The Gold Standard

Cielingcat · Post by **Cielingcat** » Fri Sep 12, 2008 1:54 am

So the newest fad on a forum I visit is a crazy Objectivist posting about how the only way to save the economy is to remove taxes completely and return money to the gold standard. Besides the insanity of the no-tax thing, wouldn't a gold standard simply put a ceiling on the amount of money you could have in your economy and cause massive shifts in the value of money based on the value of gold?

Absentminded_Wizard · Post by **Absentminded_Wizard** » Fri Sep 12, 2008 2:21 am

Does this person actually want to remove *all* taxes (including tariffs) or just the income tax? They're both pretty insane, but one is more insane than the other.

As for the gold standard: The traditional reason for loving the gold standard is the idea that it puts a ceiling on inflation because only so much gold gets mined per year. So basically, some people think limiting the amount of money in the economy is a good thing. Now, I'm not an expert on inernational financial institutions by any means; but I would think that in a global financial system where the U.S. is on the gold standard and everybody else isn't, there would be all sorts of potential for wild fluctuations. Then again, it's not like there aren't wild fluctuations in currency values now.

The most damning thing to be said about going back to the gold standard is that it would probably be a meaningless act. Since hyperinflation of the kind common in Third-World countries hasn't been a problem in the U.S. for decades, it's a solution in search of a problem.

Crissa · Post by **Crissa** » Fri Sep 12, 2008 6:01 am

It would mean the US would be stuck to a tiny, tiny economy. By which I cannot make something that someone else values, and the country cannot tax it.

Of course, without taxes, you don't care what standard your economy is on, but you prefer something you personally can produce.

Since most of us cannot produce gold, we don't want that.

-Crissa

Username17 · Post by **Username17** » Fri Sep 12, 2008 7:06 pm

The concept of the gold standard is rooted in the ideals of Mercantilism. The idea is that there is a fixed amount of wealth in the world and that one performs acts of trade with winners and losers - that things have a natural value and that you can gain wealth through trade only by extorting people to pay more than an item's natural value through imperfect knowledge or regional blight.

This is malarky, and we've known that it was malarky since 1867. In reality, labor creates wealth. In the case of farming this is literal, where the physical goods did not exist before labor was invested, but this is no less true for manufactured goods. A table is simply more valuable than a pile of lumber, and it gets that way because effort is expended on the lumber to make it more valuable.

So when you have gold as your medium of exchange, you screw yourself. The amount of accessible wealth is fixed with the amount of tradable currency, which in the case of a physical metal is itself fixed. And that means that the amount of wealth that people will produce will be restricted. In short: switching to a gold standard would cause massive unemployment and a huge reduction in the standard of living of everyone on Earth. There would be an absolute ceiling on how much could be produced for the market and excess production would back up and push people out of the economy altogether.

Think Great Depression. Farmers can't sell the grain they have so they don't spend their gold on making crops for the next year. Factories can't sell the current stock so they lay off all the workers. Artificial demand caps crush the economy like an empty soda can.

-Username17

Fwib · Post by **Fwib** » Sun Sep 14, 2008 12:48 am

I took estimates of all the gold ever mined and Gross World Product (wealth created in a year in the world? Not sure about wealth destroyed) and dividing one by the other, came to the conclusion that on the gold standard, the value of gold ought to rise by several thousand dollars per ounce per year.

Have I messed up my thought-experiment, or does it show a problem with the gold standard idea?

Username17 · Post by **Username17** » Sun Sep 14, 2008 4:26 am

Fwib wrote:I took estimates of all the gold ever mined and Gross World Product (wealth created in a year in the world? Not sure about wealth destroyed) and dividing one by the other, came to the conclusion that on the gold standard, the value of gold ought to rise by several thousand dollars per ounce per year.

Have I messed up my thought-experiment, or does it show a problem with the gold standard idea?

That's about right, yeah.

-Username17

Draco_Argentum · Post by **Draco_Argentum** » Sun Sep 14, 2008 4:36 am

Are you talking now? We aren't on a gold standard anymore so the numbers wouldn't line up.

Crissa · Post by **Crissa** » Sun Sep 14, 2008 4:59 am

Exactly, Draco.

-Crissa

SunTzuWarmaster · Post by **SunTzuWarmaster** » Sun Sep 14, 2008 1:23 pm

His point was that the numbers would have to be continually adjusted (wild variation).

Cielingcat · Post by **Cielingcat** » Wed Sep 17, 2008 7:15 pm

The person who sparked this question for me is now citing this article. A lot.

From my understanding the article is basically Alan Greenspan claiming that gold is necessary to freedom and the removal of it is a conspiracy of the "welfare state."

Username17 · Post by **Username17** » Wed Sep 17, 2008 8:33 pm

Ah yes, back when Alan Greenspan was even crazier than he is now.

Of course, that article is from 1966. Alan Greenspan in 2005 had this to say:

Alan Greenspan to Ron Paul in July, 2005 wrote:So that the question is: Would there be any advantage, at this particular stage, in going back to the gold standard?

And the answer is: I don’t think so

A common tactic of Randroids is to quote mine people. Putting up articles from someone twenty years and a noble prize before they were appointed to real power and claiming that it's their current opinions is pretty standard.

-Username17

Draco_Argentum · Post by **Draco_Argentum** » Thu Sep 18, 2008 8:53 am

Is your opponent claiming that Greenspan believe that or is he claiming that the article makes sense? The latter is fine (although his position is wrong) the former is just dishonest. Especially if hes claiming that you are wrong because Greenspan likes the gold standard.

Absentminded_Wizard · Post by **Absentminded_Wizard** » Thu Sep 18, 2008 7:00 pm

It's interesting that Greenspan mentions banking in that article. Once you realize that banks are in the business of creating "virtual money" that doesn't physically exist, the idea that currency must be a physical object is dead.

Seriously, all the arguments in this thread are based on the results of going back to the gold standard. We all overlooked the possibility that your opponent was actually arguing that gold has some inherent quality that makes it the only good money. That's some seriously outdated economic thinking that, obviously, even Greenspan repudiates in this day and age.

Cielingcat · Post by **Cielingcat** » Thu Sep 18, 2008 7:03 pm

His argument is that the gold standard will stop the Federal Reserve from printing money and causing inflation.

Absentminded_Wizard · Post by **Absentminded_Wizard** » Thu Sep 18, 2008 7:09 pm

So when's the last time we had a bout of inflation caused by the Fed printing too much money?

Surgo · Post by **Surgo** » Thu Sep 18, 2008 7:40 pm

I don't understand everybody's argument of going back to the gold system especially in light of when you consider that cold hard cash, in a way, acts as gold used to. How many times have you actually payed "real" money to complete a transaction lately, compared to the amount of times you used a check, credit card, or some other non-cash transaction?

TarkisFlux · Post by **TarkisFlux** » Thu Sep 18, 2008 8:09 pm

You don't need the gold standard to stop banks from pulling money out of an inkwell, you just need to set the fractional reserve rate to 100%. As soon as banks can't loan out 4 times what they have in deposits they stop creating money and can only redistribute it. There's no reason to tie your whole economy to some random material (and it's value fluctuations) while you're at it.

Credit markets would be totally screwed of course and it would be fucking hard to get a loan, but that doesn't seem to be a concern since this one magic step would stop inflation and save the universe.

Cielingcat · Post by **Cielingcat** » Wed Sep 24, 2008 6:58 pm

His arguments all seem to be pulled from a blog site, http://thegoldbugnet.blogspot.com/ by one Howard S. Kantz.

To Bigode below:

I figured out why; I accidentally put a comma after the url. Fixing it now.

Bigode · Post by **Bigode** » Wed Sep 24, 2008 7:28 pm

The blog seems to have ceased to exist. Also, while I wouldn't hype my Google-fu, some search also fails to unearth anything worth noting ...

To Cielingcat above: Google turning nothing's still amusing, but yeah - it's there.

Lago PARANOIA · Post by **Lago PARANOIA** » Thu Sep 25, 2008 7:11 am

The gold standard is fucking stupid. It's so stupid that the fact that Obama has several economic advisers from the Chicago school (the Chile economy rape thing aside) makes me want to hurl.

This website will go into some of the details below without all of my swearing. Enjoy, assbandits.

http://www.huppi.com/kangaroo/L-gold.htm

Bigode · Post by **Bigode** » Thu Sep 25, 2008 2:50 pm

Will read the link later; but what happened to your AM3P version? Sure, PARANOIA (with Caps and all) probably fits you well anyway ...

Lago PARANOIA · Post by **Lago PARANOIA** » Thu Sep 25, 2008 3:55 pm

I lost my password.

It was time for a change, anyway.

Lago PARANOIA · Post by **Lago PARANOIA** » Thu Sep 25, 2008 3:59 pm

Actually, here's a quick question.

How come people didn't just use fiat money much much earlier? A gold standard based on fractional reserves works almost the same as one based on fiat money except for the fact that a fiat system isn't dependent on deflation. I mean, gold is just an arbitrary metal. Why not cows or rubies or some bullshit?

Cynic · Post by **Cynic** » Thu Sep 25, 2008 4:21 pm

Lago PARANOIA wrote:Actually, here's a quick question.

How come people didn't just use fiat money much much earlier? A gold standard based on fractional reserves works almost the same as one based on fiat money except for the fact that a fiat system isn't dependent on deflation. I mean, gold is just an arbitrary metal. Why not cows or rubies or some bullshit?

Well, as far as I can remember from Macro-econ way back in '02, it was actually silver that was the international standard until the 19th or 20th century. I'm going to stipulate that it probably started changing at this time because of America's emerging power status and the crazy amount of gold we had discovered in our areas. This seems a weak assumption, of course, to push everyone on to the gold standard.

As far, why not cows or rubies, cows are perishable for one and common for another. A perishable currency does not make a good currency.

RUbies --- amount and extraction and stuff?

Username17 · Post by **Username17** » Thu Sep 25, 2008 4:35 pm

The first coins are copper ingots set in value to one ox hide. The problem with fiat money early on was that there wasn't a "government" that anyone considered to exist. Fiat money only became possible with the advent of Nationalism. Which means that before the 19th century it wasn't even an option.

The Chinese Emperor experimented with paper money and it came out with a resounding failure. It was called "flying money" because you coud make paper airplanes out of it. Since a number of people didn't know what emperor they were nominally living under in those days, an imperial guaranty of value wasn't worth much. Worse, the printing techniques of the period weren't up to the standards of today as forgers could simply make copies.

-Username17