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The Gold Standard. For or Against?
Self-expanatory...
And if one of those annoying, whiny, hormonal, teenage girls comments on this debate about how much of dick "Lucas" is, I will go ape shit. ;)
I put the smiley at the end so that in court I can claim it was a joke, and I had not premediated harming young children....I'll put another just to be safe....
Is it not the position of most gold standard people that the point is to have a basis of currency founded on something concrete and limited as to always hold value as opposed to having to having no intrinsic value?
If you read Adam Smith's wealth of nations, you'll read him talk about how governments manipulate the standards such that the value of a metal coin stays the same even as the content of its valuable metals decrease. As coins become more valuable, the more tempting is this process.
The error is confusing monetary inflation vs supply and demand.
I think you are trying to state currency devaluation. If I read it correctly, you're saying it's more temping to DEVALUE the currency and therefore INCREASE the money supply therefore the value of the money will decrease.
Currency devaluation still follows to the law of supply and demand. You are confusing the value of gold vs the value of coins. If there are only 100 ounces of gold, you can make 100 coins, or 100,000 coins. Each with either 1oz, of gold or 1/1000th ounces of gold respectively. But it is still 100 ounces of gold in the total money supply.
What you may not see is how inflation works, which is purely a MONETARY PHENOMENA. Say a a car costs 1 oz of gold. But over time, the government remints the gold content from 1 oz gold coin down to 1/1000thoz coin. This means that in the beginning the car costs 1 coin (1 oz gold). Later on, the price will be 1000 coins (STILL 1 OZ GOLD !!). Even if the price of the car goes from 1 coin to 1000 coin, this is inflation, however, if the coin has gold content, the effects of inflation are limited.
Now, say there are different countries that want this coin of ours, whether it is in the 1oz version or 1/1000th oz version, will INCREASE demand and therefore INCREASE the value of the currency - regardless of the gold content. This is the law of supply and demand.
When we start using coins, the value of the coin stops being its metal content and starts to be represented by the symbol itself. Fiat money is just the end result of that process.
If a car costs one ounce of gold, and the currency changes, not everyone will know at least not at once, and so for a time at least, the car will still be worth the same amount of coins, if not the same amount of gold. Prices are sticky, and with coins it is more so the coin itself than the metal which is the measure of value.
Assuming that coins, regardless of content, becomes fiat.
What prevents the car price going from 1 coin to 1 trillion coins? (assuming that financing is not available)
What happens if in a village, you triple the money supply? The prices of things will rise 3x accordingly through the market as people figure it out through subsequent trades. This is inflation and is a monetary issue.
Part of the argument FOR the gold standard is that this currency expansion is NATURALLY LIMITED. It is simply impossible to whim gold into existence as we do with pushing the zero button on the computer. Gold is a much better limiter than electronic bytes.
This monetary stability is crucial for the longevity of a country's prosperity. When people work, they produce a certain amount of product or services and they trade that for some money or currency. This currency must be a store of value over long periods of time; purchasing power.
If there is 10% annual inflation (currency expansion), that means, I have to work 10% more to buy the same stuff. This means, that instead of a 40 hr work week, I must work 44 hours next year, less I get a 10% raise (which will not happen). This distortion will trickle through the markets until all 10% (or whatever is left) is used up.
Looking at inflation and hyperinflations in yugoslavia, hungary, zimbabwe, weimar, argentina (which is an interesting case) all did this "remarking" or "replacement" of their currencies and still failed to stop the hyperinflation precisely because they kept adding to the money supply more than the demand for cash. So much so that when you sit down for dinner, your bill would change and at 2 different rates. First the base meal price change, and then the tip charge, calculating when the waitress can get to the bank the next morning.
I'm not saying that the gold standard is the only solution, but it is by far the best solution we have on the table. In the study of money, humans have used just about everything, and it failed the test. Once there is currency stability, there is price stability, and people's purchasing power is preserved. I do not believe that sheer human will in fiat currency can limit the monetary supply. Therefore, we need something that is naturally limited; scarce. This is why in microcosm economies, it's always luxury items that are used for indirect exchange.
I understand the argument for a gold standard, I think that it won't allow for the type of growth and large economy we have now through. I also don't see how it would stop factional reserve banking, which is one of our main issues and has more to do with inflation than anything. But that is another debate.
Lets return to the original idea that if everyone started using gold for currency, its value would decrease. At face value, yes you would expect its value to actually increase under such a situation. And that is true in the short run, however over the long run you will see institutions which coin money changing their standards, more gold mined, other metals substituting for gold and so on. Industry will seek out less expensive metals to use in their products, lowering demand, etc. The point I merely wish to make is that there are multiple processes which go on, some which raise the value due to increase demand, and others which are often less in magnitude and take longer to have effect, which lower the value due to increase in demand.
"I think that [the gold standard] won't allow for the type of growth and large economy we have now"
It is a fallacy to think that the globe must have a billion to pay back a billion because it neglects the temporal component of capital and interest. Focusing solely on the financial and accounting, it is entirely possible to pay back a billion with the ENTIRE monetary supply limited to a million. Each payment is a million, until the full billion is repayed. This would be a 1000 term repayment.
The economic analysis of this must include the time component of interest and depreciation. And money is only a symbol. Inflation and all this funny money corrupts the symbol and introduces the "slippery slope" fallacy into the markets; purchasing power.
It is precisely the stability of the money which encourages economic growth. If you think we have growth now, growth with a stable currency would be absolutely mind boggling. With the blessing of the stable currency/money, one can plan extremely long range; ie 99 year leases.
"Money is a good servant, but a bad master". If people want large economic growth, then they would find the money to match it.
I also dispute your claim that we've had growth - but that's another debate.
Yes, just like you can loan out a dollar a thousand times, you can pay back a dollar a thousand times. I'm not sure what your disputing.
I fail to see how we can grow more, when the basic resources for growing is much more limited. Currently 1 dollar issued by the fed can not only be spent multiple times, but by the money multiplier effect could theoretically be spent multiple times at the same time, financing more projects. I also don't see how currency stability could overcome uncertainty in income such that people can plan that long without significant risk which normally stops people from doing such.
ok. I'll explain it in computer engineering language. ..
I'm assuming that you know C/C++ and know about pointers. And forget for a moment that the problem scope is completely inappropriate. (programming is linear, economics is complex/network and adaptive)
Money is a pointer, it represents all sorts of things. But it must be completely strict and sound. If pointers shifted locations on their own, or changed without notifying anything, it's a big pile of mess. Variables and data structures. And if you did embedded C programming, you'd know that we can use pointers to jump the program counter and cause all sorts of runtime hazards and the resources are REALLY* tight.
But, while pointers can represent anything, even as a basket to transport things, we are not at liberty to make an infinite amount of pointers because of the limitations of the system. Of course, being engineers and using non sentient systems, we can exploit and abuse these things to our heart's content.
But pointers have very strict rules. Pointers are not permitted to be mutable, and there are structural hazards in using pointers to point to pointers to point to pointers ad infinitum.
As with currency, it is essentially debt that symbolizes debt, that symbolizes debt all the way until it hits gold somewhere. But in the modern world, this gold stopgap is removed completely. Therefore, the chain of symbols will go on forever all falling to their intrinsic value.
At the same time, pointers cannot be mutable meaning, it's is not ok to have one pointer pointer to one thing, and then have 2 pointers or multiple pointers point to the same thing (many to one) nor can we have a many to many situation, even with the very best accounting. Even in NUMA architectures, memory must be assigned strictly to their instructions, otherwise we have a huge mess.
The difference between the dollar and gold is that gold has intrinsically within it, these specific limitations that avoids these structural hazards. To substitute it for something else would introduce a whole other set of structural hazards which may or may not be conducive to a sound economic system.
The problems of economic is more like trying to isolate harmonics in a circuit network, rather than doing a top down design approach. The complex adaptive system model applies to economics in the manner in which each agent (humans) learns in their own microcosm which moves the entire economics.
If this didn't do any good, we're going to need a blackboard, a pint and lots of time.
"I also don't see how it would stop factional reserve banking"
The gold standard, by definition, would nullify fractional reserve because; what precisely is the reserve? What is it that the banks are putting on reservation? They are reserving gold/silver and the federal notes we call cash, are IOUs for that gold. Since 1971, Nixon completely separated all convertibility between gold and the dollar and the value of the dollar falls to it's intrinsic value; currently less than 4 cents. Adding the electronic dollar, the dollar can devalue to 0.17 cents, to 0.011 cents; read, each dollar is mere fractions of a penny.
Put it another way, the gold standard is a special case of frational reserve whereby the reserve requirement is 100%, not 10% [US].
"And that is true in the short run, however over the long run you will see institutions which coin money changing their standards, more gold mined, other metals substituting for gold and so on."
I'd like to request the source of your information for this statement. Because in my reading of economic history of the past 5000 years, it's been governments who seek out less expensive metals over time, not the minting companies, not the industry. Only governments can force people to accept this metal swapping for same value. Only governments can force people to accept this fraud; the classic bait and switch.
Gersham's law - "Bad money drives out good money if the exchange rate is set by law".
You see, it's nearly impossible to make people accept something as something else. You can't force people to accept a knockoff if there are other competitors who offer the real deal. To block out competitors is by definition a monopoly, which is IMPOSSIBLE in a free market. Even predatory pricing and such will injure, cripple or maim a company attempting it. Only government can create monopolies (joining of economics and state), and by definition, government IS a monopoly and MUST be a monopoly. You can't have two conflicting constitutions in the same community (prelude to anarchy).
My main info is goverments, as for private minting companies i'm not very familiar with them. However you can be sure that where there is profit to be made, they will go there if they can.
Consider this:
1. All the oil wells are owned by once company which got there by merging, having lower prices, and so on, what is to stop them from doing such in a free market?
2. Once they own all the wells, what is to stop them from maintaining their monopoly on oil, a needed item?
"Industry will seek out less expensive metals to use in their products, lowering demand, etc."
This is not a monetary issue, this is a capital or consumer goods issue in the topic of production. And it's talking about the industrial uses for gold, not the monetary uses.
Can we agree that this doesn't apply to this debate?
I suppose I should be clear, someone mention that the value of gold would decrease if everyone started using it, to which you replied such was against the law of supply and demand, and I then replied with a way such could occur. I wasn't saying it was or wasn't against the law of supply and demand. I mainly chimed in to play devils advocate, I am increasingly hating the divisions of thought we box ourselves into.
Yes, but it works differently than paper money. Gold is considered valueable because its a rare metal, paper money is based on how much gold, silver or speculation there is to back it up. In my opinion, having everyone use the bi-metal or gold standard and had the printing of money being highly regulated, the currency would be much more stable.
Not exactly, as a medium of exchange yes, however it's use value depends on products which use it. With a gold standard, the exchange value is affected by the use value and difficulty in producing the metal.
Disclaimer: I have zero formal education on the topic. However, I have an opinion, just like everyone else ;)
Fiat money has created a disposable society. Your iPhone is disposable. It is not cost effective to fix it and you'll be lusting over the new iPhone a few months after buying one.
With a commodity based standard, we probably wouldn't able to afford to change standards as quickly as we do. For example, moving from vinyl to tape to CDs to DVDs, etc. It just wouldn't be cost effective.
With a commodity based standard, things should slow down. People would be able to keep a job for decades, instead of years. This means that people would be able to retire from one company. When (if) I retire, I will be collecting a little from every company I've ever worked for.
On the down side, economic down turns would last longer and the gap between rich and poor could widen even more.
But I'm just talking out my ass because my mouth knows better ;)
Currency should be a gradual creation through market cooperation; not a standardization based on flawed principals that only become harder to fix over time. All "perfect" systems are made bottom-up (unless you believe in God... but hey, that's a different topic). So to say that a government entity can decide what form of currency is perfect for civilization is saying that somehow government can control inflation rates and can enforce this standard of currency without wreaking havoc (cause, hey, the Great Depression never happened and we're currently not in ass-raping debt).
Now, the Gold standard I will say is superior to paper money or electronic money because it is a mostly limited product. You can not make more gold (so easily), so inflation rates would rarely ever go up. The main problem, however, comes from the problem of standard currency in general. There is no assurance that wealth can accumulate accordingly with the resources that come into play at random times. If a business is able to mine many resources all of a sudden, they are at a far more significant advantage for they have accumulated all the wealth. With currency being the standard, the poor would depend on that paper money instead of proper allocation of those resources.
It comes down to a sort of corporatist, crony mentality to have any standard currency for it encourages top-down management. In some ways, it is secure to have factories where labor is paid with arbitrary dollars, but in other ways that is the only way it would be.
When you standardize currency, you greatly eliminate the flexibility of wealth.
So I'm against any standard currency. But I prefer Gold to dollars for the sake of practicality and lowering Keynes type inflation rates.
Gold and silver were originally commodities because of their inherent traits, tested my market forces. Gold and silver are a
1) medium of exchange
2) unit of account
3) portable
4) divisible
5) durable
6) fungible
7) store of value (currency doesn't have this)
throughout the ages, just about everything was used as a medium of exchange because they had to overcome the dual coincidence of exchange. If I want eggs, then the egg guy needs to want my stuff. This almost never happened so I would have to go get a whole chain of supplies just to get what I want.
usually, luxury items becomes money. In prisons, cigarettes become money naturally on their own.
through 5000 years, gold and silver were proven to be the best money, and governments still inflate by mixing the gold/silver with different metals and recasting them (rome did this and fell).
With gold and silver, the prices of things tends to deflate at about 3% a year because of the capital investments made to make production more efficient.
I think you are against fiat currency, but in favor of market currency. Market proven currency is gold and silver.
If you see the spot price of gold and silver for the past 3 years, it was about to go parabolic, before the government started to manipulate the spot price via naked short selling. It's all about to change.
A government isn't necessary to assist in eliminating the need for bartering.
It wouldn't have to be chickens for milk and cheese. Instead, a private banking system would fulfill that demand for a means of currency.
Of course, that can not be the case at this time because we are too heavily invested in currency with theoretical values, but just because we're invested in a heavily flawed and corrupted system does not mean we HAVE to continue living with it and even finding ways to rectify it.
Instead, lets ween off of it and, in my dream land, eliminate any standardized currency. Demand for value applied currency (such as gold or, in this day, bit coins) would naturally be supplied by private groups. Of course, this day would be internet businesses in Silicon Valley.
"Currency should be a gradual creation through market cooperation; not a standardization based on flawed principals that only become harder to fix over time."
I'm stating that gold and silver IS* a currency that was gradually created through market cooperation.
What you want, we already have, it already exists in the here and now and it's called gold and silver; market tested and apporved. I'm saying your position is in support of the gold standard and I was trying to explain why it is.
The history of gold and silver basically came about after just about everything else was tried and found insufficient. Each one that has been tried failed one of the 7 criteria for money as I listed above.
While gold and silver grew through market cooperation, making it a "standard" is the issue.
I do not truly support and "standard," that is my point. While I understand why we kind of need one, I do not support the entire system we base this need around.
Not that I'm an anarcho-capitalist. I don't really have an ideology. However, a broken State currency is enough grounds for me to be against the notion of a state currency of any sort. If gold and silver are to become obsolete, the market itself would eventually wipe it out (such as bitcoin through mutual parties.)
Isn't bit coin a type of fiat money, or perhaps a type of money restricted by artificially enforced limits on production since introduction of money is based on processing centers doing some transaction work.(mimicking a standard like gold)?
I like bit coin, although I think it may have issues with inflation if it became too popular. Although market transparency has potential to be amazing and greatly reduce market asymmetry well keeping anonymity. which is awesome. I would like to see some things different(to avoid some of the problems we currently have), but digital currency has a lot of potential. I'm interested in digital currency, as well as in digital labor vouchers and similar, how much do you know about them? I like bitcoin a lot better than privatized banks and think something like it may serve as a good transition to a gift economy and stateless society.
Your debate is invalid because you assume there are only two choices: gold based money, or Government printed currency. I believe gold is inferior...we shouldn't use gold, what we should use is a commodity system.
I doubt Gold would win in a commodity based system...over the years gold has been going up & up, while production has failed to keep up. A commodity that would be better, and more likely to be used in a commodity based system, would be silver.
I believe, without a doubt, we should use a commodity based system, because a fiat system lets the Government print excess money to stimulate the economy...I'm not going to dispute the ability of stimulas to produce economic growth...but all the growth it produces is temporary. Temporary growth in exchange for lost savings and debt is just stupid.
The Gold Standard as a basis for our currency is simply outdated. We need a flexible monetary system that can be manipulated as needed by economic conditions. One other very important detail; with a gold standard, the value of your currency is controlled by the amount of gold available. The world's largest producer of gold is the former Soviet Union; do you want your currency controlled by a foreign government?
