When an American exporter sells his goods to a British importer he gets paid in British
pounds. But he cannot use British pounds to pay the
wages of his workers, to buy his wife’s clothes or to buy theater
tickets. For all these purposes he needs American dollars.
Therefore his British pounds are of no use to him unless he
either uses them himself to buy British goods or sells them
(through his bank or other agent) to some American importer
who wishes to buy british goods.
Is this true?
For the most part, yes. this is true. Sure, you could offer to pay your employees in Pounds Sterling, but by law (in the U.S.) with few exceptions, all debts can be payed in USD, and all vendors are obligated to accept USD (and nothing else).
So even if your employees accepted Pounds Sterling, they’dhave a damn difficult time spending them on anything, since nobody accepts them in exchange.
Yes.
What would happen if we had a gold standard? Would we be reluctant to import goods, as gold would leave the nation?
There is no “we”. Only individuals act.
Can you expand on that? How would a country that reverts back to a gold standard import goods from a country running on fiat? I sit here and think, “they wouldn’t” but maybe I am wrong.
Edit - Forget that. I see a flaw in my question.
Gold flows out and goods flow in, having a stabilizing deflationary effect.
Deflation in the country that exports, but inflation in the country that imports.
No, other way around.
So exporting will be stupid?
WOuld you rather starve to death with your piles of bullion? Or eat food (imported) and drive cars (imported) etc.
Further, there is no “gold leaving a nation” only gold leaving the individual accounts of you, me, etc. You’re not reluctant to give money to the grocer or the barber or the butcher - it doesn’t matter if the people providing you with material well-being are neighbors, across state lines, or across the Pacific ocean.
The economic system would quickly become strangled. If you take all existing gold and divide it equally among all existing people, you have less than 1oz per person (now about $950). Just think of the amount of trading you’re in right now and think what it would be like if reduced to $950. Further, new gold can be brought into existence for about $900 or less … you you can’t just say an oz of gold is valued at $10,000 and walk away from the problem.
Everyone has told you to read Bastiat. Do so!!! This question was answered over 100 years ago.
Just think of the amount of trading your doing right now. If it were to be increased to 10,000,000,000,000,000,000. Your argument is absurd precisely because it doesn’t stand up to absurdity. Trading would not be reduced only prices would be reduced, just like trading isn’t increased when we print money. No standard is the standard. I accept or don’t accept what you’re willing to trade and vice versa. I would accept gold, silver, and dollars. If I were hungry I would accept food. Get it yet?
No it wouldn’t. Increase your trade to 10,000,000,000,000,000,000,000. What happens?
You’re being pretty rude? Who is everyone? And when did they tell me that? And if answering a question a long time ago shuts off debate, why is it Mises writings so long ago are still being brought up?
What I know about Bastiat has to do with a broken window and I agree with him on that subject. When I go to Wikipedia’s article on Bastiat and search, I find that window reference. When I search for the word “gold” there, I find nothing.
Mercantilist fallacy! Gold or any money is just a medium of exchange. It’s purchasing power would adjust itself to accommodate whatever the amount is of production and trade is.
It shuts off debate when the answer is correct. Search here and you can find Bastiat’s complete works and download them for free. Being brought up and being debated are two different things. We still bring up the fact that a triangle in two dimensions always has three angles which sums add up to 180 degrees.
Volume One contains an essay called what is money. I believe it begins as such. Hateful, hateful money.
My goodness you’re rude.
My argument is that the value of something is what you can trade for it. In the case of gold, someone with the dirt, the arsenic, and the labor can bring a new ounce of the stuff into existence for less than $900. If you arbitrarily assign it a value of $10,000 trillion the earth would be full of large holes very quickly and arsenic would be hard to come by … lots of labor would be wasted digging that dirt.
I have said nothing of a standard in my comments. I have only said (indirectly) that if the medium of exchange (e.g. dollars) must be backed by gold, then the amount of existing gold dictates the amount of trading that can go on.
Knowing the amount of gold available and the number of traders I know the amount of gold available on average to each trader. Right now it’s about 1oz per trader and is valued at about $950 dollars. Further, it costs a little less than that to bring on more of it.
What needs to be “gotten” here is “what is a media of exchange”. In our country it is principally dollars … our currency. And the question was “what would happened if it had to be backed by gold”. The answer is: gold then becomes the media of exchange and our currency just becomes a receipt for it. Thus, the amount of gold existing governs the amount of trade possible … and that is about $950 per person.
Get it?
What you say is only true if the amount of the media is fixed. In the case of gold, it is not fixed. New gold comes into existence and is available for trade at less than $900/oz right now.