Need Help Debating Gold Standard

[Zippyjuan]

Let me make it easier for you. On a gold standard, money and gold are convertable to each other at a fixed ratio. When you buy something from someone else, you give them money for it- be this a person or a country. They can say "I want to trade my dollars for your gold" which they are allowed to under the gold standard. Now you have the goods and they have the gold. You (or your country) have less gold. If you can sell something else, (to them or somebody else) then you can get more money/ gold. If you are in a situation where you are buying more stuff than you are selling, you have less gold and money. This is a net gold outflow- the subject of the question posted asking if it was possible.

This condition does not have to be perminant nor does it necessarily mean you lose all of your gold, but it does reduce your gold reserves and thus if you want to maintian the same gold/ money ratio you have to reduce your money supply which leads to deflation and slows your economy.

I know many do not like Wiki as a source, but it just repeats what the two other sources I have already quoted say: http://en.wikipedia.org/wiki/Bretton_Woods_system

Imbalances in international trade were theoretically rectified automatically by the gold standard. A country with a deficit would have depleted gold reserves and would thus have to reduce its money supply. The resulting fall in demand would reduce imports and the lowering of prices would boost exports; thus the deficit would be rectified. Any country experiencing inflation would lose gold and therefore would have a decrease in the amount of money available to spend. This decrease in the amount of money would act to reduce the inflationary pressure.

Normally, losing gold due to a trade deficit would lead to a reduction in the supply of money and lower incomes- meaning less money to spend on imports and thus the trade deficit would eventually move the other way. The other country would have more money and thus be able to buy more of your goods- again, helping reduce the trade deficit. I posted the oil case as an example of when this mechanism could fail and the trade deficit continue- leading to more severe depletions of your gold reserves.


This article at Mises.org agrees that gold flows towards a country with a trade surplus: http://mises.org/story/1955

To better understand why a trade deficit is widely viewed as "dangerous," it is useful to look briefly at the period when the gold standard prevailed. Under such a monetary regime, countries' trade balances tended to be zero, with temporary trade surpluses or deficits ironed out over time. For example, think of a country accumulating a trade surplus during this period. It would receive gold inflows from importing countries. The increase in the domestic stock of gold, in turn, would make the domestic money supply "looser," thereby stimulating output and employment.

The rise in the domestic money supply would then translate, sooner or later, into higher domestic prices, which caused exported goods to be less price competitive and imported ones more attractive. As a result, a country's exports declined and imports rose. The trade balance "deteriorated," that is to say the surplus declined (and even became negative), as did the stock of domestic gold (i.e., money); the latter declined to the same extent to which the trade surplus declined. So over time, a country's trade balance tended to follow along the line of a "zero mean reverting" process.

This is not inconsistant with what I have been saying.

To gain back the gold you lost during this period, you would have to run your own trade surplus or dig for or buy more gold from someone else. Otherwise the gold loss is permenant.

 

[rockandrollsouls]

Let me make it easier for you. On a gold standard, money and gold are convertable to each other at a fixed ratio. When you buy something from someone else, you give them money for it- be this a person or a country. They can say "I want to trade my dollars for your gold" which they are allowed to under the gold standard. Now you have the goods and they have the gold. You (or your country) have less gold. If you can sell something else, (to them or somebody else) then you can get more money/ gold. If you are in a situation where you are buying more stuff than you are selling, you have less gold and money. This is a net gold outflow- the subject of the question posted asking if it was possible.

This condition does not have to be perminant nor does it necessarily mean you lose all of your gold, but it does reduce your gold reserves and thus if you want to maintian the same gold/ money ratio you have to reduce your money supply which leads to deflation and slows your economy.

I know many do not like Wiki as a source, but it just repeats what the two other sources I have already quoted say: http://en.wikipedia.org/wiki/Bretton_Woods_system


Normally, losing gold due to a trade deficit would lead to a reduction in the supply of money and lower incomes- meaning less money to spend on imports and thus the trade deficit would eventually move the other way. The other country would have more money and thus be able to buy more of your goods- again, helping reduce the trade deficit. I posted the oil case as an example of when this mechanism could fail and the trade deficit continue- leading to more severe depletions of your gold reserves.


This article at Mises.org agrees that gold flows towards a country with a trade surplus: http://mises.org/story/1955


This is not inconsistant with what I have been saying.

To gain back the gold you lost during this period, you would have to run your own trade surplus or dig for or buy more gold from someone else. Otherwise the gold loss is permenant.

Zippy, you are vastly confused. Please research a gold standard and a gold exchange standard.

Also, that article says nothing about the "flow of gold." You might want to read whats written rather than manipulating it to fit your view.

 

[Zippyjuan]

So far, I have provided links and sources and quotes. All you have done is to say that you disagree. Provide your evidence and point out where I am incorrect. I have requested that twice before but I guess you did not read the whole thing. Or chose to ignore it which is fine. You do not seem to have even read the highlighted portion of the latest link. Your comment:

that article says nothing about the "flow of gold.

The article says:

For example, think of a country accumulating a trade surplus during this period. It would receive gold inflows from importing countries.

"Gold inflows" means that gold flows from the country in deficit to the country with a surplus. I think you need to do some more studying. It is discussing a trade surplus (the opposing partner would have a trade deficit) during a gold standard period. Please read it. It does not say "gold exchange standard" in the piece. It says "when the gold standard prevailed". The earlier question was about gold outflows during a gold standard and this article supports that.

 

[rockandrollsouls]

Zippy, you still haven't even distinguished gold standard from a gold exchange standard. I've identified this pages back, and all you can continue to say is "gold inflow/gold outflow."

There's alot more to it than just what you are mentioning.

 

[Zippyjuan]

OK so the question now seems to be just what is a gold standard. Some people say that the US was on a gold standard until the Great Depression. Some say we were still on a gold standard until Nixon closed the gold window in 1972. Some say we have never had a true gold standard. What do you consider to be a gold standard?

Is it only using gold for transactions?
Is it money defined as a specific amout of gold?
Can money be traded in for gold?
Can money be considered to be backed by gold if it cannot be exchanged for gold?
If you sell something to another country and the are paid in dollars can they trade their money for gold like a resident of the country could?
If not, is the gold standard only for domestic transations?

The articles I linked to did not specify. Or do they? They say "gold standard" not "gold exchange standard".

Some definitions of a gold standard: http://www.answers.com/topic/gold-standard

My second example certainly cites a period when there was a gold standard- not a gold exchange standard- and illustrates how gold could flow from a country in a trade deficit to a country with a surplus. The Mises article is also discussing a gold standard (not gold exchange standard). It also said that if you have a trade deficit that this could lead to a country losing gold reserves to the country it has a surplus with.

Again, if this is incorrect, I invite you to show the errors. I am not trying to discuss all the implications of a gold standard- only one question posed earlier- how can a country lose gold reserves under a gold standard? (see post #5)

From your post in the other thread:

When you talk about reserves I'd be led to think you mean exchange standard.

I just have a question. Are there no reserves under a traditional gold standard? I thought that was the point. Under a gold exchange standard, one or two countries have gold reserves and other currencies are pegged to them- or am I misunderstanding?