I spoke to my professor about the insights I received in this forum concerning research and development and fractional-reserve banking. His next response to me was about the wishful thinking of the gold standard. His comments and questions as as follows. Any help in thoughtfully and sufficiently answering these questions and additional forseeable responses would be greatly appreciated! Thank you kindly to all.
You should address these questions about the gold standard:
what is the larger context of the Greenspan suggestion to possibly going back to a gold standard–is it wishful thinking, does he really think we can go to the standard as a practical reality?
There is not currently enough gold, the dollar would be unable to be backed by the gold standard.
There would not be enough gold to provide credit for businesses, private homes, etc.
While there is potential for abuse in our current system, can this be corrected or protected against without the unrealistic reversion to a standard that never worked?
Gold is now used in ways it was not when it was a standard for currency–it is used in technology as wiring for instance–this means its value would fluctuate in ways it did not in the past.
as a matter of national security, our dollar could be affected by foreign countries by affecting the price of gold
It is inevitable. Fiat currencies are destined to spectacularly fail, and in the wreckage commodity currencies will once again be embraced. Gold will rise to the top, as its the commodity best suited to function as money.
It all depends on the price set of gold, we can just set it to whatever accounts for all dollars and all gold.
Any amount of money is enough to let an economy function, though there will be different “price levels” for differing amounts of money
No
Gold is indestructable, so every bit ever mined is still out there. With that in mind, according to Mundell, 1/2 of all existing gold is in central banks functioning as reserves, 1/4 of all existing gold is in private hoards functioning as a store of wealth, and the remaining 1/4 is used in jewelry, technology and other sectors (but still functions as a store of wealth and can still be exchanged if the owners so desire). I think given these facts we see that gold still has significant monetary properties.
Only by bankrupting their own gold reserves, something no country would be willing to do (and would have little effect anyway, given how much gold is already in existence).
The previous responder did a fabulous job of answering the questions. I have more comments on item 1. The answer is that it is easy to move to a gold standard and we can easily do it this minute.
The Federal Reserve needs to just stop!!! If they stop operations then that will freeze the amount of money created external to the fractional reserve banks themselves. At this point you are now on the gold standard. Banks will have to meet their reserves with dollars that are not coming from thin air but from loans from other institutions. It would help if the Federal Reserve and government at large stopped regulating banks then banks could set their own reserves based on their depositors demands instead of government demands.
What does he mean it “never worked”? Perhaps the gold standard the US had did not, given that it had a central banking component, but gold (and other precious metals) has been the main medium of exchange for millenia.
I have no idea since I’m not Greenspan. No transition to the gold standard is likely to be pretty. That is not a defect with the system, it is the inevitable result of straying so far from it. This objection is analogous to a person who is morbidly obese and who has had a heart attack blaming his current condition on the diet his doctor gave him to follow.
Same point as above. Besides there are plenty of plans to transition, some more practical than others. Point being the pains involved in that transition are not a fault of the gold standard but the inevitable result of straying from it.
This is just plain idiocy. There will not be as much credit as he and other elastic money supply supporters want. However complaining about the market determined level of credit makes no more sense than complaining about the market determined level of rubber dog poo, and attempts at manipulating each are just as stupid. On a gold standard the amount of credit available will be as the market determines, and essentially set by the time structure of deposits. Plus he makes the classic mistake of mistaking money with wealth and credit with capital. Increasing the money supply doesn’t magically make more real resources appear in the world, it just redistributes those resources that do exist to those who get and spend the money/credit first. So this argument is not really a criticism of the gold standard, which distributes credit as other resources to the highest valued end, but an aesthetic critique of who is getting access to the credit as opposed to who your professor thinks should have access to it.
We’ve never really been on a true gold standard, so I’d like to know from where he gets the information to come to the conclusion that it doesn’t work. For the time various economies were on the gold standard, basically when they were using gold coin, it worked fine, and only went bad when the government messed with it or decided to get off it to ‘fund’ a war. This objection is not against the gold standard, it is an objection by the historically ignorant against the bastardized fractional reserve system the US and most modern economies have been on for centuries.
So? Whether its value fluctuates or not is irrelevant, though likely its use as an exchange medium would lend it more stability than not, and using its price history in the context of a fiat standard is disingenuous to say the least as he is using the fluctuations caused by fiat inflation itself as an arguement for fiat inflation. The point isn’t price stability but accuracy of information. The problem in the end with the fiat standard is that it short circuits the price system at all levels. Prices are not inherently stable, it’s not their purpose to be stable. It is their purpose to transmit information. Grant that for whatever reason your professor is right and gold will be going up and down willy nilly, if that’s what the market dictates then that’s what should be. To say otherwise is to say he knows more and better than the accumulated knowledge embodied in that price system, which is hubris on a level that’s hard to comprehend.
So? Stop pissing people off abroad and they won’t want to hurt us or our economy. Using ill advised foreign policy to justify ill advised monetary policy is a new one on me.
tell your professor that Rothschild said this "The few who can understand the system will be either so interested in its profits, or so dependent on its favors, that there will be no opposition from that class, while, on the other hand, that great body of people, mentally incapable of comprehending the tremendous advantage that Capital derives from the system, will bear its burden without complaint and, perhaps, without even suspecting that the system is inimical to their interests."
The argument that there isn’t enough gold is particularly widespread, even amongst the general population. But, this argument doesn’t seem logical, even without reading a prior opinion on it. Even if we had only a set amount of gold in the world, and it was all already mined, the value of that gold would just increase as the amount of capital it represents increases.
People forget that there would be denominations. If your ounce of gold is now worth $100, and was $10 (just using these figures as examples, they do not represent real prices), you’re not going to be trading in ounces of gold. There will be denominations of silver, copper, bronze, et cetera.
The value of gold would increase, and so there would be a greater amount of denominations in the market.
It seems to me that printing dollars is pretty easy. Any entrepreneur can raise $5 millions (wild guess) to buy top of the line equipment and print his own dollars. Printing paper is way easier than, say, setting up a small chip fab. So as a matter of ‘national security’ paper money is a rather easy target to attack.
Who cares what Greenspan thought? This is an appeal to authority fallacy.
-This assumes the price of gold would stay fixed, which if a gold standard were even to be thought about, you can bet the price of gold would shoot up.
-Also, the issue is not a gold standard. Take out legal tender laws, that’s the real crux. The market will decide a suitable medium of exchange, the only thing I would argue is that the medium of exchange is likely to be gold. But if I were to proclaim a fix to gold then I am still insisting on a government intervention and control on monetary supply which would be contradictory to my purpose of proclaiming a gold standard.
-Also, this is a ridiculously common complaint, there are plenty of answers out there to this question.
I believe this fits in with the previous question.
You’re putting one of the most powerful forces of a government under a single person, the power to print money. To quote another banker, “Give me the power to print the nation’s currency, and I care not who makes its laws.” I find it incredibly naive that such a powerful force could be left under such centralized power, let alone be tamed by some arbitrary construction of checks against it that will ultimately not work if the money supply can be completely debased.
Especially when there’s an easier solution…
I don’t understand this. How does something that stood for thousands of years ‘not work’? This claim needs to be backed up more to give an adequate answer.
As in number 2, all the better to not advocate a gold standard, but to instead eliminate the tender laws if these fluctuations are indeed an issue (although I would argue that the fluctuations in politically motivated money are far greater).
I would repeat my answer to number 5.
Also, the following is a more ideologically driven answer: I am not a patriot. Thus I would need explanation as to why ‘national security’ is a concern (i.e., from my point of view, the ‘national’ in ‘national security’ throws me off).