So I’ve been wondering about this for a while, and I still haven’t figured it out. Perhaps one of you folks can figure it out.
In our current economic system, the dollar is not a reserve note corresponding to some quantity of gold, and the market price of the total amount of gold in the United States government’s possession does not equal the face value of dollar bills currently in circulation by a wide margin. If the government were to try to return to a gold standard, as I understand it, they would need to possess enough gold to back all of the dollar bills in circulation. But they don’t. So, then, how could the United States return to a gold standard? That is, how would it even make sense?
The environmental effects of suddenly digging for massive amounts of gold could ruin many rainforests.
George Reisman covers this in The Path to Sound Money.
Why would anybody suddenly dig for massive amounts of gold? If anybody knows where massive amounts of gold are then why aren’t they already digging?
I think you are assuming the price of gold will suddenly change; but that depends on the initial exchange rate between gold and the dollar. If the gold price is allowed to float freely then the demand for gold mining should not be affected.
Wasn’t this, or something similar, Milton Friedman’s argument (or one of them anyway) against the gold standard?
I don’t really think the government could “do” anything to restore the gold standard though could it? The only possible way to return to a gold standard would simply involve removing the interventions that currently stop gold from being money and allow it to emerge on the market once more as the accepted medium of exchange.
There are two solutions offered that will take us toward a gold standard:
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Repeal legal tender laws and allow competing currencies.
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Have the Federal Reserve stop creating money.
The competing currencies if backed by commodities will force the Federal Reserve to limit its output of money as people will use the stronger currencies. Both Walmart and Home Depot stated that they would accept Liberty Dollars scaring the hell out of the Federal Reserve.
The Federal Reserve has the money monopoly. So if it stops creating money then the economy is on a gold standard of sorts.
In my view number 2 is more important as it will allow people to estimate the value of money in the future and thus
DBratton, the link doesn’t work…were you referring to his lecture by that title? If so, is there a particular part of the lecture you had in mind (I would prefer to not have to listen to the whole thing)? Or could you summarize his basic point?
Giles, I wasn’t aware of Friedman’s argument, though it’s nice to be following in his footsteps! I agree that removing barriers to monetary competition would probably be the best way to move away from unsound money, but there would be no guarantee that gold would end up winning out in that battle. Who really knows! I guess my question was directed at the folks who believe that the government should somehow implement the gold standard as a matter of public policy (and I don’t know how it could be done either!). (Billot, I think this responds to you as well.)
My bad. Try The Path to Sound Money.
Summarize Reisman? You are asking a lot. And it’s been a while since I heard it.
He covers the proposed solutions of Mises and Rothbard and points out problems with both. His own which is essentially to circulate gold at its market value. But that too introduces transitional problems such as an initial inflow of gold followed by an outflow as other countries also adopt a gold standard. There is also a problem with debt contracts made in the old currency which debtors will not want to pay in gold. And there is the issue of how to get the public to begin using gold and how to withdraw the paper currency in an orderly fashion since they will both circulate side by side for a while.
Ah hah! Thank you, sir; I’ll check it out when I get a chance.