Gold standard NOT a good idea?

[JosephTheLibertarian]

I have heard many people especially in the Media criticize Ron Paul for his promotion of a Gold Standard. They suggest that this is completely laughable, but in all honesty our current system is a horrible failure. We have lost over 95% of the value of our dollar since 1913. When from 1800-1913 the dollar's value increased significantly (More than 70%) due to a sound money system and technological advances.

Heck in comparison to what we have today a currency backed by Twinkies would retain more value than our greenbacks today. They average dollar is in circulation for less than 5 years, and twinkies last much much longer than that.

I know I am oversimplifying it a bit, but jeez how much worse can it get?

yup.. and he's not wanting a gold standard, he wants a gold AND silver standard. You need to have a check on how much a government can produce, you can't just let them print as much as they fucking want!

 

[Channing]

A free-market will work best when there is 0, zip, zilch, nada, niet, absolutely ZERO government interference.

If you have zero government interference, then that means that *anybody* can open a bank. Together with fractional reserve banking and electronic banking that means that *anybody* can create money out of thin air.

You cannot have zero government interference together with fractional reserve banking, or else at the very least you have to eliminate electronic banking.

 

[bmcosti]

Preservation of Life, Liberty, and Property

The proper role of government is the preservation of Life, Liberty, and Property. In terms a free market currency. If you gave a bank 1 oz. of gold and they gave you back $1,000 dollar certificates then when you send those certificates back in they better have your 1 oz. of gold. The proper role of government in this case is to protect your property rights, and prevent the bank from inflating.

Besides if the banks inflated thier customers money and devalued it they would be punished harshly by the market as consumers would flock to more reputable banks.

The market always punishes quicker than government I.E. Enron. They lost billions in value way faster than anyone went to jail.

 

[Channing]

I think if you really want to have zero government influence you might even have to give up issuing money, too. Just let the people create their own money system. There are already many examples of local currencies.
http://en.wikipedia.org/wiki/Local_currency

 

[JosephTheLibertarian]

If you have zero government interference, then that means that *anybody* can open a bank. Together with fractional reserve banking and electronic banking that means that *anybody* can create money out of thin air.

You cannot have zero government interference together with fractional reserve banking, or else at the very least you have to eliminate electronic banking.

lol. what are you smoking man? just because you print up some paper, doesn't mean it'll be worth anything

 

[Chickensoup]

lol. what are you smoking man? just because you print up some paper, doesn't mean it'll be worth anything

hahahahaahah........the FED........I found your statement truely ironic in this discussion. good job sir!

 

[jon_perez]

However, he promoted the right philosophy at the right time. He was hailed as a "genius"...

Which, as I am slowly growing to appreciate, he most probably was.

I have this pet theory of mine that economic theories are a bit like antibiotics, they work for a while but their efficacy can be abused. Soros' concept of Reflexivity applies. The Fed themselves have explicit stated goals and thus they are susceptible to being gamed by the more astute players in the financial markets. This can in fact be one of the justifications given for their deliberately opaque talk and tendency towards 'secrecy'.

To go back to Keynesianism, this doctrine in particular specifies how the government should behave, so once financial players figure out the governent's script, so to speak, they can take advantage of it. Once the participants in the economy start to understand the implications of the theory, it gets gamed, and the theory starts to break down.

Keynesianism was so successful for a while that people thought it would be forever applicable and could not imagine a return to classical economic thinking. It took Friedman and Co. to figure out why it stopped working and realize that it was time to swing the pendulum back the other way. Even then, Keynesian thinking was so entrenched that the monetarists had to critique Keynesianism using its own terms (not in classical) to be taken seriously.

Based my vulgar understanding of classical economics, the 'chaotic' freedoom implied by 'classical' economics would seem much less likely to be susceptible to such understanding and manipulation. But ultimately, it might still be wise to factor in the lessons of the economic theories that enjoyed success before it.

 

[jon_perez]

I think if you really want to have zero government influence you might even have to give up issuing money, too. Just let the people create their own money system. There are already many examples of local currencies.
http://en.wikipedia.org/wiki/Local_currency

True. And as Ron Paul has mentioned in one of his books, such systems seem to have worked in the past.

We are living in age where we are being brainwashed to accept that centralization is the key to efficiency and growth, and to be fair, there is a lot of valid evidence to support such claims. On the other hand, centralization does bring with it the implied concentration of power and therefore, much greater potential for abuse.

The point I'm trying to make is that I don't think such currents of thinking arise out of any grand conspiracy [by reptilians ] but are part of the natural swing between polar opposites of thought. Any unbiased student of history would be able to easily observe that civlization has constantly experienced such swings. Sometimes, the clamor is for centralized control, other times, it is for independence. Political opportunism and the blame game are always ingredients in this show as well.

 

[jon_perez]

yup.. and he's not wanting a gold standard, he wants a gold AND silver standard. You need to have a check on how much a government can produce, you can't just let them print as much as they fucking want!

Well, in the current system, the government doesn't have to print as much as they want. Printed money is a tiny fraction of the money supply. The vast chunk of money in the US today is in electronic form.

Today, money is created when people take out debts from banks, and, like the "Money Masters" documentary illustrates, when people pay their debts, the money supply shrinks and the potential for recession and deflation is there. In such cases, the Fed steps in and buys US gov't treasuries to inject more money in the economy, and this time it is the government which increases its debt. According to this school of thought, this perpetuates a vicious and inescapable cycle of debt and is why the current system has to be revamped.

I'm sure that this view has a great deal of truth to it and that a big chunk of the explanation holds water, but considering the documentary's propensity for thinking in terms of conspiracies, I would dig deeper and analyze and prove for myself the validity of their conclusions.

Conventional books on the financial system (e.g. like Mishkin's) certainly don't attempt to hide the features of the money system and describe it in much the same way as the "Money Masters" and other 'conspiracy' videos do. They even fully acknowledge the historical controversy over central banks. They however, do not come to a similar conclusion that the money system is grossly flawed or unfair, so it behooves us to really try to understand what is going on before being manipulated into believing this or that theory by would-be demagogues.

Stating that "conventional textbooks" are part of the "Great Conspiracy" is a complete cop-out. This is done by those who are too lazy to gain a true understanding of the issues and just want to easily point the blame elsewhere. Hitler and opportunistic politicians of all kinds rub their hands in glee when they sense that the population has a critical mass of such ignoramuses.

 

[nexalacer]

If you have zero government interference, then that means that *anybody* can open a bank. Together with fractional reserve banking and electronic banking that means that *anybody* can create money out of thin air.

You cannot have zero government interference together with fractional reserve banking, or else at the very least you have to eliminate electronic banking.

What's the problem with anyone opening a bank? If the bank creates money out of thin air using fractional reserve banking and electronic banking, then people find out about such abuses, would said bank stay in business very long?

I think if you really want to have zero government influence you might even have to give up issuing money, too. Just let the people create their own money system. There are already many examples of local currencies.

Bingo!

 

[nexalacer]

What are you trying to say jon? You said Keynes was probably a genius for creating a system that didn't work, but it did work because for a short time it was "successful" for those in power. You said a gold standard is not a good idea because Keynes was a genius and he said so, yet you admitted that his system is no longer valid. So what is your point here?

Scientific theories are validated by their ability to predict. Economics is now approached as a science, thus its theories must be able to predict outcomes, otherwise they are invalid. Keynesian and Chicagoan Economics have failed the predictability test, quite miserably, thus we can say their theories failed. Your insistence on relying on these theories to talk about the gold standard would be like an astronomer using a Ptolemaic analysis of the solar system as correct and valuable over a Copernican one in order to explain some new phenomenon. The fact is, the theories that are the most correct are the Austrian theories because they have successfully predicted more than the Keynesian/Chicagoan schools.

I'm impressed by your desire to argue this point so passionately, but truly, you are wasting your time until you study the RELEVANT theories. And by relevant, I mean predictive. Go to mises.org, spend about 1 month reading, then come back to this topic and tell us what you've found. If you still think that the gold standard is a bad idea, fine, we can talk about it. But basing your "pet theory" on bad science is akin to banging your head against a wall.

 

[jon_perez]

We have lost over 95% of the value of our dollar since 1913. When from 1800-1913 the dollar's value increased significantly (More than 70%) due to a sound money system and technological advances.

There is a gross distortion being perpetuated by such statements.

True, there has been considerable inflation, but you also have to factor in purchasing power versus wages. The average wage-earner can now buy so much material goods compared to someone in the 19th century. Even though a tomato costs, say, 10 times more in terms of cents today than 100 years ago, you earn at least 10 times more (probably more) in terms of dollars and cents as well. You also have to factor in the quality of goods you can get today which are a direct result of the rapid growth of the economy fostered by (more or less) successful application of economic theories.

You can thank 6-7 decades of Keynesianism for the inflation, but you got good employment in return. In the 1800s, you can thank deflations and depressions for the "dollar increasing in value". But you also have to realize that deflations are not necessarily good and can be accompanied by unemployment and less goods and services circulating in the economy.

 

[jon_perez]

What are you trying to say jon? You said Keynes was probably a genius for creating a system that didn't work,

That worked admirably... but for a limited period of time...

but it did work because for a short time it was "successful" for those in power.

Most people would say that Keynesianism took the world out of the depression and engineered the prosperity of the 50s and 60s.

You said a gold standard is not a good idea because Keynes was a genius and he said so, yet you admitted that his system is no longer valid. So what is your point here?

Scientific theories are validated by their ability to predict. Economics is now approached as a science, thus its theories must be able to predict outcomes, otherwise they are invalid.

Which is my point, that Economics is not a hard science, unlike say, Physics. Soros uses the concept of Reflexivity. People are conscious, people understand Economic theory. Therefore the big players can game the theory.

Keynesian and Chicagoan Economics have failed the predictability test, quite miserably, thus we can say their theories failed.

Did they really? Or have their times just passed?

The fact is, the theories that are the most correct are the Austrian theories because they have successfully predicted more than the Keynesian/Chicagoan schools.

So goes the propaganda... but people before WWI were ostensibly living in a more laissez faire economic system... and you have to ask yourself if everything was so peachy then why didn't it last? It might be educational to watch PBS' "Commanding Heights" - an excellent documentary.

Go to mises.org, spend about 1 month reading, then come back to this topic and tell us what you've found. If you still think that the gold standard is a bad idea, fine, we can talk about it. But basing your "pet theory" on bad science is akin to banging your head against a wall.

If you're going to teach Mises, you should also study Friedman and Keynes and illustrate why the 2 are wrong (or no longer correct). Otherwise you're just spouting religion.

 

[nexalacer]

Before I can continue this debate with you, I have to know one thing... how do you distinguish truth from falsehood?

 

[RonPaulIsGood]

Right, but wouldn't this push people to hoard the unit of money (e.g. gold) instead of investing it and putting it to "productive use" ? If the money supply consists entirely of gold then it would grow at the rate of 2% (?) yearly. If output grew at much higher than that rate, then it would encourage people to hold on to their gold instead of spending it as each unit of gold would tend to buy more "output" as time went by. Wouldn't the fact that less money is now circulating in the economy lead to a depression?

Is it more productive to waste your time building, buying, selling or destroying houses than do other things?

People already have some "gold standard" as you mentioned. It is houses. Houses can be used for money. Housing is not productive use.

If you have zero government interference, then that means that *anybody* can open a bank. Together with fractional reserve banking and electronic banking that means that *anybody* can create money out of thin air.

You cannot have zero government interference together with fractional reserve banking, or else at the very least you have to eliminate electronic banking.

Do people want to put money in THESE banks anymore if there is zero government interference? It is not a problem if banking is deregulated.

 

[a_european]

jon_perez, i think your view of economics is false. There ARE laws of Economics that arent changeable. Like "all prices are subjective". My everyday experience proves me this, as does my logical thinking . You can't "invent" Economy.

Please read your Mises, "Human Action" and "Socialism".

 

[Marc]

Hi everyone,

This is my first post. I've been watching a video called Money Masters:

http://video.google.com/videoplay?docid=-515319560256183936&q=money+masters&total=1697&start=0&num=10&so=0&type=search&plindex=0

I suggest everyone watch it if you want to try understanding the monetary system in detail.

At 1:27 "you can fast forward it with the slider" they discuss a little about the gold standard. It turns out silver is better as a form of currency because it is much harder to control. There is 15 times as much silver out there as opposed to gold.

Ok it seems that a standard using gold and silver is good. However the international bankers have assasinated Lincold and Kennedy it seems when they introduced a currency based on silver. The video points out that the bankers who owned the gold - would be able to still control the economy and wanted a gold standard. So where would the gold and silver bullion come from with the case of Ron Paul to create this competing currency to the dollar? And if from big banks, wouldn't this be bad?

Marc

 

[Kregener]

I was going to post a response, but this one has been drawn and quartered and hung up on pikes at the city gates...

 

[Marc]

Heh,

I am quoting the video if you watch it. It's a fair question - actually in one Ron Paul video where he talks of the gold standard he mentions the federal reserve may in fact own most of the gold stocks as collateral for our debts. So if we go with a gold standard and they own the gold, isn't this a delema? Ok, just watch this video and fast forward to about 3:30. This is what I am talking about direct from Ron Paul himself.

http://www.youtube.com/watch?v=styYIG-fiEc

Here is the wikipedia entry concerning the ownership of the largest gold stocks in the US:

"The Federal Reserve Bank of New York maintains a vault that lies 26 meters (86 ft) below sea level, resting on Manhattan bedrock. By 1927, the vault contained ten percent of the world's official gold reserves. Currently, it is reputedly the largest gold repository in the world (though this cannot be confirmed as Swiss Banks do not report their gold stocks). In the US, the FRBNY's stocks are larger even than Fort Knox, it is 25 meters (80 ft) beneath the street and holds approx 5,000 megagrams (tonnes) of gold bullion ($90 billion at 2007 prices). The gold is owned by many foreign nations, central banks and international organizations. The Federal Reserve Bank does not own the gold but serves as guardian of the precious metal, which it "protects" at no charge as a gesture of good will to other nations. Free tours of the vault are available to the public."

Marc

 

[Gilby]

So if we go with a gold standard and they own the gold, isn't this a delema?

The government doesn't need to own any gold to return to the constitutionally limited powers they have, which is only to coin Money. All they need to do it buy gold, mint them into coins, and then sell them at a price that covers their expenses to mint them. They have no other powers when it comes to issuing money.