I am in no way in favor of the gold standard but I’m trying to understand some of the nuances of the pro/con arguments. In my (naive) understanding if two currencies are on the gold standard then their relative value to each other is locked in. E.g., say the US and UK were both on the gold standard (with made up numbers):
UK pound = 0.02 oz gold
US Dollar = 0.01 oz gold.
This means that a GBP always equals 2 USD. Is this correct? If so, I assume that those in favor of a gold standard recognize this as a problem. (Right?) How do they propose to get around it?
You’re right. The only way to get around it is for governments to revalue their currency, e.g., for the US to revalue at dollar as 0.009 or 0.011 oz of gold, revaluing 10% down or up.
I haven’t thought about this that much - but I suspect it would be messy, since it takes a longer to move gold reserves around to balance things out. I’d also go read up on what happened when France started stockpiling gold in the late 1920s…
Largely bullion stayed where it was and receipts were exchanged. Still is the case. Gold is a titanic pain in the ass as currency. Best to keep in a vault and exchange receipts of ownership.
Right. They didn’t ship gold from one warehouse to another. They didn’t even move gold from one shelf on the warehouse to another shelf. They just changed the labels on the shelves.
Which raises the question of why the gold was even neccesary.
:eek: “We should take over the government, issue currency based on gooooooooold baaaaaby, and that way the GUBMINT will never be able to run a deficit or (in your example) debauch the currency through inflation!”
“If you’re going to take over the government, you could just not run a deficit or debauch the currency through inflation. What’s the gold part for?”
:eek:"…"
:eek:“All I know is that the gold Krugerands I have buried in my backyard have nothing to do with it.”
Ok, assuming you are right (and I’m not doubting you) this means the government can revalue the money. If the government can do this, doesn’t that undermine the whole point of the gold standard? How do people who seriously push for the gold standard get around this? This seems like a pretty big hole.
I remember when we were still on it, and gold was $35 / ounce. (When I bought my gold college ring. ) Countries devaluing their currency was big news. They did it to make their products more competitive, but because of cries about the weak dollar, pound, whatever, they did it long after it needed to be done. Today the market does it for them. (Except in the Eurozone, that is.)
Countries who have used the “gold standard” as an anchor for their currency have experienced extreme peaks and valleys in their economies. It doesn’t work. Never did.
Huh? Countries such as the US were required to have gold on hand worth 40% of notes in circulation - it could only expand the money supply as fast as it could move gold into its vaults. It was a not-insignificant factor behind the Great Depression, since it’s very hard to offset deflationary pressures (you can’t fire up the printing press to print money).
Countries on the Gold standard sought to have ‘"gold on call’" to back their currency. That did not mean physically moving the gold around, too much of a pain in the ass. That usually meant exchange of ownership receipts by the late 19th century.
It sounds like pro-gold standard people are some combination of these two attributes:
They don’t fully understand the negative ramifications of the gold standard.
They understand the ramifications but are willing to live with it because of the limitations (real and/or perceived) it would put on the Federal government.
I believe Ron Paul supports some kind of gold standard and while he is indeed a loon, he is a pretty powerful loon who is Chairman of the House Financial Services Subcommittee on Domestic Monetary Policy. I think it’s fair to say that while US conservatives don’t necessarily advocate a return to the gold standard, they do take the idea seriously.
“If you’re going to take over the government, you could just not run a deficit or debauch the currency through inflation. What’s the gold part for?”
) Countries devaluing their currency was big news. They did it to make their products more competitive, but because of cries about the weak dollar, pound, whatever, they did it long after it needed to be done. Today the market does it for them. (Except in the Eurozone, that is.)