The Gold Standard?

[Truth-Bringer]

Inflation can also occur with commodity money as it did in France:

The paper shows that commodity money can be inflated similarly to fiat money through repeated debasements, which act like devaluations.

Note that the inflation occurred because the commodity was DEBASED - usually this occurs from government action, as it did in ancient Rome. When the Roman government has raised taxes as much as it could without setting off a revolution, it still wanted to spend and spend, so it started clipping the edges off the silver coins and melting them into new coins. This is where reeding comes from - the grooved edges in coins that prove it wasn't clipped.

The people weren't entirely stupid though, so they began charging more for goods and services, because there wasn't as much silver or gold in the coins. And therefore you got price inflation...

Reasons for the fall of the Roman Empire

Inflation

"The roman economy suffered from inflation (an increase in prices) beginning after the reign of Marcus Aurelius. Once the Romans stopped conquering new lands, the flow of gold into the Roman economy decreased. Yet much gold was being spent by the romans to pay for luxury items. This meant that there was less gold to use in coins. As the amount of gold used in coins decreased, the coins became less valuable. To make up for this loss in value, merchants raised the prices on the goods they sold. Many people stopped using coins and began to barter to get what they needed. Eventually, salaries had to be paid in food and clothing, and taxes were collected in fruits and vegetables."

From the speach you link to:

Keep in mind, Zippy, there is a conflict of interest when Fed officials argue in favor of a system that supports central banking and fiat currency. I used the source because when they agree with someone who diametrically opposes them, as Friedman did, it's rather conclusive on that issue.

 

[Gilby]

The world has never seen any extended period of zero inflation.

Since the beginning of the USA and before 1913, the prices of goods and services went down. That what happens in a prosperous economy. This was an extended period of no inflation.

In our history, the last 20 years have had the lowest and most stable inflation we have seen in our economy.

If you believe the government numbers. The way they compute the CPI now is much different than it was in 1980. If the government computed inflation today the same way they did it in 1980, then we would have 12% inflation today, and over the past 10 years, the inflation rate would have been 8% or more for each year.

Regardless, inflation is a way to steal from the people, plus it sends many false signals to the market leading tomalinvestments, which has resulted in the dot com bubble, and the housing bubble.

 

[Zippyjuan]

Yes, inflation sounds like an easy idea, but it can be difficult to calculate. One problem is technical inovation. Maybe the average TV in 1959 was say $250 (I am making up numbers here for illustrative purposes) and in 2000 perhaps the average TV costs $1500. Did the price of TVs go up by a factor of six? The TV of 1959 was black and white and you probably got four channels- there were 13 numbers for channels, and the screen was 15 inches. The 2000 TV is color, stereo or even multi channel sound, and say a 40 inch screen. Can you use the two to see how much more it costs to buy a TV in 2000 vs in 1959? New products are available for consumers in 2000 which were not available in 1959. Some items from 1959 are no longer available.

How about comparing the price of an average house? 1959 average was probably a two or three bedroom with one car garage for say $10,000. In 2000, it is a five bedroom house with a two car garage and costs $300,000. Can we compare those houses and say that the price of housing has gone up by thirty times? The house is bigger too.

Then you not only have prices going up but incomes are rising too. Median income in 2000 was about $40,000 a year. People must be better off and not worse off since they have been able to purchase more and better things than the previous generations have.

It is not a number which is easily found, but I like to look at how long it takes somebody to work to be able to buy a certain item. If you have to work longer to buy the same thing, then you are worse off. If you do not have to work as long to buy the same thing, you are better off.

I was looking for some inflation figures for the US prior to 1913. Perhaps you can point me in the direction of some. Prices going down usually means that incomes are going down too. The real question is what happened to buying power.

OK- I found a chart on Wiki. The severe oscilations in prices prior to 1913 suggest that the economy was not a prosperous one but one that vacilated between boom and bust very quickly. Note how much lower and smoother the graph becomes by comparison after the Great Depression (aside from WWII and the Vietnam war).
www.en.wikipedia.org/wiki/Image:US_Historical_Inflation_Ancient.svg

 

[Madsci30]

I found this movie to be interesting and educational

http://video.google.com/videoplay?docid=-515319560256183936

 

[Gilby]

OK- I found a chart on Wiki. The severe oscilations in prices prior to 1913 suggest that the economy was not a prosperous one but one that vacilated between boom and bust very quickly. Note how much lower and smoother the graph becomes by comparison after the Great Depression (aside from WWII and the Vietnam war).
www.en.wikipedia.org/wiki/Image:US_Historical_Inflation_Ancient.svg

The 1800s were not free of government manipulation of the money supply. In the civil war, they printed a lot of bills of credit. That's why you see a big blue spike in the 1860s. Further, fluctuations may not be a bad thing, if it was market caused. If I invented a new way to get electricity that made electricity cost half as much, you'd see a huge and brief red spike. I think we can agree that would be good for most people. Once that new price takes full effect, the graph resets and we're waiting for the next disruption. A blue spike may occur if a commonly used resource was seeing higher demand or reduced supply. Having this reflected in the price is not a bad thing, as it helps people not to malinvest by buying too much of it. These are what the free market would show for the red and blue. Both send good signals to the market. Keep in mind, in a free market, there is no such thing as inflation or deflation.

After 1913, while you point out that there are less fluctuations, is that a good thing? With central banking manipulating the money supply, red means a deflation, and blue means inflation. Both are bad as they aren't natural market signals. If I invented a way to cut the cost of energy in half, central bankers would inflate the money supply. The question is, why should the government be the one that benefits from innovation instead of the whole market? Do we benefit from the government stabilizing prices after an innovation that would make things less expensive?

 

[CUnknown]

I think it's a mistake to think that our economy hasn't been doing amazingly well for the past 30 years (80s, 90s, 00s). Inflation was relatively low and constant, the markets were booming, the recessions few and short.

Historians will look back on those years and see them as the peak of human civilization, I have no doubt. At least economically speaking.

However, in order to do this, we have had massive deficit spending. Obviously, if you spend more money than you have, and the bills haven't yet come due, you're going to be be pretty happy with life. So, don't doubt the government numbers in this case -- when they say that inflation was low in the 80s-00s, believe it. When they say that everything was going right during those years, believe it. When they say that "they" (including the Fed) had a lot to do with the success, believe it.

But when they say that, if you leave us in charge, the next decades will match the previous ones, don't believe it for a second! They've been selling off our future to finance their wild parties of the past. We're going to have to pay the bills for their extravagant lifestyle, and it's going to suck.

 

[Liberté]

Thank you for the link.

We had gold coins until 1933 and used silver ones until 1964, but from the graph on this page I notice that except for the 1970's, inflation has been much better since we quit using those metals for coins. http://www.gocurrency.com/articles/stories-inflation.htm so obviously a gold standard in and of itself does not reduce the risks of inflation. There is the cost of producing gold coins- even a penny is no longer made from copper because it costs more than a cent to make. I don't think Mr Paul intends to actually have physical gold coins. Unless you are talking say a half ounce $500 gold piece which is impractical. The largest paper note today is the $100 bill.

I think that the last 20 years or so low inflation has been the careful control of the money supply by Fed Chairman Alan Greenspan. Unfortunately his successor Ben Bernanke seems to be using more inflationary measures by pumping up the supply to try to ease the financial crunch of the subprime lending crisis.

A little more research shows that the US has gold reserves worth about $190 billion at $739 an ounce ($23 million a ton times 8133 tons according to Wikipedia http://en.wikipedia.org/wiki/Official_gold_reserves )- less than two years of expenses in the Iraq and Afghanistan wars. Could we really use this to back our currency? The countries that use the Euro have more gold than we do so the Euro would still be worth more than a dollar.

It adds that or about one year of our current government spending. All the gold ever dug up in the world.

Please, zippyjaun do not cite Wikipedia... ugh! If you want to be a scholar go to some real research. No President could abolish the Federal Reserve Bank or create an alternative currency... the people and congress would never stand for it. If you are worried about the U.S. Dollar you can: Buy gold, platinum, or silver (any metal really if you like) & (yes, you will pay capital gains tax, eventually), invest in another currency, buy Euro's if you like... or wait a few more years and then you can switch to the Amero.

Why would anyone in our government want a strong dollar? How would that benefit an Amero? ,

 

[Gilby]

I think it's a mistake to think that our economy hasn't been doing amazingly well for the past 30 years (80s, 90s, 00s). Inflation was relatively low and constant, the markets were booming, the recessions few and short.

Historians will look back on those years and see them as the peak of human civilization, I have no doubt. At least economically speaking.

Just like the roaring 20s!

 

[CUnknown]

Liberte said:

No President could abolish the Federal Reserve Bank or create an alternative currency... the people and congress would never stand for it.

The American people wouldn't be against it so much! But, yeah I agree that Congress wouldn't allow it.

Lol, Gilby!

Just like the roaring 20s!

Indeed. I agree, I think there's another Great Depression on the horizon. A "market correction" if you will.

 

[Luis]

Liberte said:

The American people wouldn't be against it so much! But, yeah I agree that Congress wouldn't allow it.

Lol, Gilby!

Indeed. I agree, I think there's another Great Depression on the horizon. A "market correction" if you will.

The Federal Reserve System is bankrupt. The President can invoke the Fundamental Law of our system of government, the Preamble to the US Constitution, and place the FED and the federal and state licensed banks under reorganization protection and bankruptcy proceedings.

Speculative debts can be written off and the licensed banks saved including the FED but with altered and diminished powers. Then we go back to the American Credit System as devised by Alexander Hamilton and employed by A. Lincoln and F.D. Roosevelt, in times of declared war to be sure, but this is an emergency.

The economy is crashing, people are losing their jobs, mortgages are being foreclosed, families are being evicted, hyper-inflation is starting. We cannot afford to do nothing.

Libertarianism? It's an ideal! It cannot get us out of the worst financial and monetary crisis and looming economic crash in human history. After we end the financial-monetary crisis and reverse the accelerating economic downturn we can begin implementing policies to transition toward the Libertarian ideal.

What other choice do we have?

 

[CUnknown]

I agree Luis. I just think that the Democrats and neo-cons in Congress won't allow the closing of the Fed. Maybe you're right and the President can do it by himself, but I have a feeling it would require an action by Congress.

 

[Truth-Bringer]

The 1800s were not free of government manipulation of the money supply. In the civil war, they printed lot of bills of credit. That's why you see a big blue spike in the 1860s. Further, fluctuations may not be a bad thing, it was market caused. If I invented a new way to get electricity that made electricity cost half as much, you'd see a huge and brief red spike. I think we can agree that would be good for most people. Once that new price takes full effect, the graph resets and we're waiting for the next disruption. A blue spike may occur is a commonly used resource was seeing higher demand or reduced supply. Having this reflected in the price is not a bad thing, as it helps people not to malinvest by buying too much of it. These are what the free market would show for the red and blue. Both send good signals to the market. Keep in mind, in a free market, there is no such thing as inflation or deflation.

After 1913, while you point out that there are less fluctuations, is that a good thing? With central banking manipulating the money supply, red means a deflation, and blue means inflation. Both are bad as they aren't natural market signals. If I invented a way to cut the cost of energy in half, central bankers would inflate the money supply. The question is, why should the government be the one that benefits from innovation instead of the whole market? Do we benefit from the government stabilizing prices after an innovation that would make things less expensive?

QFT

Gilby rocks

 

[Zippyjuan]

Please, zippyjaun do not cite Wikipedia... ugh! If you want to be a scholar go to some real research. No President could abolish the Federal Reserve Bank or create an alternative currency... the people and congress would never stand for it. If you are worried about the U.S. Dollar you can: Buy gold, platinum, or silver (any metal really if you like) & (yes, you will pay capital gains tax, eventually), invest in another currency, buy Euro's if you like... or wait a few more years and then you can switch to the Amero.

Why would anyone in our government want a strong dollar? How would that benefit an Amero? ,

Actually you are supporting what I have been trying to say. Inflation has been lower and economic growth higher and standards of living more improved under the Fed than other systems we have tried- including a gold standard. The Fed is not bankrupt- the government is. Going to a gold standard will not majically make anything get any better. Policies- not the money- need to change.

 

[therealjjj77]

Actually you are supporting what I have been trying to say. Inflation has been lower and economic growth higher and standards of living more improved under the Fed than other systems we have tried- including a gold standard. The Fed is not bankrupt- the government is. Going to a gold standard will not majically make anything get any better. Policies- not the money- need to change.

It's a lot more complicated then the education system or media would portray.

First, one needs to understand that the FED created the Great Depression by selling 24 hour call loans that only required 25% down. This inflated the currency and went on all through the 1920s. These loans they then called back in all at once and also they pulled out as much federal reserve notes out of our society as they could. Then when people had no federal reserve notes to engage in commerce with, they were starting to use gold for commerce. Since the Federal Reserve saw the threat of the economy improving, they had the president outlaw gold and had everyone hand their gold in.

Then that socialist of a president was the only one that could give out the money for people to do stupid stuff like dig holes and fill them back up. What a wonderful "New Deal". Really, all we needed was to have a means of exchange back in place.

The gold standard was a wonderful thing and worked very well, until the Federal Reserve got put in place in 1913 and devised to take America's gold.

Since we're on this subject, let's look at the Constitution:

Article 1 Section 8
"The Congress shall have Power... To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;"

Article 1 Section 10
"No State shall... coin Money... (or) make any Thing but gold and silver Coin a Tender in Payment of Debts;"

Let's break this down:

"The Congress shall have Power"
This only gives authority to Congress to have this Power, but does bar the Citizen from forming their own coin as long as it is not in the likeness of the current Coin of the United State(this unConstitutional barring of alternative currencies is what makes the Federal Reserve a monopoly as well as declaring their notes to be legal tender).

"To coin Money"
This means they have the authority to coin(not print) money and this is what established the U.S. Mint. This is very Constitutional. Using a valuable metal and fixing symbols on it so as to have a currency that people can CHOOSE to use.

"regulate the Value thereof, and of foreign Coin"
This means that they could determine how many dollars that coin would be called. So a 1 oz gold coin might be regulated to be 20 dollars. This means that they would affix a "Twenty D" or "$20" print on that coin. Check out this website so you can see that there were many different sizes and metal types used based on the value it was to have:

http://www.coinfacts.com/

Also, the last statement, "and of foreign Coin" meant that Congress could determine the exchange rate for foreign coins.

"and fix the Standard of Weights and Measures;"
This means that Congress is the one who defines what an "ounce" is so that everyone had to lawfully set their weights with that Standard established by Congress. One problem that happened in the past with coin currencies is that people would chip off pieces of the coins and then use that to make more, expanding the money supply. This prevented this counterfeiting from happening. Everyone had a scale to measure the weight of the coins to ensure they were still proper coinage. It stopped people from cheating, basically.

As far as expanding the money supply is concerned, this can easily be done through people who mined for gold, would then take their gold or silver to a gold smith to refine it and then to the nearest U.S. Mint to be bought for proper coinage. If the money supply gets low and deflation occurs, then there is more incentive to mine for gold. And so you have a complete circle which is essentially flawless. Until you get something like the Federal Reserve that pushes laws through to make them a monopoly and charge interest on our goods so we can use their means of exchange.

You see, it is the goods that have value. Not the money. The money is worthless. And so they are taxing you in interest on your goods as you engage in commerce.

 

[Zippyjuan]

the threat of the economy improving

Why would the Fed not want the economy to improve? I am not saying that the Fed and the banks did not make mistakes which compounded the problems because they certainly did, but there was no conspiracy to drive the United States into a depression or to extend it. When they should have been expanding the money supply, they allowed it to contract. When people started trying to get all their money out of the banks and convert it into gold, the Fed did not provide the banks with the money to meet the withdrawl demands (that is why there is a reserve requirement today- forcing banks to hold a certain percent of their deposits instead of loaning out all of them). The depression was world- wide. We had depressions before and after the creation of the Fed but no significant ones in the last 60 years.
http://www.amatecon.com/gd/gdoverview.html

There are six depressions in American history that are thought to be the worst since detailed records of economic data started to be kept (around 1867), 1873-79, 1893-97 (actually two contractions separated by an incomplete expansion), 1907-08, 1920-21, 1929-33, and 1937-38.

The Federal Reserve Board
The Federal Reserve Board was created in 1913. Ostensibly, it was to act as the lender of last resort to prevent bank panics like the one that had occurred in 1907. Although some conspiracy minded folks might weave elaborate tales regarding its creation, the reason is rather straightforward. The big banks simply wanted government protection and bailouts and were more than willing to endure a little government regulation in return. Like the Interstate Commerce Commission before it, the Fed would be staffed with people from the industry that it was supposedly a watchdog over and who would most likely feel that what's good for banks is good for America. Throughout the years preceding the Stock Market crash, the Fed did just that. The Fed set below market interest rates and low reserve requirements that all favored the big banks. The money supply actual increased by about 60% during this time. The phrase "buying on margin" entered the American vocabulary at this time as more and more Americans over-extended themselves to take advantage of the soaring stock market.
So what went wrong? It was in 1929 that the Fed realized that it could not sustain its current policy. When it started to raise interest rates, the whole house of cards collapsed. The Stock Market crashed and the bank panics began. But what would make this depression worse than all the rest? There was a depression in 1921, but no one remembers that one. What was different? As we'll see, there were a number of policies enacted over the next few years that, from both a free market and a Keynesian perspective, would do nothing to help America recover and do everything to exacerbate the depression. Over the next few years, the Fed would allow the money supply to contract by a third.

A free market advocate's response would be to do nothing and let the market work itself out. Ideally, what would happen is that businesses would realize that no one was buying and lower prices accordingly until people started buying again. The same thing would happen with labor and capital. Prices would be lowered until they reached the market clearing price and the economy would recover. Keynesians claim that some prices or wages will be "sticky" and may take a long time to reach their market clearing price, causing needless suffering along the way. The Keynesian prescription is two-fold. First, the Fed should inflate the money supply. Keynes even whimsically suggested leaving jars of money around where enterprising young boys could find them. However, this may not work if the depression is severe enough to enter what is called a liquidity trap. Under this scenario, no amount of running the treasury's printing press will restore order. In this case, the government should simply start spending money itself, thus "priming the pump" so to speak. As we'll see, Hoover (and later FDR) implemented a mixture of policies, some of which were Keynesian (increased government spending) and some of which were not (price supports and other attempts to keep prices and wages high).

 

[Gilby]

"The Congress shall have Power"
This only gives authority to Congress to have this Power, but does bar the Citizen from forming their own coin as long as it is not in the likeness of the current Coin of the United State(this unConstitutional barring of alternative currencies is what makes the Federal Reserve a monopoly as well as declaring their notes to be legal tender).

The constitution cannot bar the people from doing anything. It's not a contract that they are signers of. They may benefit from it, but they are not bound by it. We can coin our own money in the private sector. What we cannot do is try to copy their coins and commit fraud against others by misrepresenting our coins as being theirs.

 

[Dave Pedersen]

Gold can be cornered too easily, especially since we were robbed of all our gold from Fort Knox. The gold which was collected there was illegally confiscated from the American people. Then it was quietly spirited away as guards paid to keep our stolen property safe were instead keeping the theft safe from being known by we the people.

There is nothing wrong with a silver standard. The wild swings which did occur were forced upon an otherwise stable currency supply by the very people who wished to establish a central bank. They used the newspapers combined with artificial instabilities to convince we the people that the gold standard was unstable and that a central bank would be the right solution.

 

[Truth-Bringer]

There is nothing wrong with a silver standard. The wild swings which did occur were forced upon an otherwise stable currency supply by the very people who wished to establish a central bank. They used the newspapers combined with artificial instabilities to convince we the people that the gold standard was unstable and that a central bank would be the right solution.

QFT

 

[Truth Warrior]

What Has Government Done to Our Money?
http://www.mises.org/rothbard/rothmoney.pdf

 

[therealjjj77]

The constitution cannot bar the people from doing anything. It's not a contract that they are signers of. They may benefit from it, but they are not bound by it. We can coin our own money in the private sector. What we cannot do is try to copy their coins and commit fraud against others by misrepresenting our coins as being theirs.

I never said it could bar citizens. =P However, it does give provisions for fighting against counterfeiting the CURRENT coin of the U.S.