Thats an interesting point.
Would a currency tied to something not a rare as gold, but able to be produced to increase supply so to speak when the economy heated up be a more workable system?
As an aside…I seem to recall ALL the gold in the world would fill up some rather small number of olympic swimming pools and all the diamonds in word would fill up like a few houses or some such…
And now I am recalling the time traveler Barney Miller episode…time to invest in zinc!
In the 19th century, U.S. government expenses were vastly smaller than today, well under 10% of GDP. Several major gold strikes happened: California in 1848 and South Africa in 1886 and the Yukon in 1897, just to mention a few. The ability of gold to run the world economy seemed obvious and nonending.
Today’s American federal government has consistently run over 20% of GDP since WWII and gold strikes are rarer and less productive but still happen. Trying to hold an economy that is at once limited and yet susceptible to sudden devaluations by adding huge percentages to the base is an insanity. No government could possibly afford to stand back and just allow mining interests to control the world. There can be no argument that a gold standard implies government tinkering to be a bit harder. That’s about a thousand percent away from reality.
The precious metal markets usually include prices for Palladium, more expensive than silver but less so than gold. Of course any metal’s price would jump if it became monetized.
Not so much a thousand percent as a hundred and eighty degrees: The government’s role in maintaining the value of money is vastly greater under the gold standard than it is under the fiat currency system we have. People who advocate for the gold standard with an eye towards reducing the role of the government in the economy are doing precisely the wrong thing.
The no-government-control approach to managing money would be an even stronger form of the Free Banking Era, this time without even state-level governmental oversight; this new, purely libertarian, free banking era would have endless numbers of wildcat banks opening up, each issuing their own currency as before, none of them trusted outside their own state (if there!) and all of them creating serious impediments to free trade by polluting the financial world with untrustworthy investment institutions and potentially worthless currency. It might eventually shake out into a system about as stable as the one we have now, with few banks and fewer currencies in actual use, but the damage done in the interim would be nearly incalculable.
Overall, the gold standard is worse than bloodletting: Bloodletting at least has some actual clinical value, as a treatment for hemochromatosis, for example, but the gold standard is never the right answer. We know more about economics than we did even seventy years ago, let alone over a century ago, and one of the things we now know which we didn’t know during the Progressive Era (for example) is the necessity of inflation in allowing an economy to grow. The gold standard prevents inflation, and therefore prevents growth, which necessarily leads to stagnation.
Gold strikes are not the determining factor in how much gold is produced. Today, far more gold is produced than during the 19th century. This is mainly because there are technologies to extract gold from low-grade ores that wouldn’t have been productive back then. The main factor in how much gold is mined is the price.
Maybe, but barely, at most; overall, it likely wouldn’t be measurably better.
The ideal form of money can be made instantly, on-demand, in the form of loans and interest payments. Tying it to anything physical slows it down to a crawl, and moves us closer to a time when we had the mistaken idea that money was the same thing as physical currency. That’s entirely wrong: The most valuable form of money, the money that’s most useful in the economy, is maximally liquid, flowing around from hand to hand, making things move in the world. The least useful is physical currency frozen rock-solid and sitting in a vault or sock drawer or safe somewhere. The former kind of currency is mildly inflationary and promotes growth; the latter is deflationary and promotes stagnation.
We didn’t understand this back when the gold standard as we know it was created. We certainly didn’t understand it when currency was physical pieces of gold stamped with distinctive marks and carefully weighed at each transaction, the era when coins grew their ridged edges to make clipping and shaving more apparent. Some people hold to a fundamentally Nineteenth Century view of money, complete with an irrational hatred for inflation and an utterly naïve view of the primacy of physical currency. These days, we know that mild inflation (around 1-2% a year is the usual target) is a positive benefit, and that physical currency is a convenience printed for minuscule transactions and extremely small, short-term savings; the total value of the physical currency in the US economy is 8.3% of the total money in the US economy (that value fluctuates over time and may already be outdated; the point is that it’s a small fraction of the total economy, and that some people apparently find this surprising).
Coming back to the original question, a reasonably contemporaneous economist who advocated the gold standard was Murray Rothbard, who died in 1995. He was surely never among those considered the leading researchers of his profession, but he did hold academic positions and published in reputable journals and book publishing houses.
Rothbard was an Austrian School economist, which is what the field of economics has instead of Creation Science: The Austrian School denies that evidence has any place in economic theory and instead relies on a [del]dogmatic[/del] axiomatic foundation called praxeology. As the Austrian School is the Marxism of the Right, so praxeology is the Capitalist version of dialectical materialism.
(That Marxism comparison, in addition to being a somewhat obscure riff, is fairly precise: Both Marxism and the Austrian School made contributions to real economics in the past, and both disappeared up their own assholes and got left behind when they retreated too far into the realm of their own theories. To the best of my knowledge, however, the Austrian School never produced anything similar to Critical Theory.)
Point being, Rothbard wasn’t a mainstream economist. He was firmly heterodox, which is what economists say instead of “crackpot” or “crank” or similar.
Here’s an idea: Instead of a specific material good, like gold or zinc or iPhones or turnips, why not use a basket containing a very wide variety of goods mimicking personal consumption? Since a very complex system (we’ll call it “the economy”) will be needed to maintain the relationship between paper money and the value of that basket, why not avoid the problems associated with deflation by inflating the paper/basket value ratio by about, say, 2% per annum? Hmmm; that seems ike a reasonable approach; what would major current economists think of that?
Which is why other than coinage for small/medium transactions, almost all trade was in either notes or ledger accounts where the money in question was theoretically backed by specie and in practice there were more notes/accounts than metal. Although this rather proves your point: by the end of the eighteenth century this had become not merely a convenience but a necessity- the industrial revolution was causing the economy to outstrip the precious metal supply. In particular, the desperate shortage of specie was a critical factor in the early politics of the newly formed United States of America.
Here’s a suggestion: instead of shouting at me when I have the temerity to question one of your statements, and rather than use some weird metaphor that equates the government to burglars, how about you actually respond to the question: why do you think that the gold standard makes it harder for the government to manipulate the currency, compared to the current system?
As stated earlier, I disagree with your position on legal/constitutional grounds: Congress can tinker with the monetary system as it sees fit, and one Congress can’t bind future Congresses. So what is the “robust set of procedures that minimize the likelyhood of such things” that you envisage on a legal level that can prevent political interference?
Other posters to this thread disagree with your approach on economic grounds:
[QUOTE=Exapno Mapcase]
There can be no argument that a gold standard implies government tinkering to be a bit harder. That’s about a thousand percent away from reality.
[/QUOTE]
[QUOTE=Derleth]
Not so much a thousand percent as a hundred and eighty degrees: The government’s role in maintaining the value of money is vastly greater under the gold standard than it is under the fiat currency system we have. People who advocate for the gold standard with an eye towards reducing the role of the government in the economy are doing precisely the wrong thing.
[/QUOTE]
Do you disagree with them? why or why not?
The difference is that the gold supply in the 19th century was neither stable nor predictable. Some gold strikes petered out; others produced a sudden flood onto the market. Gold tamping down inflation is not possible if the world supply is unexpectedly doubled. Fiat money does not work like that in a functioning economy.
My hyperbole is brighter than a billion suns! My hyperbole swallows black holes and belches galaxies! My hyperbole is huger than Donald Trump’s hugest huge!
General comment. The inarguable fact is that no nation has introduced a gold standard since the major powers went off it in all but name in the 1930s. Think of that. With all the hundreds of countries that have popped up in the last 80 years, many with dictators capable of ordering the banks to bide by their whims, not a one has tried the gold standard. How crazy must a gold standard be if the craziest of crazed madmen turn away from it?
Another, pithier general comment: If your Great Idea is only adhered to by one particular variety of True Believer, maybe it isn’t so Great after all.
Moderator Note
Dial it back. There is no need for this kind of tirade in GQ. No warning issued, but don’t do this again.
Colibri
General Questions Moderator
The first point is true, the second is not.
China’s economy has been growing at 7-10% a year for almost thirty years, Venezuela’s economy has been performing horribly. Which country has an inflation problem? Venezuela, because of their government. Inflation is caused by either a change in the demand for money or a change in the supply. The change in supply means a government decision to print more money. If they print more than the economy demands, then inflation results. It is up to the government to supply the amount of money the economy is demanding. If it fails to do so it is the government’s fault.
The only real advantage to a gold standard is that when the government is inflating the currency every knows because a change in the peg has to be made public. Under a fiat system the government can inflate the currency and then blame speculators and foreigners.
In a country with a well run central bank, the gold standard is an answer to a problem that was solved over thirty years ago. Since the problem is now too low inflation, the gold standard still has all the problems it used to have and has nothing to recommend it.
Bolding mine.
That is what I was saying as well. Maybe I had my translator set to Jar Jar Binks or something. 
OK, you’re right and I was wrong in that I failed to stipulate that my statements are only correct if you assume a country which isn’t run by a bunch of idiotic jerks. (China’s run by a bunch of jerks, but they’re not that stupid.)
However, I’m conditioned by two things:
One, I live in America. I’m accustomed to the Federal Reserve System and a government that is, if anything, pathologically afraid of inflation and deficit spending, even in the face of a serious recession. Our economy is largely well-run but tends to spend longer in recessions than it would were we more willing to take on government debt in order to spark some inflation.
Two, I’m accustomed to debating people who view inflation as a moral failing, and who think deflation would be good because it would make the numbers on the price tags smaller. (I’ve actually heard this, albeit not here.) When you’re talking to people who view a disease process as a cure, you tend to arrange your arguments accordingly.
This is a good point.
This is a very good point.
Maybe I’m misunderstanding the term “deficit spending”, but what caused the trillions of dollars of national debt that have been racked up?
We do deficit spending, just not enough to do some of the things deficit spending is good for.
Frankly, we should have greatly increased deficit spending as a reaction to the 2009 crisis, getting money into the economy from the bottom up by doing things like funding large public works projects. That would have had more of a positive effect than the bail-outs.
Instead, we’re too timid, and end up with the worst of both worlds: Debt numbers big enough to scare the rubes, but not big enough to represent needed infrastructure and jobs.
It’s even worse than that. Just as squirrels famously store acorns in good times to get them through bad times, so governments should run surpluses during economic booms to allow larger deficits during recessions.
But the GOP is now dominated by a Starve the Beast philosophy. Despite their rhetoric, Republicans deliberately increase federal debt as fast as they can, in order to justify cuts in regulatory budgets and to make it harder for progressive programs to get funded.