The Gold Standard

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Anyone here in favor/opposed to the United States returning to the *Gold Standard*[that is, backing up US currency with Federal Reserve gold buillion(Fort Knox )]? Discuss....

The gold standard is upheld by the Austrian school of economics, but considered to be unwise by most mainstream economists. The issue most frequently leveled against it is the potential it creates for a deflationary spiral that could be destabilizing to the economy, and it also eliminates the possibility of monetary Keynesianism. I think the latter consequence is quite possibly a good reason to consider the gold standard, but fiat currency that expands based on a monetary rule would probably work more smoothly.

When the U.S. was on the Gold Standard, silver had to be monetized to provide a sufficient amount of cash money to keep the economic pot boiling. Even with a metal standard, instruments of credit will function as supplementary money to prevent an uncontrolled economic deflation. There always has to be some form of cash they people are willing to part with to invest or buy stuff.

ruveyn

Gold, silver and other metals can serve as a symbol of wealth, but they are not wealth.

Assuming that 50 million ounces of gold have been produced over each of the past 200 years, and that 75% of that is still in circulation, there is about 1.25 ounces of gold for each person alive. I don't think we can accurately represent the value of all the world's economic activity with so little gold. Moving to a gold standard would not only result in massive deflation, it would also result in massive transfer of wealth to those that own gold.

The money supply can't be controlled while on the Gold Standard. All one has to do is dig up a crapload of gold, and you've got yourself some serious inflation issues... (just a dissenting viewpoint to everyoone going on about deflation on the Gold Standard...)

Gold is rather scarce and rare and it takes a great deal of labor and capital to get any more of it. That is one of the reasons it is used as money.

ruveyn

The gold standard is possible, however rather ridiculous and something that would disrupt the gold market rather pointlessly. It does have significant deflationary problems.

It's easier to print new paper money than to dig up new gold.

Exactly. No one can 'go Mugabe' on the economy!

I'd rather have a silver standard to prevent the large deflationary problems.
Though just about anything would be better than our current fiat system.

Using silver instead of gold is not fundamentally different- it's just that there happens to be somewhat more silver. The issue of a static money supply would continue to exist just as much as it does with gold, and since the value of either metal is arbitrarily fixed in relation to its quantity and the demand for it, I doubt there would be any noticeable difference between a silver standard and a gold standard.

By the way, moving from a fiat currency to metal-backed currency is more than just a temporary inconvenience. The process that has to be gone through to replace fiat with gold or silver will result in mass starvation.

Please explain!

I would point to the historical experience of Imperial Russia and the efforts of Sergei Witte, who did successfully move Russia to the gold standard, but lost lots and lots of peasants in the process. In order to accumulate enough gold in the imperial treasury to use as backing for the currency, the Russian autocracy forced the peasants to sell their grain for export even as they were starving to death. Also, the type of massive upheaval that such a shift would require does not tend to go smoothly. No, better to stick with what works, make some improvements and modifications where needed, but a massive overhaul is just begging for something to go badly wrong.

And it is still easier to create checkbook money with computers.

ruveyn

The whole point of flat money is too simplify all variables and components pertaining to a normal standard of measure.

If we were to use gold...why not wood?, why not water? why not something more rare and expensive like rhodium?

What you want is simply no difference than organized battering, which is barely one step up from bartering whatever as value.

Flat money simplifies things, because it maintains money as a symbol of transaction of barter. Rather than having to complicate business by arguing over what the true value of each item is, you can come to common values and simplify the system so that you can maximize and maintain wealth across a system.

Additionally comes the problem of free market. In theory, if you can cause consumers to spend enough and reacquire enough money for their equivalent work, you eventually come to a stage where everyone can acquire anything, and thus maximize quality of life.

Having a limited system such as a physical material to express value, prevents a societies ability to achieve this stage of free market, perpetually preventing humanity from ever maximizing quality of life. Additionally achieving this theoretical height, would also result in the progress to maximizing technological, medical, and any other advancement known to man.

Think of it in these terms. If one has the efficiency to maintain a positive economy in this sense to near infinite heights...everyone would be equiavalent to a billionaire, who had to pay less than a cent for even expensive things such as extensive surgeries.

Now, theres theory and reality. While I doubt we will likely ever achieve THAT enormity of market ability(or at least not for billions and billions of years of evolution to a being new entity altogether)...a lesser comparison is still possible.

However, the problem is, the function works in its opposite as you fall. For each step you take up, each step down is considerably worse than the one below it. So if you have a massive decrease in efficiency after achieving such a height, think of it as someone opening up a whole case of whoopass on the world economy. Much worse than anything we could ever possibly imagine.

That is simply the way it is with money and market.