Sorry, I’m a real “noob” when it comes to understanding economics but I’m having trouble understanding the different problems that arise if the US were to switch over to a gold standard (specifically a 100% full reserve, no Fed, and no Fed-notes gold standard). I’ve listened to Reisman’s “Path to Sound Money” and Salerno’s “The Gold Standard in Theory and Myth”. The problem with gold being too expensive - am I wrong to think that with today’s technology that problem can easily be solved by having very, very small amounts of gold put into little, coin size plastic/other material containers for an infinitely small amount of new denominations?
What do you guys think the basic obstacles are and their solutions and what other sources can you direct me to?
Unregulated parallel metallic standards, I think, are the key. That is, gold coins would be divisible by copper/silver/what have you coins, based upon the existing exchange rate.
You could always let everyone use whatever currency they wanted and leave US dollars alone. So the fed can inflate if the US dollar if they want but we could use gold or silver or oil or stock to trade if I wanted to. Let gresham’s law do the talking.
Rich people already have free currency. They store their wealth in the aforementioned forms and convert to dollars only as an intermediary step.
Poor people are stuck with US dollars because they live paycheck to paycheck and are paid on a fixed $ income. If people could opt to be paid on a fixed amount of any commodity, this problem would quickly clear up.
If nothing else, this line of reasoning brings to light the oppression of the state; dictating how we can trade with one another. Everyone would be pissed off if we could only talk to eachother in sign-language, so no one should support a similar handicap in currency.
“the different problems that arise if the US were to switch over to a gold standard (specifically a 100% full reserve, no Fed, and no Fed-notes gold standard). I’ve listened to Reisman’s “Path to Sound Money” and Salerno’s “The Gold Standard in Theory and Myth”. The problem with gold being too expensive - am I wrong to think that with today’s technology that problem can easily be solved by having very, very small amounts of gold put into little, coin size plastic/other material containers…”
there have been several discussions about this topic.
i would think that every dollar and dollar-claim (fiduciary money, iow) would need to be ‘backed’ or represented by a existing amount of gold (or it doesnt have to be gold-metal) - that could be redeemed at a bank or a banks agent.
from what i read there is enough gold (and other historic money metals) to make useful hand to hand money as well?
if people are comfortable enough with check and debit cards today…my guess is that electronic gold tranfers would also be a norm. with some sort of daily (or faster) settling/clearing function for electronic claim transfers.
also, from what i have read, the old us mints took privately mined gold to create coin from.
i dont know about the fees for that, but i expect privately held gold as in jewelery could be minted into coin, or amulet,…assayed money, in other words.
Since I am completely new to this board, and I don’t know how to start an entirely new thread, I will piggy back on this current topic.
First, the more I have read, the more I understand how imperative a sound money system is. There are alot of counterarguments that I think are entrenched in fallacy, and hopefully you guys can help expose these for me. So as far as criticism goes:
How do does one respond to this
"Because economies under the gold standard were so vulnerable to real and monetary shocks, prices were highly unstable in the short run. A measure of short-term price instability is the coefficient of variation, which is the ratio of the standard deviation of annual percentage changes in the price level to the average annual percentage change. The higher the coefficient of variation, the greater the short-term instability. For the United States between 1879 and 1913, the coefficient was 17.0, which is quite high. Between 1946 and 1990 it was only 0.8.
Moreover, because the gold standard gives government very little discretion to use monetary policy, economies on the gold standard are less able to avoid or offset either monetary or real shocks. Real output, therefore, is more variable under the gold standard. The coefficient of variation for real output was 3.5 between 1879 and 1913, and only 1.5 between 1946 and 1990. Not coincidentally, since the government could not have discretion over monetary policy, unemployment was higher during the gold standard. It averaged 6.8 percent in the United States between 1879 and 1913 versus 5.6 percent between 1946 and 1990."
So it would appear that the major benefit to the gold standard is that it can prevent long-term inflation in a country. However, as Brad DeLong points out, “if you do not trust a central bank to keep inflation low, why should you trust it to remain on the gold standard for generations?” http://economics.about.com/cs/money/a/gold_standard_2.htm
Can I get a simply, concise answer as to why there IS enough gold to support our current economy assuming we went back to a gold standard. My basic understanding is that the any amount of any commodity (assuming it is a luxury good, its durable, homogeneous, etc) will satisfy a monetary system because the prices will adjust to the money supply. But doesn’t there are least HAVE to be a minimum amount? If only 1 oz of gold existed, surely this wouldn’t be the commodity our system is based on? And considering that the value of gold is roughly 5 trillion (all gold mined * current market value) would this constrain our economy? Thanks in advance.
Because we would not just use gold. We would use copper, silver, platinum, etc.
No it would not be. But there is not just 1 oz of gold. And gold is not the only commodity that people like to use for currency.
Who trusts a central bank to do anything right? I would guess that most of us on this board think the currency should be determined by the market, not by the government.
The difference is that there would be an unregulated market exchange rate between different metals. Bimetallism throughout history has been corrupted by governments’ decision to fix exchange rates.
Bimetallism refers specifically to a regime in which the exchange ratio of gold and silver are fixed by government fiat. Austrian School monetary writers have been justly hard on this scheme. This price control always shipwrecks when the market price of gold and silver fluctuate. If gold and silver are permitted to exchange at market-determined rates, there is no problem. Gold and silver coinage has circulated side-by-side historically without problems as long as governments haven’t intervened to set exchange rates between the metals.
“Because economies under the gold standard were so vulnerable to real and monetary shocks”
Oh, you mean like the economic collapse of 2008?
“Not coincidentally, since the government could not have discretion over monetary policy, unemployment was higher during the gold standard. It averaged 6.8 percent in the United States between 1879 and 1913 versus 5.6 percent between 1946 and 1990.”
And why is it 21+% today?
“A measure of short-term price instability is the coefficient of variation, which is the ratio of the standard deviation of annual percentage changes in the price level”
What is the scientific definition of “the price level”. If the price of stocks is going up, while the price of computers is going down, what is “the price level” doing?
“The higher the coefficient of variation, the greater the short-term instability.”
So you’re saying that the economy is unstable if there is no central bank to fix interest rates and force feed green confetti to the consumers. I recommend fixing wages and the price of food too. Let’s make the economy even more “stable”.
The biggest and only obstacle at present is the criminalization of printing notes. Take away that and any paper system would be over in short order due to hyper-inflation.
So basically, if we repeal legal tender laws, gold and other precious commodities will naturally make their way into our monetary units? What about all of this talk by people at the Mises Institute about what should be done to make the transition possible?
I think there is a lot of misplaced concern for the fate of creditors who loaned fiat dollars in good faith expecting to get repaid dollars of a certain value in return. I say misplaced because you don’t own the value of your assets. You only own the assets.