Are there any major, current economists who support the gold standard?

[septimus]

Two comments which have not yet been emphasized in the thread.

(1) Prices of raw materials like wood, steel, wheat, petroleum, cement, and … yes … gold do fluctuate dramatically. Consumers may not notice the dramatic fluctuations because finished goods incorporate a wide variety of raw materials (and wages and rents) so raw material cost fluctuations get evened out. Thus basing the monetary unit on a basket of goods (as I advocated in #29) makes the currency value more stable. Under a gold standard (or zinc standard, turnip standard, or whatever) prices would need to be renegotiated frequently.

(2) Many regard gold standard and “fractional reserve banking” as opposites. This is not the case; private banks functioned for centuries with a gold standard. In either case private banks issue pieces of paper promising to pay money even though they don’t have it in their vaults, the difference being whether it is gold or government-issued paper that they don’t have in their vaults.

[billfish678]

@septimus

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…

I think many folks agree that this sorta thing is workable.

I think the problem with it in practice is timing and scale.

The bigger problem is running deficits ALL the time and bigger ones when times are bad. Which seems to have been standard operating procedure for a long time. At some point that is not sustainable.

[Flyer]

@Derleth

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.

I never fail to be amazed at the number of people who, while otherwise seemingly rational and intelligent, nevertheless hold tenaciously to the economic equivalent of superstition–the idea that you can spend yourself out of debt.

John Maynard Keynes has done far more damage to the world than Karl Marx and Lenin combined.

[septimus]

@billfish678

I think many folks agree that this sorta thing is workable.

I think the problem with it in practice is timing and scale.

The bigger problem is running deficits ALL the time and bigger ones when times are bad. Which seems to have been standard operating procedure for a long time. At some point that is not sustainable.

You deleted the second paragraph of my post, which explained the reason for the problem.

@Flyer

John Maynard Keynes has done far more damage to the world than Karl Marx and Lenin combined.

And you also preferred spouting ignorance over reading my post.

[Ravenman]

@Flyer

I never fail to be amazed at the number of people who, while otherwise seemingly rational and intelligent, nevertheless hold tenaciously to the economic equivalent of superstition–the idea that you can spend yourself out of debt.

John Maynard Keynes has done far more damage to the world than Karl Marx and Lenin combined.

Nobody I’m aware of has ever said that a country can “spent its way out of debt.” On the other hand, there are lots of people who believe that targeted spending stimulates the economy. And the facts seem to back up this view.

As far as Keynes doing more damage to the world than communists; well, we’re all still waiting for Khrushchev to bury us.

[Lemur866]

Yes, there does seem a strange idea among Gold Bugs that it would do away with fractional reserve banking (or as economists call it: banking). No more banks loaning out money they don’t have, because it’s all tied to GOLD, pure GOLD.

Except of course that’s silly. We had banks back when we had the gold standard, and as was pointed out earlier there were vastly more paper transactions than gold transactions. All a gold standard means is that the government promises to exchange paper money for a certain weight of gold. But I can still write an IOU to pay the guy at the hamburger shop Tuesday for a hamburger today. And if he accepts it, then we’ve created money out of nothing, NOTHING!

Even if the promise I made was to repay the shop owner in grams of gold, it is still money created out of thin air, because a promise to pay a certain number of grams of gold is not the same as actual gold.

Back in the day if you were going to France you wouldn’t carry gold coins with you, because you could be robbed. Instead you’d carry a letter from your bank, telling a bank in France to pay you a certain amount, and your bank would credit them. Paper money! Even if in theory the pound and the mark and the franc could be converted to gold, in reality gold was not actually used as a medium of exchange. It was all just the idea of gold. No real gold.

And this becomes the fatal flaw of the gold standard, because it turns out that if the government promises to exchange your piece of paper for a certain weight of gold, and it becomes inconvenient for the government to do so, they’ll just stop honoring their promise. So the first thing that happens during any economic crisis is the suspension of gold payments. And making it illegal to own gold, and such.

If you were a libertarian goldbug, the last thing you’d want is a government gold standard, because the first thing a government must do under a gold standard is control the gold market. Today nobody gives a shit if you buy and sell gold bars and hide them under your mattress. Back when we had a gold standard that was illegal. IT WAS ILLEGAL TO OWN GOLD.

Nowadays you can take your paper paycheck and walk down to the local coin shop and convert your worthless fiat money into as much gold as you like, and take it home with you. And whenever you need to pay your taxes, take your gold bullion down to the coin shop and buy fiat dollars at the spot price and use those to pay your taxes. And conduct all other transactions in gold. If you can find people who’d rather take gold coins rather than worthless fiat dollars, that is.

[Derleth]

@Flyer

I never fail to be amazed at the number of people who, while otherwise seemingly rational and intelligent, nevertheless hold tenaciously to the economic equivalent of superstition–the idea that you can spend yourself out of debt.

Nobody said anything about spending your way out of debt. My contention, which is mainstream economics, is that sovereign debt has positive effects on the economy, and that it can be sustained indefinitely as long as it can be serviced with a reasonable percentage of the GDP.

The biggest positive effect sovereign debt has is that it’s a way to invest in the economy as a whole, giving people a safe place to invest their money at minimal risk such that they’re essentially betting that the entire country’s economy is going to keep growing, instead of having to bet that GE, for example, is going to keep posting profits and paying dividends. Government bonds, and therefore sovereign debt, are thus a positive good, especially for the widows-and-orphans (literal and figurative) crowd which needs safe investments the most.

The reason debt can be carried indefinitely is that sovereigns don’t die. (Trying to confuse the United Kingdom with Queen Elizabeth II here would be in massively poor taste, and idiotic to boot.) Therefore, they keep paying down the debt, which individual human beings cannot, because any individual person will eventually stop working and die, possibly on different days. There is a limit to how much debt a government can take on, which is related to the GDP, but that isn’t an argument in favor of paying it all down. In fact, as my previous point demonstrates, there are strong arguments against paying it all down.

John Maynard Keynes has done far more damage to the world than Karl Marx and Lenin combined.

Find a survivor of the gulags and tell them that. You’ll need more than a post-Stalinist decree to be rehabilitated, I guarantee you that.

[billfish678]

@septimus

You deleted the second paragraph of my post, which explained the reason for the problem.

Because mainly it doesn’t matter the reason why we as a country are in the red constantly for the point I was making. Historical facts are facts give or take. The why is another thread over.

[bump]

@Derleth

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.

I think this is really the root of Goldbugism. I think to a lot of these sorts, it’s deeply and utterly frustrating and WRONG that $10 nowadays buys you roughly what $5 bought you back in 1986. And this sort of discomfort/uneasiness with the idea that the value of money isn’t stable sort of translates into a distrust of the monetary system, in that money isn’t “worth anything” and is just a piece of paper with a value dreamed up by nebulous Federal Reserve characters and bankers somewhere in NYC or Washington DC.

So they latch onto gold as being inherently valuable, as it’s always been valuable due to its relative rarity and use in jewelry and other expensive items. So they basically substitute the equally nebulous “inherent value” of gold for the floating value of a fiat currency, and spice it up with stupidity about limited amounts of money due to a limited amount of gold.

(the above is basically the distilled thoughts of several gold-bug knuckeheads who I’ve known over the years)

Essentially they can’t quite comprehend the idea that in a fiat currency world, the value of a country’s currency is something like the crowdsourced opinion of the strength of that country’s economy, and that things like deflation, drastic and rapid inflation, economic downturns, etc… all play into that value as a result.

[Peremensoe]

@Lemur866

Today nobody gives a shit if you buy and sell gold bars and hide them under your mattress. Back when we had a gold standard that was illegal. IT WAS ILLEGAL TO OWN GOLD.

Wait, what?

There were official, circulating US gold coins from 1795 to 1933. Obviously it wasn’t illegal to own them!

FDR in 1933 required the turn-in of gold coins, bullion, and certificates, and began the process of taking us off the gold standard, formally completed by Nixon in 1971.

[billfish678]

Major Nelson…or was it Major Healy? were put on treason charges for trying to corner the gold market.

[Atamasama]

Executive Order 6102

6102 made it illegal to “hoard” gold, not illegal to own it. I think that’s what’s being confused.

Before 1933 I don’t think there were restrictions at all on ownership in the US (otherwise this order would have been unnecessary). And yes, this was in an effort to wean us off the gold standard, not to protect the gold standard. People were hoarding gold in reaction to the market crashes that led to The Depression and FDR felt it critical to stop that practice. The article I linked to expands on the reasons for the order.

[Lumpy]

What we had post-1933 might be termed a pseudo-gold standard. Rather than defining the dollar as so many dollars per troy ounce of gold, the new standard declared the price of gold to be (iirc) $35 per oz. And the only way to uphold this artificially declared price was to ban all but the most trivial private ownership of gold. My understanding is that this allowed fiat money to exist in all but name while maintaining the illusion that US dollars were “backed by gold”.

[Peremensoe]

Right. So, pre-1933 was the real gold standard. When it was perfectly legal to own gold.