Gold Standard

[ibis]

If a return to a gold standard were particularly suited to resolving the present difficulties, it wouldn't have been suggested, incessantly, for the past 35 years.

I appreciate that, which is a large part of why I ask the question. Every gold standard article I've ever read (it's not that many, but it's more than a couple) starts with a ritual denunciation of the evils of everything else, in language rather more suited to propaganda or religion than economics. This is a good example of the genre, from the Mises Institute:

When this essay was published, America was in the midst of the Bretton Woods system, a Keynesian international monetary system that had been [COLOR="Red"]foisted[/COLOR] upon the world by the United States and British governments in 1945. The Bretton Woods system was an international dollar standard [COLOR="Red"]masquerading[/COLOR] as a “gold standard,” in order to lend the [COLOR="DarkGreen"]well-deserved prestige[/COLOR] of the world’s [COLOR="DarkGreen"]oldest and most stable[/COLOR] money, gold, to the increasingly [COLOR="Red"]inflated and depreciated[/COLOR] dollar. But this post-World War II system was only a [COLOR="Red"]grotesque parody[/COLOR] of a gold standard.

So, we see that gold is ""oldest and most stable", has "well-deserved prestige", while other systems are "grotesque parody", "foisted", "masquerading", "inflated and depreciated".

This is not an article I am going to accept as having an objective point of view on the gold standard.

[20000miles]

This is not an article I am going to accept as having an objective point of view on the gold standard.

How can you criticise a school of thought that claims to be only value neutral about the subject of economics.

I'll attempt to defend Murray's honour here, just for fun:

When this essay was published, America was in the midst of the Bretton Woods system, a Keynesian international monetary system that had been [COLOR=red]foisted[/COLOR] upon the world by the United States and British governments in 1945.

The Bretton Woods system arose by government decree, not voluntary market actions. In this sense it was foisted.

The Bretton Woods system was an international dollar standard [COLOR=red]masquerading[/COLOR] as a “gold standard,”

The Bretton Woods system was not a Gold standard in the classical sense. Individuals were not allowed to redeem their dollars for specie. How can this be considered any sort of tangible gold standard. Similarly, the system still allowed the US to print as many dollars as it wished. Richard Nixon, by closing the gold window in 1971, effectively declared the US to be bankrupt.

in order to lend the [COLOR=darkgreen]well-deserved prestige[/COLOR] of the world’s [COLOR=darkgreen]oldest and most stable[/COLOR] money, gold,

Is gold not a stable money? Does it not keep it's puchasing power? Has it not been used for centuries?

to the increasingly [COLOR=red]inflated and depreciated[/COLOR] dollar. But this post-World War II system was only a [COLOR=red]grotesque parody[/COLOR] of a gold standard.

American Governments have consistently debased dollars, as I have pointed out above.

[Dios]

The part about restricing government spending is vitally important - the US hasn't had a single balanced budget in 40 years.

American Governments have consistently debased dollars, as I have pointed out above.

The US dollar is the de facto currency of global trade. That means uncle sam gets a little cut of every international trade made. It also means they can inflate their currency with relative impunity - we're effectively living in their Zimbabwe. You didn't think that successive US governments would intentionally embark on a self destructive course, did you?

Is gold not a stable money? Does it not keep it's puchasing power?

As it turns out, not really. In the mid to long term view, the world at large is reaching upwards into orbit and beyond for a variety of reasons, primarily scientific but ultimately financial. There are hundreds of millions of large boulders just floating around up there with individually more raw iron, gold, platinum, copper, and sundry materials than ever have been mined from the earth's surface or ever could be mined. We've already reached these rocks, even landed on them. It won't take long (four or five decades) before we start to exploit these essentially infinite resources.

Of course, that will have more profound effects on economies than just changing a fiat currency, but it does underline the futility of using one particular yellow metal as a backing for your economic system.

[fionnmccool]

Is gold not a stable money? Does it not keep it's puchasing power? Has it not been used for centuries?

Isnt' the value of gold still subjective though, just like anything else ? If gold holds its value then isnt' there less incentive to invest it's value in anything else ?

[ibis]

Isnt' the value of gold still subjective though, just like anything else ? If gold holds its value then isnt' there less incentive to invest it's value in anything else ?

The advantage is supposed to be that while gold's value is itself a form of fiat value - in that it is sustained only by belief in its value - the limited supplies of it mean that a government cannot simply print more.

That doesn't prevent capitalist economies from blowing up, or governments from going into debt, of course, since both those things happened at regular intervals throughout the history of metallic-standard currencies. In fact, bar devaluation, it's hard to think of anything it does prevent - and devaluation can be prevented by the rigid currency pegs that are part of the gold standard system, without actually having any reference to gold.

[Wakeupcall]

According to information that I have read...

The dollar was redeemable in gold. Then they got rid of that and made it "just paper" calling it "legal tender". Then they called in the gold that people may have had such as jewellary and watches. I also read there was a prison sentence if you didnt hand over your gold.

Pretty dodgy pattern if its true...

[Irish Liberty Forum]

The advantage is supposed to be that while gold's value is itself a form of fiat value - in that it is sustained only by belief in its value - the limited supplies of it mean that a government cannot simply print more.

That doesn't prevent capitalist economies from blowing up, or governments from going into debt, of course, since both those things happened at regular intervals throughout the history of metallic-standard currencies. In fact, bar devaluation, it's hard to think of anything it does prevent - and devaluation can be prevented by the rigid currency pegs that are part of the gold standard system, without actually having any reference to gold.

Ok, a couple of things to clear up. First, all economic value is subjective, whether that good is the medium of exchange or a Maserati. The term "good" only has meaning for an item with respect to the subjective valuation attached to it by a prospective consumer.

On the other hand, we can say that gold has intrinsic value because of the qualities of this metal which many people do in fact find valuable. This no longer theory: this is a real-world, historical interpretation. Gold has industrial and cosmetic uses which are highly valued by many people. It also satisfies all the properties of a medium of exchange better than any other commodity.

Similarly, we can say that government paper money does not have intrinsic value, since there are negligible non-monetary uses for it. If it wasn't for the status of euros as legal tender, it's hard to see where the demand for them would come from.

It's possible for gold standard economies to suffer booms and busts, bank failures, and government bankruptcy, but the dynamics are very, very different. Also, while we can think of the gold standard to mean a gold-backed government money monopoly instead of an unbacked government money monopoly, we can also think of the gold standard to mean "free market money", i.e. the money that would emerge from its competitive production, i.e. free banking in a decentralised legal system (that implies among other things the abolition of coercive legal tender laws, currency pegs, bank holidays, and fraudulent fractional reserve arrangements). The gold standard alone (in the former sense of the term) is not enough to prevent important factors which tend to lead to major boom/bust scenarios.

[ibis]

According to information that I have read...

The dollar was redeemable in gold. Then they got rid of that and made it "just paper" calling it "legal tender". Then they called in the gold that people may have had such as jewellary and watches. I also read there was a prison sentence if you didnt hand over your gold.

Pretty dodgy pattern if its true...

So people from the US have no personal gold jewellery, then....while we in Europe, of course, have no bent bananas. There's certainly a pretty dodgy pattern there alright.

[rhonda15]

Gold and Economic Freedom

by Alan Greenspan


An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense-perhaps more clearly and subtly than many consistent defenders of laissez-faire -- that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.

Alan Greenspan - Gold and Economic Freedom

[Irish Liberty Forum]

According to information that I have read...

The dollar was redeemable in gold. Then they got rid of that and made it "just paper" calling it "legal tender". Then they called in the gold that people may have had such as jewellary and watches. I also read there was a prison sentence if you didnt hand over your gold.

Pretty dodgy pattern if its true...

That's pretty much what happened. It's why many people think of modern government money as counterfeit paper. If somebody printed paper and tried to pass if off as money in a strict gold standard, they could be prosecuted for fraud (or, if they admitted it was just paper, nobody would touch it.)