So Ive been thinking lately, suppose a country goes back to Gold and Silver as money
Should these, assume coins, be valued in a monetary denomination like ‘dollars’ or ‘pesos’?
Because it seems to me, from an ignorant standpoint, that instead these coins should use Ounzes relative to the amount in Gold or Silver (or whatever) as determining the value… because this would allow fluctuations in the value of the commodity to apply on the rest of the goods available…
Like instead of calculating the value of 'X’ as 100 Gold Dollars
One should calculate as ‘X’ is worth 100 Ounzes of Gold
Wouldn’t this allow the fluctuations in prices of gold/sylver be more accommodative than stricter things such as Dollars, seeing as a good may have a stable price in Gold Dollars… but the value of Gold may be on decline…
Is there even any difference? [:#]
I would also ask, Ive heard someone say that it is precisely because FIAT paper has no value that it is desirable as currency… (Keynesian/Socialist person)
Now this to me seems ludocrous, but I have really no means to address how someone believes that something without value is the best means of exchange for real goods…
The claim is further taken by saying that Central Banks are an absolute need and that without them no industrialized nation could survive… any thoughts?
You got it backwards. Gold is the money. All other government issued paper tickets are a fraction of the gold ounce. Just as there’s 100 cents in a dollar, there’s a certain number of dollars in an ounce of gold. There would be $1000 dollars representing an ounce of gold. There would be 670 british pounds representing an oz of gold. There would be $1230 canadian dollars representing an ounce of gold. Gold is the money. Dollars or pounds are just a voucher that represents a particular weight of gold. ie: at $1000 USD per ounce that means one dollar is 0.001 ounce of gold.
If you buy something it may cost 0.01 ounce of gold. That means it will cost you $10 US dollars or 6.7 pounds or $12.3 CDN.
Fiat paper money has no intrinsic value. It’s only value is in the goods that it can buy. The money itself has no use besides being used as exchange for other goods. Commodity money like gold also has industrial use like in electronics or in jewlery making. If you have gold money you can use the gold for something besides as medium of exchange. It also requires labor, land & capital in order to produce the gold money, whereas the fiat money was just ran off a printing press. The fiat $1 bill is as easy to make as the $100 bill. Just add a zero. Commodity money having value is not reliant on there being goods or services produced in order for there to be something to buy.
Typically having both a gold and silver as money simultaneously seems to historically fail. This is because the gov’t creates a fixed ratio between gold and silver. As in the dollar being made of gold and then smaller change being in silver & copper. Then you try to have 25 copper rounds equate to the value of a silver round. Then have 4 silver rounds equate to the value of one gold round. The problem is that copper, silver and gold are all metals and commodities. They each have intrinsic value on the free market based on their supply & demand - related to amount of metal mined and demanded for industrial purposes. You can’t set 4 rounds of silver to equal one round of gold. At any given time the demand for silver or gold won’t necessarily be true that the 4:1 ratio holds in the free economy. Maybe silver demand for photography suddenly goes up. Silver equals 2:1 for gold. When the gov’t tries to set an artificial ratio between gold & silver then one will be undervalued compared to the other. Gresham’s law states that when one of the metals of money is artifically undervalued compared to the other metal’s value then people will hord the undervalued money and only circulate & use the other money. Just like if you got two gold rounds in your pocket. One is scratched up and probably has some metal shaved off it while the other is still brand new. The gov’t states that both rounds have equal value. You know the melt value of the new one is more than the older one. If you’re buying something you will spend the old one and keep the new one for yourself.
I was not advocating a fixed relationship to gold and silver, infact that was my criticism with a monetary unit defining such in terms of Dollars
What I was advocating was that if we manage to get Gold and silver to circulate as money, the denominations of the coins should be in ounzes
Which would allow the fluctuations in the value of the commodity be capable of changing accordingly between both themselves and market prices (in terms of gold or silver)
Instead of saying of calculating Silver coins relation to dollars and their fixed ratio to Gold (and market prices themselves hold the fixed position to calculate their own prices, which I seem to understand as the fixed ratio bound to denominating this)
Rather I would advocate that the coins instead of presenting any form of monetary measurement, instead hold the amount of ounzes they have of either Gold or Silver
So the coins would instead od being, 10 Silver Dollars coin and 100 Dollar Gold coin, the coin would say 1/10 ounces of Silver and the gold coin would say 1/10 ounces of gold
this would allow for prices to me measured in terms of ounces of the commodity, and not a fixed relation (such as dollars)
For example, I would buy a car with 1.000 ounces of Silver, but perhaps Gold’s value is soaring and I can buy it with just 10 Ounces of Gold… whereas when I received my gold coin it would have taken 100 Ounces of gold…
What I asked as to the FIAR paper, was that someone told me that both Central Banks are needed… and that it is precisely because Paper money as a medium of exchange has NO value that it is reliable and desired as an exchange unit
The old USSA silver coins (and perhaps the new tin ones?) were organized by weight - a dollar was one ounce, a quarter was a 1/4 ounce, and a dime was a 1/10 ounce.
There will always be a flucrtuation between the value of silver to gold but it wouldn’t be to hard to comprehend and use several types of coins, e.g. silver dollars, gold dollars, copper dollars, etc.
, Ive heard someone say that it is precisely because FIAT paper has no value that it is desirable as currency… (Keynesian/Socialist person)
We have fiat paper standard today because the world failed to properly reinstate the gold standard following WWI. Following WWI Europe and many countries all tried to get back on the gold standard but they tried to set their money at the old par with gold that existed before the war. Because their money was devalued compared to gold this made their attempt to reinstate the gold standard fail. Much economic distortion was created world wide. The resulting turmoil and economic problems is claimed to be what caused WWII. Then after WWII we had a half-assed gold standard that failed in 1971.
The gold standard supposed to work as you were getting at in your original post.
Politicians argue for a central bank because the bank can issue new money at will in order to prevent prices from falling. Why do we care about prices falling? A true gold standard stimulates economic growth, world trade and world division of labor - which stimulates even more productivity. Increased productivity provides more & more products to market. This drives down the price of goods due to competition, just as the price of computers have been falling since they were invented or how the price of ball point pens have fallen since invention. This is good. It means wealth in the economy is increasing. It means the input costs of running a business are falling. It means the working class are getting wealthier. The politically connected business elite don’t like this. In the late 1800’s in the USA these people pushed the politicians for a central bank to issue paper money to give these businesses men to expand their businesses and to create inflation. The claim was this would “stabilize prices” to prevent them from falling and creating a depression. An argument for price stabilization, that is impossible on a commodity money standard - due to fluctuating supply/demand for the monetary commodity. What it does is transfer all the wealth that would have been created by falling prices (for the working class) to the business elite. In return these elite fund the campaigns for the politicians to help them get re-elected to keep their scheme of robbing the working class going. Did we ever achieve price stability? Since the creation of the US Federal Reserve the dollar buys what 5 cents could buy in 1913.
So yes, the fiat paper money argument relies on a central bank to issue new money to keep expanding the money supply to create inflation. The central bank acts as a lender of last resort to other banks to help keep them from going bust when they lend out the property of depositors. They also claim to try to “stabilize prices” in effort to prevent recession / depression. But they are unable to. Also, the inflation that is created to try and “stabilize prices” is wealth transferal from the working middle class to the politically connected businesses & bankers.
Thus, the monetary coin can not be a denomination, but rather into ounces (this also allows also for the stability despite fluctuating prices for producers no?)
It doesn’t really matter how you do the accounting.
In Zimbabwe now you need to obtain grams of gold to buy food. People go to the river and bail for gold. A merchant weighs the gold and you can buy food based on amount of gold you have.
As for whether your gold round is 1 ounce or $1000 it does not matter. The $1000 is directly tied to the weight, not value, of gold. Price fluctuation will change with demand for gold -vs- demand for other items. This is no different than today’s economy where there is demand for dollars to buy gasoline or electricity. Monthly the price of these things change. Is it the price of oil going up? Or is it the value of money going down? Last summer everyone thought it was only the price of oil going up, but actually there was quite a bit of price inflation in the economy and the price of all commodities were high. This was partially because the dollar had less purchasing power due to excessive supply of dollars. There was greater demand for commodities than dollars, therefore their price denominated in dollars was higher.
So, you can call your coins 1oz of gold or you can call them $1000 coins. It doesn’t matter. If there is a scaricity of gasoline and an abundance of coins in the economy then you may need more coins to buy gasoline than say if there is a scaricity of coins and an abundance of gasoline. What you call the coins or whether you choose to call the unit of account a unit of weight or a unit of dollars doesn’t matter. This is because the dollar unit will be inherently tied to a unit weight of gold.
You will also enjoy reading Henry Hazlitt’s novel Time Will Run Back, which in later chapters features the “goldgram” as the currency selected by the free market. You can read the entire novel in PDF, online, if you don’t want to buy a physical book.
What he said was completely Rothbardian!! Like he said, you misunderstood him.
I don’t understand why somebody else didn’t jump up and tell this guy straight out that he was correct!! We need more people coming to these conclusions on their own.
Today’s monetary units generally come from weights. British Pound, for example.
Coins will always have denominations, if it is stamped “1 oz gold” that is the denomination. Even today, different coins both marked as 1 oz gold will have different market value, which will also be different than the spot price of an ounce of gold on the futures market.
A reputable coin will trade at, or above, its face value while irreputable coins will trade below.
Coins basically have two possible sources of value. One is the value of the metal in the coin. Gold is homogenous, meaning every gold atom is identical to every other gold atom (this homogeneity is one of the characteristics of a good money, as you’ll find out in your studies ), and so a coin that contains one ounce of gold has that much value in it regardless of who made it, what shape its in, how rare it is, what year it was made, etc.
The other source of value is “numismatic value.” “Numismatic” basically means “pertaining to coin collecting.” Here’s where the other things affect the selling price of the coin: country of origin, year, is the coin a proof, rarity, condition, etc. How much is it worth to a collector? Note that even non-bullion coins can have numismatic value: collectors like to get all the state quarters even though they are really just slugs.
[In all of the above discussion of value, do not lose sight of the fact that value is subjective.]
Today if you buy a bullion coin, you will pay a premium over the spot price of the precious metal in it. The amount of the premium is really decided by competition in the market, of course, but it will be affected by the work that went into creating the coin and the perceived numismatic value of the coin. For example, one ounce American Gold Eagle bullion coins have exactly as much gold in them as one ounce South African Gold Krugerrands. But collectors are willing to pay more for the American coin (even though the U.S. mint is not any better at precisely measuring one ounce of gold than the South African mint), so therefore the American coins have more numismatic value, and you will pay a higher premium for an Eagle than a Krugerrand. Meanwhile, collectors do not care about getting gold shot (tiny little granules of gold) at all, so it has zero numismatic value, and far less work goes into assembling a little one ounce pile of gold granules than minting a coin, so the premium on gold shot is lower than any gold coin and pretty much just covers the profit the seller needs to make in order to justify selling the product.
First time I bought and sold gold, I acquired some of the various government mint coins, and didn’t store them very well; when I was ready to sell them, I had basically obliterated their numismatic value through damage done to them.
Most recent time I bought and sold gold, I bought gold shot. Value is subjective, and numismatic value is worthless to me.
Glad to hear you liked the book. Murray Rothbard’s Money changed my life. Pass it on some day; I think it’s one of the best introductions to money issues, Rothbardian-libertarianism, and the Mises/Rothbard/Lew Rockwell circle of folks and books ever. You can accomplish a lot through wandering the internet and begging people to read that free book before they continue to comment on what the government “should” do.
If you get interested in buying and selling gold, hunt up anarcho-capitalist A.B. Dada of http://www.unanimocracy.com/ . If you tell him I sent you and bug him a little bit, he would probably be willing to repost his old gold articles that used to be there.
Because of demand. If people expect a certain mint to continue to produce only coins that contain the amount of gold they claim to then those coins will be in higher demand than coins from an unknown or questionable mint.
A private currency market has an outcome opposite of Gresham law, where good money drives out bad.
But purity would effect it too. Presumably some mints would make .90 gold coins while others would make .95 or .99.
), and so a coin that contains one ounce of gold has that much value in it regardless of who made it, what shape its in, how rare it is, what year it was made, etc.