The Gold Standard

[JustPassinThru]

I went over to the Constitution Party site (https://www.constitutionparty.com/our-principles/platform-and-resolutions/), just to see what those guys were all about.  Some decent stuff, but some of their positions (e.g., return to the gold standard) are a bit loopy; and their stances on foreign policy and national defense are downright dangerous: did they learn nothing from the 20th Century? 

All in all, they remind me of earnest doctrinaire libertarians with a different take on certain social issues. 

As a matter of politics, their primary weakness is the assumption -- almost certainly unfounded -- that most people understand and share their view of the Constitution.  The CP treats the Constitution as a fixed guide, upon which all agree, and as such it is the starting point for further discussion. 

But they've got it backwards: the Constitution is the culmination of the Founders' thinking.  It represents the end point -- no further discussion: this is what the government looks like.  Unfortunately, the reality of modern politics is that not everybody has the same views on the Constitution.  The debate has to be held again.

Two things here.

First, return to the Gold Standard.  Sounds loopy on the face of it, doesn't it?  I thought so, too...twelve years ago at NewsMax when some cerebral conservative advocated it...quietly.

We had many discussions over it.  Some I lost; some I thought I won.  But the weaknesses of fiat currency were explored.  Along with its history - which is ONE HUNDRED PERCENT failure.  Because Man being what he is, he lacks the will to resist abusing it.  An individual might.  A structure might be set up that makes it hard to do.  Eventually, enough corrupt opportunists WILL abuse it - which is what we are seeing right now with Quanitative Easing I, II, III, IV, V....never to end. 

Until the dollar collapses.  IN SPITE of the Federal Reserve being set up as independent from the Congress, to be the nonpartisan steward of the dollar.  In SPITE of monetary controls.  In SPITE of separation of powers, and all those powers isolated from the Fed, which is also isolated from the People and the States.

In the end, the Political Elite class got a number of their own in there; and by tacit agreement, they found it expedient to debase the currency to enable political officeholders to reward their cronies out of the public coffers and off the printing presses ("Stimulus").

A gold standard makes that impossible.  And ONLY a PM standard can withstand the political tendencies of a corrupt elite class in control.  Can limit their power and thus make it more possible to remove them and reform government.

On to the other:  The Constitution was the best-conceived expression of Classical Liberal political philosophies; but it was by no means the final word.  Which was why two methods of amending it were prescribed within the document.

This was an untried experiment; and it took the Articles of Confederation much further.  Never before was a strong but restrained central government tried.  The first, most logical solution was a loose confederacy - as the Colonies had before Independence.  That was found to be unworkable.

The great thinkers of the Revolution incorporated the ideas of Enlightenment philosophers, Montesquieu and Locke and others...ideas that were described but never-before tried.

They worked.  Beyond even the Framers' belief.  And so long as we stayed true to them, they continued to work.

In the last hundred years, we've slowly corrupted them...especially with Direct Election of Senators.  They no longer work so well.  We also have grown a new nobility, the Political Class...and we desperately need Term Limits to remove them.

[r9etb]

First, return to the Gold Standard.  Sounds loopy on the face of it, doesn't it?  I thought so, too...twelve years ago at NewsMax when some cerebral conservative advocated it...quietly.

Britain tried to go back on the gold standard in 1925.  It was a disaster, for various reasons (e.g., it made British industry uncompetitive relative to non-gold standard countries).  The underlying problem is that "money" is a rather imprecise thing: if you use a credit card and pay it off in installments, both the credit and the interest you pay represent "money" for all intents and purposes, in a way that is difficult to tie to gold.  In essence, tying certain prices to gold ends up dislocating pricing structures. 

On to the other:  The Constitution was the best-conceived expression of Classical Liberal political philosophies; but it was by no means the final word.  Which was why two methods of amending it were prescribed within the document.

Rather beside the point.  They did not assume perfection; however, they did assume a general agreement on underlying principles; plus which, Adams' "Moral and religious people" were assumed generally to share essentially the same values about right and wrong, duty, responsibility, and so on. 

... So long as we stayed true to them, they continued to work.

In the last hundred years, we've slowly corrupted them...especially with Direct Election of Senators.  They no longer work so well.  We also have grown a new nobility, the Political Class...and we desperately need Term Limits to remove them.

Well, yes.  That's precisely my point.  Our culture no longer corresponds to the type of "moral and religious" culture upon which the Founders built their Constitutional ideas.  And partly as a result, the current political structure no longer corresponds to the Constitution as it is understood by the Constitution Party. 

To take our political structure back to the sort of Strict Constructionist view of the Constitution without first establishing an underlying cultural foundation and broad consensus, is to invite a massive rejection.  Just consider how expensive a lack of consensus on slavery turned out to be.

As a matter of politics, the Constitution Party has to find ways to engage in meaningful public debate on what a modern government ought to look like.  They can't just be a protest vote.

[JustPassinThru]

Britain tried to go back on the gold standard in 1925.  It was a disaster, for various reasons (e.g., it made British industry uncompetitive relative to non-gold standard countries).  The underlying problem is that "money" is a rather imprecise thing: if you use a credit card and pay it off in installments, both the credit and the interest you pay represent "money" for all intents and purposes, in a way that is difficult to tie to gold.  In essence, tying certain prices to gold ends up dislocating pricing structures.

I don't see the problem here.  When you tie the dollar to gold, redeemable in gold, then you fix the dollars in circulation, and thus guarantee a stable dollar.  If the nation becomes richer and can own more gold, then more dollars, which with a Gold Standard would be claims against the nation's wealth in gold...more dollars can then be circulated.

When someone borrows money, credit-card or whatever...he promises to repay the principle plus the interest.  That is, he promises to pay the amount borrowed PLUS he promises to pay money for the service of the bank or finance-company allowing its money to be used for the borrower's purchase.

That is simply payment for a service; the service being providing capital when the individual did not have it.

Rather beside the point.  They did not assume perfection; however, they did assume a general agreement on underlying principles; plus which, Adams' "Moral and religious people" were assumed generally to share essentially the same values about right and wrong, duty, responsibility, and so on. 

Well, yes.  That's precisely my point.  Our culture no longer corresponds to the type of "moral and religious" culture upon which the Founders built their Constitutional ideas.  And partly as a result, the current political structure no longer corresponds to the Constitution as it is understood by the Constitution Party.

The problem of the last hundred years, as I see it, is that people have influenced amendments to the Constitution, and now interpretations in court of the Constitution, who have little understanding of the underlying political philosophy; and no interest in learning.  And CONSIDERABLE interest in pushing the agenda of the hour, the novel, the trendy, the momentary passion.  All the things a written Constitution were intended to suborn.

To take our political structure back to the sort of Strict Constructionist view of the Constitution without first establishing an underlying cultural foundation and broad consensus, is to invite a massive rejection.  Just consider how expensive a lack of consensus on slavery turned out to be.

As a matter of politics, the Constitution Party has to find ways to engage in meaningful public debate on what a modern government ought to look like.  They can't just be a protest vote.

I don't think it's a matter of debate so much as old-fashioned EDUCATION.  And misinformed or ignorant people holding public seminars will do more harm than good.

Witness some of the threads here, which may or may not represent the party.  The "CONSTITUTION PARTY" advocating Internet censorship?  Yes, of porn.  Nobody is "for" porn - at least not in this kind of discussion group.  But to give the government the power to ban and censor pornography over the Internet, is to give the government the power to ban and censor over the Internet.  Porn will be the Slippery Slope.  Soon after, it will be ideas and political positions that the government rejects, which will be censored - and pornography, the opiate of the low-intellect masses, will be ignored and even encouraged.

So...obviously there are many in the so-called Constitution Party which have little understanding of Federalism or the danger of government control over media.

That's just one example.  I'm sure there are others but since this party is scarcely registering...I'm not going to knock myself out researching it.

[Smokin Joe]

I don't see the problem here.  When you tie the dollar to gold, redeemable in gold, then you fix the dollars in circulation, and thus guarantee a stable dollar.  If the nation becomes richer and can own more gold, then more dollars, which with a Gold Standard would be claims against the nation's wealth in gold...more dollars can then be circulated.

Actually, I do at this point. It is this. If you have 26000 in savings right now, that's worth roughly 20 ounces of gold. Like what happened in 1933, if the pegged value of gold changes, your money will be worth more or less, unless you are holding gold.

Currently, there are trillions of dollars out there, most not physical money, but on the books. Peg that to current gold reserves, and those dollars spread out over the number of ounces will be worth far less. Even with some semblance of fractional reserve banking, those dollars, instead of each buying 1/1300th of an ounce of gold will buy a significantly smaller fraction. I don't pretend to know what the actual numbers would be, but the price of an ounce of gold would soar, and the value of a dollar (in savings, the mattress, buried in the back yard, or in your pocket) would plummet.

Now while living in that 14 million dollar house might seem like a neat thing, only if you are going to sell it for those inflated dollars. That 40K job wouldn't buy bread any more, much less pay the property taxes. Anyone not holding gold would be crushed by the inflation of the currency over night.

Something similar happened in 1933, when the value of gold (after confiscation) was re-pegged at $35 an ounce, after gold had been 'redeemed' at 22.50. The value of those paper dollars dropped 40% overnight. That effect was bad enough, but suppose you decide to sell your (formerly 250K) now 14 million dollar house. Who is going to buy it? Your savings are worth only a small fraction of what they were worth, in terms of ounces of gold, because to cover the number of dollars in existence, the ounces have to be worth a lot more dollars.

Nope. At this point the effect would collapse the dollar like Zimbabwe.

[JustPassinThru]

Actually, I do at this point. It is this. If you have 26000 in savings right now, that's worth roughly 20 ounces of gold. Like what happened in 1933, if the pegged value of gold changes, your money will be worth more or less, unless you are holding gold.

Currently, there are trillions of dollars out there, most not physical money, but on the books. Peg that to current gold reserves, and those dollars spread out over the number of ounces will be worth far less. Even with some semblance of fractional reserve banking, those dollars, instead of each buying 1/1300th of an ounce of gold will buy a significantly smaller fraction. I don't pretend to know what the actual numbers would be, but the price of an ounce of gold would soar, and the value of a dollar (in savings, the mattress, buried in the back yard, or in your pocket) would plummet.

Now while living in that 14 million dollar house might seem like a neat thing, only if you are going to sell it for those inflated dollars. That 40K job wouldn't buy bread any more, much less pay the property taxes. Anyone not holding gold would be crushed by the inflation of the currency over night.

Something similar happened in 1933, when the value of gold (after confiscation) was re-pegged at $35 an ounce, after gold had been 'redeemed' at 22.50. The value of those paper dollars dropped 40% overnight. That effect was bad enough, but suppose you decide to sell your (formerly 250K) now 14 million dollar house. Who is going to buy it? Your savings are worth only a small fraction of what they were worth, in terms of ounces of gold, because to cover the number of dollars in existence, the ounces have to be worth a lot more dollars.

Nope. At this point the effect would collapse the dollar like Zimbabwe.

Okay.  If the gold standard is MANIPULATED, then of course holders of dollars lose money.

How about now, when with this huge Quanitative Easing, they're JUST RELEASING DIGITIZED DOLLARS INTO THE ECONOMY?

HALF of the Federal budget now is made up of "New" dollars.  You don't see it totally reflected in the marketplace price - because the Federal Reserve is using large banks as money-launderers.  The money is given to the banks at ZERO percent at the Fed Discount Window - not a window anymore, of course.

And Glass-Steagal has been repealed.  The banksters are taking this new money and going ape in the Stock Markets.  BUYING SECURITIES - with borrowed money.  Gee, what could go wrong with that?

That's why the Dow and NASDAQ are hitting record highs while the economy is cratering and companies are closing.  The buying pressure is all from Chase and other big banking gangs - and they don't care, they're buying, paying themselves commission...and they will sell on signal, too, and the little investors, the "Muppets" will be slaughtered.  As they were in 2009 but worse.

Eventually all this New Dollar supply will trickle into the real economy...and we WILL have hyperinflation.

The Gold Standard would have prevented any and all of this.  If corrupt public officials, like Roosevelt, manipulate the value of the dollar...yes, Americans lose money.  But that is a conscious, obvious action - which public demand can prevent and criminal prosecution can answer.  And should.

Inflation is the stealth robber of dollar-wealth.  And that's what our corrupt elites in government WANT right now.

[Smokin Joe]

Okay.  If the gold standard is MANIPULATED, then of course holders of dollars lose money.

How about now, when with this huge Quanitative Easing, they're JUST RELEASING DIGITIZED DOLLARS INTO THE ECONOMY?

HALF of the Federal budget now is made up of "New" dollars.  You don't see it totally reflected in the marketplace price - because the Federal Reserve is using large banks as money-launderers.  The money is given to the banks at ZERO percent at the Fed Discount Window - not a window anymore, of course.

And Glass-Steagal has been repealed.  The banksters are taking this new money and going ape in the Stock Markets.  BUYING SECURITIES - with borrowed money.  Gee, what could go wrong with that?

That's why the Dow and NASDAQ are hitting record highs while the economy is cratering and companies are closing.  The buying pressure is all from Chase and other big banking gangs - and they don't care, they're buying, paying themselves commission...and they will sell on signal, too, and the little investors, the "Muppets" will be slaughtered.  As they were in 2009 but worse.

Eventually all this New Dollar supply will trickle into the real economy...and we WILL have hyperinflation.

The Gold Standard would have prevented any and all of this.  If corrupt public officials, like Roosevelt, manipulate the value of the dollar...yes, Americans lose money.  But that is a conscious, obvious action - which public demand can prevent and criminal prosecution can answer.  And should.

Inflation is the stealth robber of dollar-wealth.  And that's what our corrupt elites in government WANT right now.

No argument about how it would have worked.

It didn't get that chance.
And the national debt crept up at first, then skyrocketed. With each QE, the portfolios of those immune to insider trading laws went up in value...
Now, like the arrow says, "we are here".

First, the banksters have been getting printed money (okay, electronic money) at our expense (our debt) and they haven't put the stimulus money into business loans, they have inflated the stock market instead.
No job creation there of any note, just speculation in an inflating market. Introduce a few hiccups here and there and the opportunity to make money persists, playing the volatility for all it is wort. After all, with inside info, it isn't gambling, let the suckers take the losses.
Ride that pony at your own risk, but the trend will continue while the easings do. When the QEs stop, it's time to get off the pony and look for another ride.

Gold, real estate, silver (po' man's gold) will all be good, but have food, a firearm or three and a stock of ammo, too. Gold and silver are actively mined, so there will be more, but there is no more land being created--especially land you can grow food on. Some may go up for sale if the Government needs cash. Unfortunately, that will likely be in very large tracts, benefiting the same folks as the bankster bailout, who will either speculate in the value going up, or more likely sell it off piecemeal for a tidy profit.

Through it all the fat get fatter and the little guys look like camp survivors.

And through it all, the money buys less (already seen at a grocery store near you)--if the price isn't more, the amount of food is smaller--or both.

[r9etb]

The Gold Standard would have prevented any and all of this.  If corrupt public officials, like Roosevelt, manipulate the value of the dollar...yes, Americans lose money.  But that is a conscious, obvious action - which public demand can prevent and criminal prosecution can answer.  And should.

Eh, maybe.... if the world had never been off of it in the first place.  But that's water that flowed under the bridge decades ago.  No point in wishing it were otherwise. 

That's not to say that the current monetary system is particularly sane.  There's certainly corruption in high places -- the thing is, the gold standard wouldn't fix that, either.

Okay.  If the gold standard is MANIPULATED, then of course holders of dollars lose money.

The gold standard would itself represent manipulation.  What SJ described earlier is not "manipulation," so much as it's what happens when you tie an intrinsically variable money supply to a basically fixed commodity like gold. 

At root, gold is just a pretty rock that we use to represent wealth in a tactile form.  However, we live in a society that actually creates wealth -- but we can't create gold to match it.  This is the entire problem of "money supply" -- trying to match "money" to "wealth" so that there's an even balance between them.  There's a practical, non-corrupt, and necessary explanation for this, even if it can be manipulated.

But the problem of manipulation in that case, is just the same as the problem of the Constitution in current society: it's more about mindset than anything else.

[JustPassinThru]

The gold standard would itself represent manipulation.  What SJ described earlier is not "manipulation," so much as it's what happens when you tie an intrinsically variable money supply to a basically fixed commodity like gold. 

The Gold Standard represents an immutable, measurable quantity to the currency unit.  With it as a guarantee, the currency can only be manipulated obviously - with devaluation edicts.

Inflation is covert, subtle, creates chaos and uncertainty in the marketplace.  Most people, not understanding economics, do not grasp why prices are rising.  They're angry and as liberals do, they demand GOVERNMENT...STOP IT.

Price controls, the first move of a command/control economy.  Shortages follow; and then endless misallocations, rationing, shortages, poor-quality goods...the Soviet economy.

Fiat money, that is, money not tied to precious-metals or objective value, DOES NOT WORK for any period of time  Since WWII, Europe's currencies were relatively stable - they were tied to the dollar.  The dollar was relatively stable - tied to gold, directly, then loosely; and then, the modern world chose to ignore removal of the Gold Standard.  They had trust in the "Full Faith and Credit of the United States."

That trust is no longer warranted.  The government is creating a TRILLION new digitized dollars a year, just pumping them into the economy.  It's how the banksters are suddenly awash in cash.

That new money will trickle down into the general economy eventually.  Inflation is when the currency is inflated - more dollars but not representing any new wealth.  Each dollar is worth less and more dollars chase the same amount of goods.

Prices explode.  Coming soon...as it did to Zimbabwe; and Wiemar Germany; and now Venezuela.

[r9etb]

The Gold Standard represents an immutable, measurable quantity to the currency unit.  With it as a guarantee, the currency can only be manipulated obviously - with devaluation edicts.

Yes, I know what it's supposed to represent.  But if wealth is continually being created, then "immutable" means "deflation," and as SJ's example showed, that's as bad as inflation.  Beyond that, I think neither of us understands money well enough to go much deeper.

[JustPassinThru]

Yes, I know what it's supposed to represent.  But if wealth is continually being created, then "immutable" means "deflation," and as SJ's example showed, that's as bad as inflation.  Beyond that, I think neither of us understands money well enough to go much deeper.

For openers, these terms, "inflation" and "deflation" are misused.  Inflation is an inflating of the currency - growing the numbers of the currency unit without any additional wealth to back that currency.

Deflation is the opposite - contracting the currency unit without a national decrease in backing of wealth. 

Both are currency manipulations; but inflation is the reckless printing of fiat currency to create the ILLUSION of wealth.  Deflation favors creditors.

Prices can rise or fall not related to inflation.  A crop failure will cause food prices to explode; and the cost-of-living index to rise.  Not inflation - it's a reduction in national wealth; the same people with the same dollars chasing fewer and more-scarce foodstuffs.

Oil, also.  A spike in the rise of crude oil prices causes the price of EVERYTHING to rise.  Not inflation - it's a reduction in our standard of living because the OPEC sheikhs are raping us.

But the dollars in circulation haven't changed.

Prices can fall, too...although they seldom do because seldom do governments want to retract the numbers of the currency.  But it can happen and CREDITORS benefit.  The dollars paid back to banks are worth more than the dollars borrowed.  Deflation.

A precious-metal standard prevents BOTH inflation and deflation.

[r9etb]

Both are currency manipulations; but inflation is the reckless printing of fiat currency to create the ILLUSION of wealth.  Deflation favors creditors.

A precious-metal standard prevents BOTH inflation and deflation.

Imperial Spain begs to differ.  (https://en.wikipedia.org/wiki/Spanish_Price_Revolution)

[JustPassinThru]

Imperial Spain begs to differ.  (https://en.wikipedia.org/wiki/Spanish_Price_Revolution)

Sudden wealth, to a feudal nation with no checks on the Sovereign's power, creates excesses.  In Spain and in France.

In feudal government and in society at large.  We saw this in North Dakota with the fracking boom and then bust; we saw it in liberal American government with the "Peace Dividend;" it has happened hundreds of recorded times.

But there has not been a way found to better stabilize a national currency than to tie it to the universal representation of wealth - Gold.

Fiat money is just paper; is easily printed; and in short order foolish and destructive people worm their way into government and destroy the currency.  The nation's economy collapses.

Rather than relying on Wikipedia, I suggest you read Frederic Bastiat - the link is to a PDF of his works at mises.org.  It's a collection of his writings; but The Law is especially insightful.  But he also addresses questions of trade and of the false fear of trade imbalances - and how foolish it is to prevent them.

He also speaks of gold as a backer of wealth.

[EC]

Imperial Spain begs to differ.  (https://en.wikipedia.org/wiki/Spanish_Price_Revolution)

Hate special pleading, but Imperial Spain was indeed a special case.

It's not terribly often that the gold supply increases so suddenly and massively, and it's not going to happen again - there's no New World left to plunder a couple of millenia worth of hoarded gold from.

[r9etb]

Hate special pleading, but Imperial Spain was indeed a special case.

It's not terribly often that the gold supply increases so suddenly and massively, and it's not going to happen again - there's no New World left to plunder a couple of millenia worth of hoarded gold from.

Well, sure -- but the context is in response to the claim that "a precious-metal standard prevents BOTH inflation and deflation."  That's demonstrably false.

I chose the example of Spain because it conclusively refutes the claim that a gold standard prevents inflation. 

Beyond that, I'd argue that you're probably incorrect about how sudden, massive increases in the gold supply (and other precious metals) can't happen again.  Modern mining technology, coupled with the lure of "free money," can indeed create an unexpectedly large influx of gold into the market.  Here in Colorado there are dozens of mines that are still full of gold but are no longer being worked because, ever since the US left the gold standard, the price of gold won't support it (it's the same economic dynamic as oil extraction).   The economics could very well change in favor of mining once we're back on the gold standard.

On the other side, we've seen from Britain's experience that deflation can result from a return to the gold standard.  Smokin' Joe has very ably sketched out how deflation can and probably would result from a return to the gold standard.

So the claim in question is not true, in either direction.

The lesson here is simple: the gold (or precious metal) standard is not magic. 

[Mod2]

Split from the thread Odyssey of a NeverTrumper.

Carry on!

[r9etb]

Split from the thread Odyssey of a NeverTrumper.

Carry on!

Thanks.  Though I have to say ... the other thread is pretty much an "undead thread" at this point.

[JustPassinThru]

Well, sure -- but the context is in response to the claim that "a precious-metal standard prevents BOTH inflation and deflation."  That's demonstrably false.

Again.  Prices rising or falling, is not inflation/deflation.

Price rises can be the RESULT of inflation.  They can be the result of crop failures.  They can be the result of increased general demand, from new optimism felt by the general public.  Good times ahead...time to get a new car/washing machine/clothes...

Price declines CAN be the result of deflation but generally are not.  They are the result of lowered demand - for a specific good or goods in general.  When people are panicked about the future they do not buy vacation trips or new sports cars.  So new sports car prices will fall...before new sports cars cease to be made.

Price fallings are the attempt of merchants to attract buyers, to clear their goods. 

Inflation is expansion of the currency without increased national wealth.  Deflation the opposite.

Increased national wealth, as in boom times, new industries or technologies...will cause price rises as more people want more goods and more money, more wealth, is in the economy.

[Smokin Joe]

For openers, these terms, "inflation" and "deflation" are misused.  Inflation is an inflating of the currency - growing the numbers of the currency unit without any additional wealth to back that currency.



Prices can rise or fall not related to inflation.  A crop failure will cause food prices to explode; and the cost-of-living index to rise.  Not inflation - it's a reduction in national wealth; the same people with the same dollars chasing fewer and more-scarce foodstuffs.

Oil, also.  A spike in the rise of crude oil prices causes the price of EVERYTHING to rise.  Not inflation - it's a reduction in our standard of living because the OPEC sheikhs are raping us.

But the dollars in circulation haven't changed.

Well, this time they did. Through Quantitative Easing, more dollars have been injected into the system. When you pay more for oil, that dollar buys less of it. At 42 dollars a barrel, $1 buys one gallon of crude. At $21, the value of your money is doubled, at $84/bbl, it takes two dollars to buy that same gallon of crude oil.

The reserve currency for oil trading is the US dollar. It is the monetary unit oil is priced in, and the unit used to buy oil. If there is any commodity our dollar is pegged to in value, that's it, but the price is volatile, the commodity is consumed more or produced more depending on price.
When oil prices are high, more dollars end up in the hands of oil producers. Now that we can export oil, we are able, theoretically, to take advantage of those higher prices and recover some of those dollars abroad. But the bugaboo in that is that when prices are high, it usually means a shortage of marginal capacity globally, and only recently have we demonstrated we are able to produce enough oil to actually cut back on imports and retain more of our dollars, if not reach the point where we were buying back our dollars with exported oil. In panic, Saudi Arabia and OPEC produced oil as fast as they could to attempt to kill off the US industry by lowering the price of oil to the point where leveraged producers would not be able to repay loans, and where those not so vulnerable would be less inclined to replace depleted production. While that has succeeded to some degree, it has hurt the Saudis, too.

Gold, too, is a commodity traded, and mining picks up when the price is up, drops off (especially on more marginal deposits) when prices are down, same as for silver and platinum group metals.

No matter what you peg the dollar to, it will be subject to price fluctuations so long as private ownership is allowed, because the demand will change.

 The Gold standard required that gold mined mostly be sold to the mint (treasury) or made into jewelry (or dental work).  The mint 'monetized' that gold as they did silver, by minting coins of it, to represent a fraction of the statutory stated value of Gold. Not being an openly traded commodity, price fluctuations did not occur except by law. The price was fixed.

The last time the metal was called in (coin and any bullion were to be redeemed for paper money, and that included Gold Certificates which had been redeemable in gold, after the collection of all but numismatic (collector coins), Jewelry, orstock to make jewelry and the like,  the price was changed. That could happen again. I would expect rampant noncompliance with collection, perhaps more than there was in the '30s when gold coins were still used as legal tender,  and silver coins were common (0.78 oz. silver to the dollar, whether in dimes, quarters, halves, or a dollar).

Prices can fall, too...although they seldom do because seldom do governments want to retract the numbers of the currency.  But it can happen and CREDITORS benefit.  The dollars paid back to banks are worth more than the dollars borrowed.  Deflation.

A precious-metal standard prevents BOTH inflation and deflation.

Prices fall with lowered demand or increased supply. In the case of food, gold, silver, oil, that applies because they are openly traded commodities.

Only putting the gold genie back in the bottle, ending open trading again, and fixing the price by law will change that.

[ABX]

Some issues I have with the Gold Standard:

1. First, it isn't Constitutionally required. The reading of 'to coin money and set the value thereof' did not mean directly or indirectly that it had to be a metal based currency. "To coin" in the context as described in the Federalist papers simply meant to produce either by alloy or by valuation (Federalist 44). IE, it opened up to it not being on a precious metal standard. The only restriction to a non-federal currency is one by the States in which case that must be based on gold or silver (as to not have competing direct currency with the national currency, States would trade commodities instead).

2. The U.S. is no longer the primary gold producer. China and Russia are 1 and 3 in top gold producing countries (Australia #2). This allows for external forces to manipulate supply and demand- external forces not friendly to us.

3. One of the reasons why we finally completely went off the Gold Standard under Nixon was due to the outstanding notes far exceeding supply. Nixon was forced to consider taking a loan from the IMF just to cover existing gold bearer note calls- putting our financial control in the hands of an international body versus the ourselves.

4. Gold is no longer just a 'retainer of value'. When we were on the Gold Standard, its commodity value was based on its use as a currency or value holder. Now, it has a large industrial application in electronics and satellite/space industries.  This has changed how gold is traded on the commodity market and where the valuation lays. It will only grow toward the latter and away from just something people see as a holder of perceived value. IE, the use of gold is changing.

[JustPassinThru]

Gold, too, is a commodity traded, and mining picks up when the price is up, drops off (especially on more marginal deposits) when prices are down, same as for silver and platinum group metals.

An economy is always in flux.  It cannot be controlled and efforts to do so always fail.  Soviet-style failure.

The economy is millions of people making private personal transactions.  When people see they've made mis-allocated investments, such as in businesses which don't have the potential they thought...investors pull money out; the price of those investments falls; and the securities market is said to enter a "correction."

This cannot be stopped.  The business cycle can only be controlled by destroying a free economy.  Command/control economies do not work.

No matter what you peg the dollar to, it will be subject to price fluctuations so long as private ownership is allowed, because the demand will change.

 The Gold standard required that gold mined mostly be sold to the mint (treasury) or made into jewelry (or dental work).  The mint 'monetized' that gold as they did silver, by minting coins of it, to represent a fraction of the statutory stated value of Gold. Not being an openly traded commodity, price fluctuations did not occur except by law. The price was fixed.

Not true.  The ROOSEVELT Administration forbade private ownership.  Because they planned an immediate, drastic devaluation of the dollar and didn't want any investors holding gold to bypass the raping of savers.

We had been on the gold standard from our founding to that point, with private ownership allowed and almost common.  Gold coins were circulated.  Gold jewelry and even bullion was in private hands.

It's just another form of wealth storage.

The last time the metal was called in (coin and any bullion were to be redeemed for paper money, and that included Gold Certificates which had been redeemable in gold, after the collection of all but numismatic (collector coins), Jewelry, orstock to make jewelry and the like,  the price was changed. That could happen again. I would expect rampant noncompliance with collection, perhaps more than there was in the '30s when gold coins were still used as legal tender,  and silver coins were common (0.78 oz. silver to the dollar, whether in dimes, quarters, halves, or a dollar).Prices fall with lowered demand or increased supply. In the case of food, gold, silver, oil, that applies because they are openly traded commodities.

You're confusing the Gold Standard with liberal machinations to take us OFF the Gold Standard, starting with Roosevelt, ending with (liberal) Nixon.

Only putting the gold genie back in the bottle, ending open trading again, and fixing the price by law will change that.

Nope.  Fixing the dollar to a quantity of gold will correct that.  The value of gold against a marketplace basket will fluctuate - always.  That's a dynamic economy.  But re-casting the dollar as a claim against the nation's stored wealth, in gold...as opposed to a fiat unit, having no intrinsic value - will give us a far-more-stable money supply.

[EC]

Beyond that, I'd argue that you're probably incorrect about how sudden, massive increases in the gold supply (and other precious metals) can't happen again.  Modern mining technology, coupled with the lure of "free money," can indeed create an unexpectedly large influx of gold into the market.  Here in Colorado there are dozens of mines that are still full of gold but are no longer being worked because, ever since the US left the gold standard, the price of gold won't support it (it's the same economic dynamic as oil extraction).   The economics could very well change in favor of mining once we're back on the gold standard.

I'm going to disagree with you here - politely, of course! 

Yes, modern mining tech is orders of magnitude more efficient in both finding (thanks geologists!) and extracting gold.

BUT

It's people who decide to dig. Much like it is with diamonds, it's in their interest to limit the supply of new gold at the moment. Going back to the gold standard would simply move that interest from the producers to the ones who both license and regulate the producers and regulate the money supply.

[r9etb]

Again.  Prices rising or falling, is not inflation/deflation.

...

Inflation is expansion of the currency without increased national wealth.  Deflation the opposite.

Increased national wealth, as in boom times, new industries or technologies...will cause price rises as more people want more goods and more money, more wealth, is in the economy.

There's the disconnect: you're distinguishing between wealth and money in a way that is probably not warranted.

A precious metals standard essentially equates "wealth" (in the sense of things of intrinsic value) with a certain amount of physical metal -- which works fine when the rate at which wealth is created, is roughly the same as the rate at which new metal is introduced.  If you disrupt that connection -- either by adding new gold, or creating "excess" wealth at unequal rates -- then the imbalance between currency and wealth will result in inflation or deflation. 

In the modern economic system, wealth is created at a rate that is far greater than that at which gold can be produced.  So you're almost guaranteed to have problems.  (Wikipedia states: "Since the 1950s, annual gold output growth has approximately kept pace with world population growth of around 2x, although far less than world economic growth of some 8x, or some 4x since 1980.")

The whole discussion so far, however, seems to ignore the role of credit within a modern society.  Credit is a type of money and, although it can obviously be abused, the economic importance and usefulness of credit is beyond reasonable debate. 

Now imagine what would happen if you demanded that all loans be 100% backed by gold (which is what a strict gold standard would require).  Credit would simply dry up. 

If you say that a bank need not fully back its loans with gold, then you get into the issues of how a bank will be allowed to lend if it holds a certain amount of gold.... in other words, you're essentially reinventing the modern monetary system, with a slight twist.

I suspect that the real problem with modern monetary policy has to do with trying to use it to achieve primarily political ends, something for which it is not well suited; rather than using it to maintain some measurable standard (such as inflation, or whatever).

[JustPassinThru]

There's the disconnect: you're distinguishing between wealth and money in a way that is probably not warranted.

A precious metals standard essentially equates "wealth" (in the sense of things of intrinsic value) with a certain amount of physical metal -- which works fine when the rate at which wealth is created, is roughly the same as the rate at which new metal is introduced.  If you disrupt that connection -- either by adding new gold, or creating "excess" wealth at unequal rates -- then the imbalance between currency and wealth will result in inflation or deflation. 

In the modern economic system, wealth is created at a rate that is far greater than that at which gold can be produced.  So you're almost guaranteed to have problems.  (Wikipedia states: "Since the 1950s, annual gold output growth has approximately kept pace with world population growth of around 2x, although far less than world economic growth of some 8x, or some 4x since 1980.")

The whole discussion so far, however, seems to ignore the role of credit within a modern society.  Credit is a type of money and, although it can obviously be abused, the economic importance and usefulness of credit is beyond reasonable debate. 

Now imagine what would happen if you demanded that all loans be 100% backed by gold (which is what a strict gold standard would require).  Credit would simply dry up. 

If you say that a bank need not fully back its loans with gold, then you get into the issues of how a bank will be allowed to lend if it holds a certain amount of gold.... in other words, you're essentially reinventing the modern monetary system, with a slight twist.

I suspect that the real problem with modern monetary policy has to do with trying to use it to achieve primarily political ends, something for which it is not well suited; rather than using it to maintain some measurable standard (such as inflation, or whatever).

Money is not wealth.  Currency is symbolic.

In a precious-metal-based currency system, the unit of currency is a claim against wealth stored by the nation.  In a fiat-currency structure, the citizenry are to accept the fiat on faith.

Unjustified faith, as it always turns out.

Money is not wealth; it represents wealth.  It is a unit of trade; the better that the wheat farmer doesn't have to tote his wheat on his back to visit the cobbler. 

Precious metals are an agreed-upon storage form of wealth.  Why?  They are portable and are not easily duplicated - as paper money or pot-metal coins are.  This is true through all of human history.

Gold itself has no intrinsic value.  But neither does a bushel of wheat to someone who does not want it; or a hog to someone who has no desire for a hog.

Gold is an easily-managed intermediary storage of wealth.  The hog farmer can sell his hog for gold, or something representing and based on gold; and then take that gold or that representation and buy eggs or shoes.

Money.

Money based on agreed-upon value, that cannot be duplicated, is sound money,  Money printed up by reckless political opportunists, is fiat money, and destabilizes, destroys the economy.  As in the Republic of Wiemar.





Gold-based currencies avoid this.

[r9etb]

It's people who decide to dig. Much like it is with diamonds, it's in their interest to limit the supply of new gold at the moment. Going back to the gold standard would simply move that interest from the producers to the ones who both license and regulate the producers and regulate the money supply.

I think the oil price cycle demonstrates the weakness of the claim that miners would "limit the supply" in order to keep prices stable -- it's the old cartel problem.  The cartel might work if it fully controls the supply of gold; however, the whole thing collapses if gold supplies are available outside the cartel's control.  (E.g., China, Russia, and Australia are gold producers whose output would affect our economy.)  Moreover, there are price thresholds at which certain types of gold extraction become economically feasible; the reason most of Colorado's mines stopped working back in the last century is not because the gold is gone, but rather because it became no longer economically attractive to extract it.  "Limiting" the supply of gold would raise its price, and make mining more attractive.

Beyond that, as Smokin' Joe pointed out, gold has important other uses now, that it didn't have before (same goes for other precious metals).  It's not just money anymore, it's a commodity in its own right.  So "limiting the supply" for monetary reasons ends up messing with the supply for industrial reasons, with uncertain consequences.

Oil turns out to be a very good proxy for this discussion.  OPEC was never terribly successful even in its heyday because there was always somebody who over-sold to take advantage of the high price; and since then the fracking revolution (spurred in large part by OPEC price manipulation) has utterly changed the nature of the world's energy supply and rendered OPEC essentially irrelevant. 

I confess that we've moved beyond my economic comfort level in this discussion; however, I'm really good at spotting "easy fix" solutions -- and the gold standard discussion is most certainly an "easy fix" solution. 

Unfortunately, with something as complex as a modern economy, the "easy fix" is almost certainly the wrong fix.  It will simply introduce new and different problems that I suspect will complement and increase, rather than solve, the economic difficulties we currently face.

[r9etb]

Money is not wealth.  Currency is symbolic.

Symbolic of.....?

Anyway, you've just negated the whole argument for the gold standard.  If currency is symbolic, then we're free to choose any symbol we wish.  It needn't be gold.

In a precious-metal-based currency system, the unit of currency is a claim against wealth stored by the nation.

If you can exchange money for wealth, then in any practical sense, money = wealth. 

Money based on agreed-upon value, that cannot be duplicated, is sound money,  Money printed up by reckless political opportunists, is fiat money, and destabilizes, destroys the economy.  As in the Republic of Wiemar.

You've made a tremendous leap there, that is not justified by economic theory or practice, nor by the real world. 

There is a vast middle ground between "money that cannot be duplicated" (which means, among other things, that credit is not allowed); and "reckless political opportunists."