty stable and predictable. And it isn't actually more profitable than mining other metals! If inflation would occur, i.e. that the value of gold falls, then gold mining will decrease, so there is even some automatic feedback which acts to stabalize the value of gold, or at least the mining inflation rate.

I do not believe that it is possible for corporations to manipulate the gold market in any profitable way on a free market. Not anymore than any other commodity. Note that banks would loose most of their profits when they cannot issue new money out of thin air anymore. They will not be major players in the economy anymore. And it will sudenly get much easier to start small banks and compete.

If you start lending money to people today, you are removing money from productive uses. Therefor you will require high interest rates. The banks, with special permission from the government, do NOT lend existing money. They create new money at the same time as they lend it! That is a huge competitive advantage. They literally create claims on ther customers by taxing everyone with higher inflation! The banking sector today is practically a part of the government beaurocracy.

 

[Gilby]

it actually does not advocate a gold standard, saying that gold is easily manipulated by the large banks. What they propose is that the power to print money be returned to Congress-

It would be hard for large banks to manipulate the gold value without them causing self injury to themselves, but nonetheless, gold could fluctuate in value as new uses are found or other replacements for its use are found. However, you do not want to put the power in the hands of congress, as you will just end up with the power hungry manipulating it to their advantage again. The government is constrained to gold and silver, but the free market is not. Today, with the fast digital communication, I think a free market would choose a large basket of commodities as its currency, as this would provide monetary stability. We could create an index that is very specific in how it is composed so that anyone can calculate it and it would not be subject to manipulation, by anyone. For example, we could set the index to contain the top 100 commodities delivered in the world market. Actual coinage could be gold and silver, but these would be accepted at the free market values in comparison to this index.

 

[JosephTheLibertarian]

I will accept the gold & silver standard BUT I must confess I prefer free market currencies where individuals determine the mediums of exchange.

 

[nickcoons]

That's one part, but the more pressing part is the outright legalization of using them as currency.

And part of doing that would be removing the "legal tender" conditions of Federal Reserve notes. As it is now, a creditor is required to accept Federal Reserve notes, when offered, to satisfy a debt.

 

[James R]

We have no choice but a gold standard until the constitution is changed. I'm in favor of backing up the dollar with a basket of commodities rather than only gold. Not only metals such as gold, silver, and platinum but perhaps also oil, wheat, and other commodites. This would provide for an inflation-free currency that is very stable. This is only acceptable after an amendment though.

 

[kylejack]

We have no choice but a gold standard until the constitution is changed. I'm in favor of backing up the dollar with a basket of commodities rather than only gold. Not only metals such as gold, silver, and platinum but perhaps also oil, wheat, and other commodites. This would provide for an inflation-free currency that is very stable. This is only acceptable after an amendment though.

The free market can use whatever it wants. The Constitution does not require me as a vendor to accept any particular kind of currency. If I want to accept Liberty Dollars, or E-Gold, or a barrel of oil as payment, that's my business.

 

[Gilby]

The free market can use whatever it wants. The Constitution does not require me as a vendor to accept any particular kind of currency. If I want to accept Liberty Dollars, or E-Gold, or a barrel of oil as payment, that's my business.

Exactly. Only the government is restricted by the constitution. They would be required to accept gold and silver, while the free market could accept something else. The constitution can not require anything of you. You are not a party to the contract. The contract known as the constitution, which created the federal government, was signed by representatives of each state acting on the state's behalf. Therefore, the contract is between the States and the federal government. You as a natural person can not be born into being bound by this contract. You are simply a beneficiary and your association with this entity is completely voluntary, at least from a common law standpoint, as the constitution is a common law contract. Obviously, today the government would have us believe we live under some other state, even though they still claim we are free. The Ron Paul Revolution is all about restoring the rule of law and making the federal government follow the contract and charter that created it: the constitution.

 

[plopolp]

The constitution can not require anything of you. You are not a party to the contract. The contract known as the constitution, which created the federal government, was signed by representatives of each state acting on the state's behalf. Therefore, the contract is between the States and the federal government. You as a natural person can not be born into being bound by this contract.

Very well put!
Are people aware of this line of reasoning?
This message should be spread wide and far.

 

[DebtFree]

Of course, gold standard is not a good idea.

What is the definition of "fiat"? Fiat basically means "by law". Gold (& silver), back in the old days, were fiat money, as defined by the 1792 Coin Act.

What we are using as money today is debt. I suggest that everyone watch a video called "Money as Debt". http://www.moneyasdebt.net/

http://video.google.com/videoplay?docid=-9050474362583451279

A popular misconception is that our currency is not backed by anything.

Much to our detriment, our currency is backed by the interest bearing debt of the public.