Gold Standard

[Wakeupcall]

What also has not been mentioned is that the value of many currencies if not all currencies at some stage have fallen flat on their face in front of gold at some stage in their lifetimes...

[dermo88]

Agree. The best performer of the Fiat currencies against gold since 1914 has been the Swiss Franc, and of the pre Euro currencies, the Dutch Guilder.

[rhonda15]

[ame=http://www.youtube.com/watch?v=nHPSmslIOfc]YouTube - Ron Paul - Gold Standard - Fox Business 1/30/09[/ame]

[20000miles]

Agree. The best performer of the Fiat currencies against gold since 1914 has been the Swiss Franc, and of the pre Euro currencies, the Dutch Guilder.

Up until 2002, the Swiss Franc was backed 40% by gold reserves. No wonder it performed so well!

[Seos]

But what if the new $10 is kept by the owners of the press under the guise of a bailout and used to buy up half islands supply of coconuts?

The bailout is a more complicated thing so we'd have to make our island more complicated. Ok now the island has, the public, businesses and banks and there is no printing press. The businesses loan gold from the banks to plant trees to grow coconuts to sell to the public which pay taxes to the government. Now a new group comes along called the speculators and they see that there are more people then houses on the island and buy houses with loans from the banks in order to sell them, they are making alot of money so many of the public join the speculators and more and more houses are built and more people join the speculators now everyone seems to be making alot of money and the banks see that even when people can't pay because the price of houses keeps going up they're making money anyway and so they give out riskier and riskier loans. Eventually though there are more houses then people but people keep buying and the price keeps rising and banks keep lending.

Eventually the coconut workers can't afford houses even with the riskiest loans. Then something none of the speculators thought could happen the price of houses fell and everyone thinks, "I better sell now before they fall again" and the price of houses keeps falling. The banks no longer make money when people default and they start losing money. Now, because there is 100% reserve gold, deposits are guaranteed but more people had invested their money with the banks other scheme as they had offered better and better deals so that they would have the money to loan. The banks know

I very very much doubt that it would be profitable to mine gold from outer space.

Not yet but the Chinese and americans already have plans to do so.

It's called The Economics of Deflation and is somewhere on this page: Mises Audio/Video Jörg Guido HülsmannJörg Guido Hülsmann

Basically he argues that people hoarding achieves the main objective of raising the purchasing power of money, and has little effect on the economy.

Remember that Austrians do not use the Keynesian "circular "flow"" diagram in explaining the economy.

Ok, I'll respond when I have time to watch or listen to that. Just started listening, I like the propaganda at the start.... All other economics are playing games, austrian economics is economics all the others are false.

I should have done more research. I'm certain the French haven't had a balanced budget for a while?? The US has still gone from the largest creditor nation in 1960 to the world's largest debtor nation today.

The French figures are harder to find, if I find them I'll link you to them.

The general principle is that gold forces governments to behave in line with economic realities. If you held a printing press in your bedroom that would print €'s for you on demand, it would have an extraordinary effect on your behaviour, right? You would live a very different life. It's the same for governments.

Governments have in the past done this, this didn't get them what they wanted so now governments know that printing money on demand can't be done all the time and they know the consequences.

That's right. And what are the implications of this point?

The implications are that gold having other uses is a disadvantage that has to be overcome rather than an advantage that makes it better for use.

I don't know precisely how much inflation/deflation there would be, but the forces you mention seem trivial to me, I'm afraid. I can't motivate myself to talk about them right now!! Sorry. I'll just mention that there are other metals which could potentially replace gold if people preferred: silver, platinum, palladium. Maybe even uranium (of course, we need a non-toxic metal when we're using coins!) The argument I would make for free market money does not depend on the particular choice of money.

So you withdraw the claim that there wouldn't be high inflation/deflation with gold?

8. Do you believe grossly irresponsible monetary policies are possible under the gold system?

If we are talking about a completely deregulated system, then the only institutions capable of grossly irresponsible monetary policies are individual privately held banks, which would be unable to externalise the costs of what they were doing and at the mercy of smarter competitors.

If we are talking about a government gold standard, with fractional reserves, then yes, you can have grossly irresponsible policies. But without the ability to print money completely at will, such a government is forced to comply with economic realities to a much greater extent.

So in both cases the end result is the same as no bailouts and allowing banks to fail and basically all the bad stuff we're trying to avoid right now?

9. Why do you think or act like you think inflation can only incentivise bad investment, instead of just incentivising all types investment which includes bad and good?

To the extent that inflation stimulates investment, it can only stimulate overinvestment, investment which is not compatible with society's genuine time preferences as expressed by what people would do if their wealth was not being transferred by the inflationists to the investment community.

In addition, inflation doesn't happen uniformly across the entire economy: it enters at particular points (the mortgage market, for example) thus creating gross imbalances in the structure of production.

With or without gold inflation/deflation wouldn't happen uniformly across the entire economy.
I don't think your definition of "overinvestment" is necessarily bad. This "overinvestment" could be investment in renewable technologies for example. I might prefer not to invest anything but I see that inflation is eroding my savings so I invest in what will earn me money.

10. What is the difference between an under-regulated badly audited fiat system and an under-regulated badly audited gold system?

Simply, that those who mismanage their affairs - in particular government and corporations - do not get bailed out so easily in a gold system.

That is a good thing? The alternative of no bailout is worse.

[Seos]

The correct description of the phenomenon is growth deflation

Half way through the lecture now. What I described is not growth deflation as that lecture describes! Growth deflation is when due to growth more is produced and the price of goods fall, this makes sellers ask for a lower price from suppliers and that makes them have to lower their costs including money wages (real wages may rise or fall).
What I described is that process in reverse order, in this case due to technological advance suppliers have lower costs and therefore lower their price to sellers who then lower their price for consumers, there is no fall in wages and there is a rise in real wages! Perhaps development-deflation is what this should be called if the other one is growth deflation.

I'll finish listening to the lecture before expanding on the consequences of that difference between what happened at the end of the 19th century and growth deflation as the lecture defines it.

[Irish Liberty Forum]

But you have already said that gold is preferable to fiat money because it maintains its purchasing power. Now you are saying that its purchasing power fluctuates and people might be better off in some circumstances holding dollars.

I would guess that a suit is cheaper today than it was in 1910, measured by how long an unskilled labourer would need to work to earn the dollars to buy one.

Like I said, there was a buying panic in 1980. People swapped paper money for gold as insurance against a monetary breakdown. To observe the stability of gold's purchasing power under the classical gold standard, you look at how the price level evolved during that era.

[Irish Liberty Forum]

Governments have in the past done this, this didn't get them what they wanted so now governments know that printing money on demand can't be done all the time and they know the consequences.

I guess my only response is to ask if you've been reading the news lately? Zero interest rate policies? Quantitative easing?

The implications are that gold having other uses is a disadvantage that has to be overcome rather than an advantage that makes it better for use.

Except that you don't know if gold is a better money than paper is, in which case we'd be better off using gold.

So you withdraw the claim that there wouldn't be high inflation/deflation with gold?

No I don't. The total gold stock is ~160,000 tonnes, with ~4000 tonnes mined each year.

As for people losing their gold, I don't see why people would want to carry coins instead of debit cards or banknotes. It's a trivial point.

So in both cases the end result is the same as no bailouts and allowing banks to fail and basically all the bad stuff we're trying to avoid right now?

The banks got into trouble precisely because of our inflationist boom-bust economic system, and bailing them out is only going to make things much, much worse in the long run.

With or without gold inflation/deflation wouldn't happen uniformly across the entire economy.
I don't think your definition of "overinvestment" is necessarily bad. This "overinvestment" could be investment in renewable technologies for example. I might prefer not to invest anything but I see that inflation is eroding my savings so I invest in what will earn me money.

Ok. So if I steal from you, that will motivate you to work harder, earn more money, and thus stimulate the economy, right? Exactly the same idea as what you've got there.

That is a good thing? The alternative of no bailout is worse.

Failed governments and corporations should be going going to the wall, not stealing from everybody else just to stay in business.

[Seos]

I guess my only response is to ask if you've been reading the news lately? Zero interest rate policies? Quantitative easing?

They understand the consequences of those policies. They believe that the consequences they are avoiding are worse then the consequences they are causing. They do not use the printing press for day to day costs as you suggest.

Except that you don't know if gold is a better money than paper is, in which case we'd be better off using gold.

huh?

No I don't. The total gold stock is ~160,000 tonnes, with ~4000 tonnes mined each year.

As for people losing their gold, I don't see why people would want to carry coins instead of debit cards or banknotes. It's a trivial point.

So right now the amount of gold increases by 2.5% a year and you say there wouldn't be

The banks got into trouble precisely because of our inflationist boom-bust economic system, and bailing them out is only going to make things much, much worse in the long run.

I disagree. So far your system is also boom-bust just you let the busts happen so they are "creative destruction" apparently.

Ok. So if I steal from you, that will motivate you to work harder, earn more money, and thus stimulate the economy, right? Exactly the same idea as what you've got there.

That is an entirely different point. Inflation can be seen as theft but it is not comparable with a single individual stealing from another individual.

Failed governments and corporations should be going going to the wall, not stealing from everybody else just to stay in business.

Actually what you're saying is more then failed governments going to the wall, the consequence would be the state going to the wall. I would rather my democratic state didn't go to the wall thank you very much and I fail to see how the inevitable dictatorship that would arise from the failure of the state would be a good thing!

Sure. But they already had an effective money supply on the island. If those who wanted to employ tree planters couldn't afford the labour, then we have evidence that the tree planters' labour was better spent elsewhere.

Do you follow what I'm saying? Inflating the money supply in that way only subsidises the hire of tree planters. It doesn't make anybody smarter or more capable of doing anything. It only shifts how the economy's resources are allocated. If we knew that planting trees was the right thing to do, and that only the subsidy to those who hire tree planters would make that happen, then we might be in favour of this inflation. But how would we know that?

The purpose of analogies like that is that the island's only produce is coconuts therefore only by increasing the amount of coconuts produced will there be economic growth. So yes resources have been reallocated that was the whole point, they have been reallocated from immediate consumption to future growth.

[Irish Liberty Forum]

They understand the consequences of those policies. They believe that the consequences they are avoiding are worse then the consequences they are causing. They do not use the printing press for day to day costs as you suggest.

They are wrong.

huh?

Well, you're saying that by using paper money, gold is freed up for other uses. Which is true. Maybe you personally would prefer not to use gold as money. But you've got no argument there for anyone else not to do that.

So right now the amount of gold increases by 2.5% a year and you say there wouldn't be

...do you know by what percentage fiat currencies increase?

I disagree. So far your system is also boom-bust just you let the busts happen so they are "creative destruction" apparently.

The gold standard implies sustainable economic growth with falling prices and a stable supply of money. No boom/bust cycle required. It's impossible to legislate against human error but it's clear that some systems punish it while others encourage it.

That is an entirely different point. Inflation can be seen as theft but it is not comparable with a single individual stealing from another individual.

You're right: it's huge, politically connected organisations stealing from savers, the poor and middle classes.

Actually what you're saying is more then failed governments going to the wall, the consequence would be the state going to the wall. I would rather my democratic state didn't go to the wall thank you very much and I fail to see how the inevitable dictatorship that would arise from the failure of the state would be a good thing!

How do you have a dictatorship without a state?

The purpose of analogies like that is that the island's only produce is coconuts therefore only by increasing the amount of coconuts produced will there be economic growth. So yes resources have been reallocated that was the whole point, they have been reallocated from immediate consumption to future growth.

You haven't understood the point. Read what I wrote again.