Why wouldn't the gold standard work?
BillJones
Posts: 33,966 ✭✭✭✭✭
I spent quite a bit of timing writing a response to a thread that got puffed. 
Since I could not put it on the system I decided to post it here for however long it lasts.
There is not enough gold in the world to back even the U.S. money supply let alone the world’s money supply. Unless the gold standard were set a something absurd, like $10 million an ounce (and that just a number out of air), the result would be a massive decrease in the money supply which would result in an economic collapse.
Additionally if the economy were to be about to grow under these conditions, the ratio of gold to dollars would have to be raised to maintain a workable money supply. The result would be to make the so-called gold standard as useless as the exercise Congress goes through to raise the debt ceiling every time they spend too much.
William Jennings Bryan was on to something when argued against “crucifying men on a cross of gold.” Limiting the money supply to the quantity of one commodity that a nation has is short sighted and silly. The trouble with Bryan’s ideas was that he put no limits on how much the money supply could grow.
Money is a lubricant to an economy. It is the oil and grease that keeps goods and services flowing efficiently. Like oil and grease if you put too much in, the seals on the an economy like an engine will leak and perhaps give way, leading to inflation. If you don’t lubricate enough and don’t increase the money supply with the size the economy, the parts will rub together and not operate as well. If you cut the money supply too much, the system will break down.
The gold standard is a 19th century anachronism that didn’t work well even when people thought it was working. The Panics (depressions or recessions) of 1837, 1857, 1873 and 1893 were all started at least in part when there was a shortage of gold in the economy. If government offices had been about to exercise monetary policy WISELY (and that is very important) outside the gold standard, there would have been a lot less human misery during those periods.
Since I could not put it on the system I decided to post it here for however long it lasts. There is not enough gold in the world to back even the U.S. money supply let alone the world’s money supply. Unless the gold standard were set a something absurd, like $10 million an ounce (and that just a number out of air), the result would be a massive decrease in the money supply which would result in an economic collapse.
Additionally if the economy were to be about to grow under these conditions, the ratio of gold to dollars would have to be raised to maintain a workable money supply. The result would be to make the so-called gold standard as useless as the exercise Congress goes through to raise the debt ceiling every time they spend too much.
William Jennings Bryan was on to something when argued against “crucifying men on a cross of gold.” Limiting the money supply to the quantity of one commodity that a nation has is short sighted and silly. The trouble with Bryan’s ideas was that he put no limits on how much the money supply could grow.
Money is a lubricant to an economy. It is the oil and grease that keeps goods and services flowing efficiently. Like oil and grease if you put too much in, the seals on the an economy like an engine will leak and perhaps give way, leading to inflation. If you don’t lubricate enough and don’t increase the money supply with the size the economy, the parts will rub together and not operate as well. If you cut the money supply too much, the system will break down.
The gold standard is a 19th century anachronism that didn’t work well even when people thought it was working. The Panics (depressions or recessions) of 1837, 1857, 1873 and 1893 were all started at least in part when there was a shortage of gold in the economy. If government offices had been about to exercise monetary policy WISELY (and that is very important) outside the gold standard, there would have been a lot less human misery during those periods.
Retired dealer and avid collector of U.S. type coins, 19th century presidential campaign medalets and selected medals. In recent years I have been working on a set of British coins - at least one coin from each king or queen who issued pieces that are collectible. I am also collecting at least one coin for each Roman emperor from Julius Caesar to ... ?
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Comments
I knew it would happen.
<< <i>I was in the wormhole when it got moved. Weird, one minute I'm in the Coin Forum and the next, I'm in the PM Forum. The Mod has awesome powers!
Think about it........we actually do need to be mindful of spending and balancing budgets, and not let the outstanding money supply grow out of control
The government could "partially" back the currency to give it stability.......a small ratio, even 10%, and set the gold price at some big goverment figure of say $10,000 per ounce.
What would happen?
My senses tell me that the market price realizing the backing of the $$ with some form of gold equivalent, at some nominal percentage, would send gold pretty damn close to the official government figure.....
Confiscation? Nope.
Gold would FLOW IN FROM ALL SOURCES at $10,000 per ounce. No need to confiscate anything. Who wouldnt sell at $10K per ounce?
<< <i>I agree -- tying an economy's money supply to a commodity is primitive. >>
Primitive yes. But is tying the money supply to a bunch of any politicians any more rational
Rising productivity with fixed gold supply = falling prices -- the more you work, the more you produce, the less you earn in gold
Anyone borrowing money for a house or factory is driven into forclosure as it becomes impossible to pay back the loans with the constantly increasing relative value of gold.
It's a downward death spiral where eventually the moneylenders end up with all the gold, resources, and means of production.
Still amazing to see the Republicans on Cspan ranting about how this recession would be over now if the government had made drastic cuts
in spending the past year.
Gold would FLOW IN FROM ALL SOURCES at $10,000 per ounce. No need to confiscate anything. Who wouldnt sell at $10K per ounce?
The same people who don't sell it at $1200 per ounce. If the government offers $10,000 per ounce to turn in gold -sure they could get a lot of it. But they would just have to print more fiat currency to get it and risk a total fiscal disaster and monetary system breakdown. Some people would sell it and others would hold on to it will all their being.
I totally disagree with fiat systems of currency. The currency should be backed by something solid other than just faith in government, even if it is copper or aluminum or land or well just about anything. As long as we have to ability to purchase precious metals or anything else with fiat currency it may be OK- but i am holding onto some gold and silver-all be what little i have. Inflation will eventually wipe out fiat currencies.
till amazing to see the Republicans on Cspan ranting about how this recession would be over now if the government had made drastic cuts in spending the past year.
Can we please keep the political statements off this forum?
<< <i> Still amazing to see the Republicans on Cspan ranting about how this recession would be over now if the government had made drastic cuts in spending the past year. >>
Way to go, brother. Another good thread ruined by a political interjection. Thanks a lot for your imput.
With regard to flexibility, and the implied price of gold, it is important to remember that even during the 19th century gold standard. most money way not gold. Gold was an anchor, but there were many other forms of money, including paper money, checking accounts/demand deposits, short term loans, etc. A gold standard combined with a sophisticated banking/financial system allows a high level of prudent leveraging. The requirement that money is convertible to gold creates a degree of discipline that is otherwise lacking.
With that said, I would tend to support Milton Friedman's suggestion that money supply be determined by computer algorithms that (a) allow growth in money supply consistent with projected real growth in the economy, and (b) can be updated periodically as conditions and knowledge change, but with constraints that avert short term manipulation.
Indeed. What we had in the 19th century was not a pure gold standard but a mixed one that allowed leveraging of loans, circulating paper currencies, etc. All it got us was the largest period of growth in the history of the nation (1866-1896). During many times of crisis (usually following wars) the gold standard was either suspended or basically ignored (1812-1821, 1861-1879, 1914-1919, 1933-1944, 1968-1971). Fact is, a partial gold standard as we once had could be very workable once again....assuming the banks would ever give up full control over the monetary system.
roadrunner
The Republicans have nothing to be proud of in terms of fiscal responsibility, but we are going for the all-time record in terms of Congressional recklessness and irresponsibility at this very moment.
Anybody seen a new job yet? Me neither, I guess they're all aimed at Congressional Districts that are seen as key Districts in the next election.
Frankly, Frank - I think that political bribes with public money should be prosecuted. That's almost as likely as the politicians in general going along with a Gold Standard.
I knew it would happen.
<< <i>
<< <i> Still amazing to see the Republicans on Cspan ranting about how this recession would be over now if the government had made drastic cuts in spending the past year. >>
Way to go, brother. Another good thread ruined by a political interjection. Thanks a lot for your imput. >>
The seeming "right" thing to do during a recession -- cut back drastically on spending -- seems the right thing to do but actually makes things worse.
Cutbacks should really be made during prosperous times -- but again -- human nature is to spend even more when times are good.
In both the Great Depression and today, the Republicans are right up there advocating that spending cuts will solve the problem, but actually will benefit the
rich at the expense of the working class. The difference is, that my fifth grade education great grandparents realized that, but today the lesser educated people
believe what Rush Limbaugh and Glenn Beck tell them to think.
in circulation. Perhaps between 0,25% to 0,5%. Then gold would
also have to be officially revalued upwards. Of course, I suppose that
no one including Sovereign Nations would be able to demand gold for
dollars since that would be only a small fraction. This would, however,
instill some measure of responsibility upon deficit spending. It may also
be necessary for the Sovereign Nations to limit the sale of gold to the
Government and to the makers of jewelery and certain industries.
Camelot
Gold would need a "huge" price in order to have enough available for this.
Of course, that doesn't mean I favor government induced inflation or a private, for banker friends, Federal Reserve either.
or even a Tri metal system ..say Gold, silver and platinum.
Platinum at 10K dollars, gold at 5K and silver at 100 an ounce.
With the added value of each and the addition of the other metals there might actually be enough to cover every single dollar out there.
There would be of course no gold or silver certificates ...you show up to the bank with 1000 dollars and the bank would pay you with the metal of their choice.
Groucho Marx
Even that
So, please, someone xplane...
Switch the word "bank" with "coin shop" and that is exactly what we have today.