Why not, instead of a gold standard, simply outlaw any further expansion of the money supply?
Well, the most obvious problem is getting the politicians to pass that law.
What would have a better chance at getting passed: The gold standard, or no more expansion of the money supply?
Miksirhc, I like the idea. But wouldn’t the gold standard guarantee that no money was printed better than a law saying: no money should be printed? Competing currencies would allow people to keep the printing press-running politicians honest/responsible.
Only so long as any notes printed in excess of specie are regarded as fraudulent. Show me the government that is capable of acting so justly, and I’ll eat my keyboard.
How might this be accomplished? Asking the government to reform itself is like asking your local mafia boss to please stop being so violent.
well… that would obviously be better than what we have now. but the two problems I have with this is that the temptation will always be there to print more money. the idea of the gold standard is that they do not actually have the ability to make more money out of thin air. so the theory is that eventually they will end up printing more money eventually.
but the main problem with this is that the paper has no value. you need to have something of real value in order to have honest trade. why would i want to accept paper when i could accept real goods or a medium of exchange (such as gold or silver) that actually has real value. The only way that this could work is if they forced people to use the paper money.
you’re correct in the sense that we could basically pick anything to be the medium of exchange. if we all agreed on something that had a fixed supply, i suppose it would work. but why would we all agree on a worthless piece of paper? just because you have a fixed supply of something, doesn’t make it worth anything. honest trade requires the exchange of something with real value, and there is no reason why we would give a piece of paper value unless everyone agreed or we were forced to use it.
I agree. Perhaps the most practical thing would be an oil standard.
A currency based upon a consumable good such as oil would be highly inflationary even if the quantity of notes did not increase.
If you wanted to have a system of currency based on valuable metals couldn’t you say base the first 100 billion dollars on gold and after that if you wanted to print more currency base the next 50 billion on silver, the next 30 billion on copper, etc? There are other valuable and useful metals out there besides gold.
I think that the problem that would exist is a decreed relationship between the different specie forms. If you wanted to not have actual hard money, but specie backed notes, then the notes shouldn’t say dollars. They should be denoted in weight and specie. So you would have a 1 oz gold note, and a 1 oz copper note, and the relationship between them would be dependant on market forces. So in one area you might have 10 coppers to a gold, whereas in a area where copper was abundant and gold was scarce you might have 15 coppers to a gold. I believe that for multiple specie to work, you cannot force a relationship between the species.
Of course there is always the problem that the person printing the notes would fraudulently issue unbacked notes. But the government wouldn’t issue fraudulent currency, would they? [^o)]
Fiat money exists because it makes it easier for the oligarchies to plunder their subjects. No politician will pass a law crippling fiat money’s usefulness as a plundering tool.
Besides, that’s socialist thinking. Commodity money is the natural system, that’s why it was outlawed. The solution is not to pass yet another law to patch a corrupt system, but to repeal all laws ‘regulating’ the financial system.
Wouldn’t do anything.
The Fed creates money in order to fiance the federal government’s deficits, but thats not the main credit expansion. We live under a system of fractional reserve. The amount of money available is determined by the bank accounts at federal reserve banks. Any dollar in an account there is multiplied 10 fold. Any withdrawals from those accounts will similarly reduce the money supply by a power of 10. The Federal Reserve would also progressively lower reserve requirements in order to expand the money supply.
Plus, Boom-Bust will occur in ever fractional reserve system; gold, fiat, or static fiat.
The best policy by far would be to legalize private market currencies.
Beat me to it.
In my opinion, a law saying “Let people use the currency they wish” is a lot better and easier to pass than “Let’s enact the gold standard” or “zero-inflation policy”.
I hear the common argument against letting people use the currency they desire is efficiency concerns (due to different currencies and non-uniform use). So, the solution to efficiency is more government?
And this is such a weak argument. First of all, we already have hundreds of different currencies in the world. Second of all, the U.S. dollar has generally been accepted the world over because it has been the one of the most stable currencies. I can only imagine how stable of a currency the market could produce.
Frankly, I do not see any hard commodity that exists that would be preferable to gold. Obviously, the market should choose its commodity, my belief is that gold would be rapidly adopted as the medium of exchange in a totally free currency market. The dollar should be discarded and the gold units should strictly be by weight. In a world wide gold economy, you would never have to worry about currency depreciation, since units of weight would be eternally fixed, so there would never be any international currency fluctuations.
As other posters mentioned, 100% reserve banking MUST be part of the deal.
Maybe I’m panicky, but I’m trying to get away from relying on the dollar. I just don’t think it will be worth a damn in a few years. Hell, maybe a few months. Of course, I can’t escape the dollar. As long as business will accept nothing but the dollar, I’m stuck.
That being said, my friends and I often accept goods if one of us is strapped for cash and thus can’t repay a small debt in a timely manner. (If you ever need my services, one to two hours of labor will run you a twelve pack of beer or two packs of cigarettes or about 30 rounds of 7.62x39 or 7.62x54r.) God help me, I am doing all I can to foster bartering among my inner circle while trying to find a suitable commodity, other than ammunition, that we’d all be willing to accept. It’s hard work.
Seriousness aside, I can’t speak with the level of economic understanding as the other posters here. My only reservation about the “whatever currency you want” system is this: say that a friend has incurred a debt to me, and offers to repay me with a goat. For me, a goat is worthless. I wouldn’t accept it because goats, being able to reproduce, are inherently inflationary. But at least with a sound, gold- or other precious metal-backed currency, or god knows what, we can all agree on something approaching common value.
So yes, I would surmise that some standard currency is acceptable if only because it facilitates voluntary exchanges - but people who are willing to accept anything else, they should never be deterred from or punished for doing so. If for nothing else, the government can’t easily tax cigarettes, beer, bullets and billy-goats.
Typically, when you enter into a contract to loan money, you specify the collateral both sides of the party agree on, or the mode of payment you agree on.
But speaking of other currencies to try to use in your inner-circle, there ‘used’ to be Liberty Dollars (technically, they are still around, but the FEDs are trying to shut them down; I’ve been considering trying to find some Liberty Dollars so I could enter in on the class action lawsuit). There might be others, at least I know of some private gold banks, like Pecunix.
I hold about $20.00 in said Liberty Dollar warehouse receipts. So I am a minor part of said lawsuit. 
Isnt the increase of the money supply necessary to achieve price stability? Just so that it doesnt encompass actual gdp growth.