Gold Standard

[20000miles]

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?

...which is a bad thing, no?

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.

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

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 ?

Yes, value is subjective.

See points 3 and 4 in my post here.

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.

"Fiat" means "command". The purchasing power of gold is not derived from governmental decree.

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.

There's that word again. Tisk, tisk, you mean use value right!?

There are too many hidden assumptions in that for me to even start to take it seriously. The cosmetic and industrial uses of gold don't have any meaning in terms of making the metal some kind of standard - strictly, the only value is that of scarcity, which is why primitive currencies have been based on whatever is locally rare. If we were basing things on utility value, there are hundreds of other better candidates - iron or oil being quite obvious ones.

Other things that make gold desirable are:

• difficulty of production
• homogenity
• high weight to value ratio
• non-perishability
• fungibility
• recognizibility
• demand for gold already exists

Iron is not valued highly enough to be money, and its superior uses in consumer items rule it out. Storing oil in a bank is very awkward, and very dangerous!!

I will point out, though, that you haven't made a case for the gold standard itself as yet. All I've seen so far suggests that it's simply an adjunct to libertarianism - something that would be necessary in a libertarian world economy, but not sufficient to create one.

Sure he has.

Link away! I'm very dubious about that claim. Is that saying there is no deflationary spiral?

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.

There have been 14 budget surpluses in the last 40 years in the US:
http://www.gpoaccess.gov/usbudget/fy04/pdf/hist.pdf

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.

But suppose someone discovers a goldmine containing another thousand tons of gold, isn't my 100 ozs of gold in the bank immediately devalued?

It is precisely because it takes many many years to find, plan, dig, refine and transport the gold that makes it superior as money.

Value is a subjective ranking of states of the world; the opportunity cost of something that is subjectively valued is measured by what has to be given up to acquire it; opportunity cost is driven by scarcity. (ibis's point may have been more clearly expressed had s/he said that the 'utility' (or 'usefulness' even), rather than the 'value', of a currency commodity is its scarcity.)

^^^ This.

Pretty good explanation of Austrian value theory and concept of opportunity cost.

[Seos]

2. What's stopping people using or trying to use gold coin now?

Legal tender laws. Central bank money is legal tender for all debts, public and private. Your taxes are payable in central bank money. Contracts in gold coins will not be defended in the same way as contracts in €s (e.g. if somebody defaults on a gold contract, compensation may be payable in €s!)

So gold is only the money people choose if the government is small? If someone believes governments should interfere and collect taxes then gold isn't necessarily the money they would choose.

[youngdan]

So this valuable gold is worth 7 valueless pieces of paper with €100 printed on them, plus another with €20 printed on it?

Even better than that. I can take my valueless paper and spend them before they become even more valueless.

In fact thousands of tons of gold has been bought from the central banks using this valueless paper.

There is a sucker born every minute Odyessus so borrow a mirror

[Irish Liberty Forum]

So gold is only the money people choose if the government is small? If someone believes governments should interfere and collect taxes then gold isn't necessarily the money they would choose.

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.

[Irish Liberty Forum]

But if gold is used as currency then it's use monetarily will compete with all it's other uses. As fiat money's only use is as money it's use monetarily does not compete with anything.

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

[Seos]

3. How would money supply be constant if people continue to lose the smallest denominations of it?

It wouldn't be.

4. How would money supply be constant when gold supply isn't?

It wouldn't be!

These two points where in response to you saying:

Without fiat money, there could be very little deflation or inflation. The money supply would grow or contract only as the supply of gold (and probably silver) grew and contraced.

So do you still think there would be very little deflation or inflation?

(See full post which I linked to earlier: http://www.politics.ie/1327336-post13.html )

5. If money supply is made independent from gold supply then wouldn't it just be paper money that's "printed" on gold coins?

I'm sorry I don't understand this question.

The supply of central bank money *is* independent of gold supplies. Could you please rephrase?

This relates to questions 3 and 4 (I should have made it clearer that the questions where just part of the post)

I meant in the gold standard system if money supply is made independent from gold supply then wouldn't it just be paper money that's "printed" on gold coins?
Making it independent from gold would be in order to fulfil your claim of it depending only on supply.

[Irish Liberty Forum]

Value is a subjective ranking of states of the world; the opportunity cost of something that is subjectively valued is measured by what has to be given up to acquire it; opportunity cost is driven by scarcity. (ibis's point may have been more clearly expressed had s/he said that the 'utility' (or 'usefulness' even), rather than the 'value', of a currency commodity is its scarcity.)

Yes, this is a good explanation. With respect to the previous point, different metals, besides having different levels of scarcity, also have different properties and potential uses. As subsequently pointed out with an example by 20000.

[Odyessus]

Even better than that. I can take my valueless paper and spend them before they become even more valueless.

In fact thousands of tons of gold has been bought from the central banks using this valueless paper.

There is a sucker born every minute Odyessus so borrow a mirror

If you are implying that people who believe in fiat currencies are suckers, what would you call those who believe only gold is valuable, and prove it by quoting how much fiat currency they can buy with it?

[20000miles]

Might I suggest that Seos and ILF use the "multiquote" button when debating the individual points. It's the button next to the quote button. It could make the forum less cluttered.

[Odyessus]

...which is a bad thing, no?



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



Yes, value is subjective.

See points 3 and 4 in my post here.



"Fiat" means "command". The purchasing power of gold is not derived from governmental decree.



There's that word again. Tisk, tisk, you mean use value right!?





Other things that make gold desirable are:

• difficulty of production
• homogenity
• high weight to value ratio
• non-perishability
• fungibility
• recognizibility
• demand for gold already exists

Iron is not valued highly enough to be money, and its superior uses in consumer items rule it out. Storing oil in a bank is very awkward, and very dangerous!!



Sure he has.



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.



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.



It is precisely because it takes many many years to find, plan, dig, refine and transport the gold that makes it superior as money.



^^^ This.

Pretty good explanation of Austrian value theory and concept of opportunity cost.

You didn't answer my question. If I had lots of gold in the bank, it would surely be in my interest for it to remain scarce. Is it not conceivable that huge gold deposits could be found which were relatively easy to extract, plunging all previous gold-holders into poverty?