I recently had a discussion with my teacher about the FED…
It went on for awhile, and he agreed with some of my points..
But it basically ended with him saying that there’s not enough gold in the world to circulate with our huge population, so he didn’t see the possibility of having a gold standard again, also considering our “global” economy.
I didn’t know how to reply to this, considering I am only 17 and don’t have all the facts as I am still learning.. But I was wondering if anyone here could help me out with this.. I would like to be able to go back and continue my discussion with him on this topic.
Even if it’s true, ask your sir, what stops the market from evolving new forms of money? Always keep in mind that gold was made money by the market, not by any government decree. So, if gold becomes unfit to be money, the market will find new substances to be used as money.
Read Money Regression Theory given by Mises. Since you are a starter, go for David Gordon’s An Introduction to Economic Reasoning. It has two sections on money. Both are really good.
If there isn’t enough gold then how about silver, if there isn’t enough silver then how about copper, if there isn’t enough copper then how about zinc or tin or maybe some manufactured product or cesium or something else someone creates.
The point is that the determination and valuation of money should not be a government program. It is just too important of a decision to be left up to bureaucrats. It should be up to the market place.
This is believing the myth that if the economy grows, more money needs to be printed. Any supply of money will work for any size economy, and prices would adjust because each unit of money would become more valuable.
The value of gold would have to rise dramatically compared to what it is now, but such a process would have to occur to get us back to a commodity backed currency.
The market would also choose the best money (which would most likely be Gold and Silver). Gold coins would most likely be used for larger purchases, while Silver would be used for smaller purchases.
‘Any’ supply can’t always serve transactions demand of the economy. There is an element of truth to the argument that when population increases, and the number of potential transactions too increase, the present money supply can’t suffice to make all of them happen.
Yes, the value of money would appreciate and monetary units would be divided to account for the increased transactions; but there could be a hypothetical case where monetary units can no longer be divisible.
Take a group of 10 people, with an average of 20 transactions happening between them, via money(say a single green paper piece). As the population of the group increases to a thousand, the single paper piece may not be enough to carry out all transactions of the group. People would have to wait for days before they get their chance to exchange their product for the green paper. This can slow down the pace of economic transactions. The green paper could be divided into pieces, but as you know, there is a limit to the number of smaller pieces that could be made out of the single green paper. The same applies to gold.
But I must admit, I have no idea if the present gold stock is enough to carry out all transactions that the modern world requires. If, in case, gold reaches it’s smallest unit of divisibility, the market will evolve other forms of money.
That’s because the dollar is itself an artificial limit on divisibility. Why, if it wasn’t serving the needs of your hypothetical economy, would they even be using it? Unless of course there’s a legal tender law or some other government mandate to do so…
You’re putting the cart before the horse: any money supply an economy produces is adequate for its purposes. That doesn’t mean any money supply our economy produces is adequate for any other economy’s purposes, and it especially doesn’t mean that a money supply that is used by our economy due to government fiat is suitable for all other economies. By limiting your economy to a single piece of paper you’re merely proving the point that an artificialy imposed money that can be either artificially increased or limited isn’t what the market would choose and thus not ideal or what should be used even on a practical level.
You are not understanding me right. I did not attach any fixed face value to the green paper I talked about. So I made no reference to the dollar with the green paper talk.
If you are uncomfortable with green papers, take something else, like a piece of leather. There is a limit to it’s divisibility.
Divisible, Portable, rare. If divisibility becomes impractical for one medium, then the market will decide on another medium, while still retaining the older medium for larger purchases. The market will establish a ratio between the two mediums, or three or four. Since these mediums are not based upon debt, should one medium become abundant i.e. a piece of leather, then the market would direct the leather to it’s new use. Perhaps clothing. After all, salt was money before it was a spice.
Suppose a gold magnet was developed in a situation where the market had chosen gold as its medium of exchange. In the modern world gold would become a common base metal, even in the ancient world it would, it would just take a little longer due to logistics. This would not cause a collapse of the economy. The gold would maybe become the standard for electrical wiring (in the modern day), while the market would reevaluate what to use for a medium of exchange. This would take place through trade. Gold would be traded for the new accepted medium of exchange to those individuals now producing gold electrical wiring, or whatever else gold is demanded for.
The question should we increase the money supply as the economy grows is absurd. The market will supply a medium of exchange where trade is beneficial to the parties engaging in it.
There’s a lot of good stuff on my blog about how the Federal Reserve is one big scam. The Federal Reserve is a humongous price-fixing cartel. Interest rates should be set by the free market, and not a handful of insiders.
Fiat debt-based money allows insiders to steal from everyone else, as they print and spend new money. Economic power is concentrated in the hands of the banksters, who get the State-granted perk of printing and spending new money.
If you’re a State insider, you prefer paper money to gold, because it lets you steal via inflation.
If you’re an individual, there’s NO reason for you to prefer paper money to gold.
Given the free choice to use whatever you want as money, what would you choose? Obviously, as an individual you’d prefer gold (if you’re rational). If you use paper as money, people may steal from you via inflation. If you use gold or silver, you’re protected from theft via inflation.
The reason people don’t use gold and silver as money is that it’s illegal. Consider the examples of what happened to The Liberty Dollar and E-Gold. Gold and silver are so heavily taxed/regulated, making it impractical/illegal to use them as money.
The basic economic fact is that the quantity of gold (or other metals) is irrelevant, since prices simply adjust ‘automagically’. There’s no hard rule saying that you need 10 ounces of gold (or whatever) per person, or anything like that. If there’s less gold for exchange, then nominal prices will be lower - that’s all.
Just to clarify - due to shortages at many mints, they’re no longer selling Chip Gold (as it was called). And the premium over spot on chip-gold was enormous.