# Gold Standard, yea or nea? **URL:** \ **Category:** Great Debates\ **Created:** [September 19, 2009, 12:19am UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665 "2009-09-19T00:19:52Z")\ **Posts on this page:** 20\ **Page:** 5
**Author:** ![Exapno\_Mapcase](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/exapno_mapcase/32/1051_2.png) [@Exapno\_Mapcase](https://boards.straightdope.com/u/Exapno_Mapcase)\ **Post date:** [September 25, 2009, 3:42pm UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/81 "2009-09-25T15:42:06Z")
Thank you, Hellestal. We needed that. I dropped out of this thread when Animastryfe’s friend pegged my blood pressure. I need first to acknowledge that Whorfin was right and my attempt to oversimplify the story of fractional reserves was wrong. There are two aspects to the fraudulence of the goldbugs. No, three. There is the imaginary economics that does not take any identifiable understanding of how an economy works into account. I’m a historian so I’ll leave that in the others’ good hands. There is the imaginary history that simply lies about what has happened. Fractional reserve banking occurred before central banks and the Fed. Inflation occurred before central banks and the Fed. Inflation occurred on the gold standard. Costs are more correlated with macro events than with manipulation. The important chart on [this page](http://www.practical-investing.com/article.php?article=inflation)\* is the second one, in which the smoothness of long periods of time is erased and the underlying messiness of history revealed. Note that inflation dominated the entire period from 1900, the enactment of the Gold Standard Act, to 1934, when gold was depegged. The importance of the first graph is not that inflation has soared since Nixon removed the last link to the gold standard in 1971 but that inflation is never negative. Long periods of even 1% of inflation will double prices (in 72 years to be exact) and that makes a fixed price of gold uneconomical for the gold producers. The third is that a single country can maintain a gold standard in a modern global economy without that having enormous effects on the price of gold throughout the world that would defeat any attempt to steady the economy. How would a gold standard operate without one country controlling all sources of gold? Gold would soon flee the country seeking higher prices which would inevitably happen unless an imaginary permanent global deflation sets in. That would destroy all economies so I wouldn’t root for it myself. \*The rest of that page nicely backs up what we’re been saying, although I came across it merely by searching for a good chart. ---
**Author:** ![constanze](https://avatars.discourse-cdn.com/v4/letter/c/f9ae1b/32.png) [@constanze](https://boards.straightdope.com/u/constanze)\ **Post date:** [September 25, 2009, 4:07pm UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/82 "2009-09-25T16:07:14Z")
[Cecil once explained](http://www.straightdope.com/columns/read/611/what-happened-to-all-the-gold-spain-got-from-the-new-world) why the pile of gold from the plundered South American kingdoms didn’t help Spain become wealthier. > [@Cecil](#): > > The answer has to do with the slippery nature of money. The importation of New World gold into Spain coincided with a corrosive inflation that has come to be known as the “price revolution.” Although prices had dropped steadily during the 1400s, after 1500 they began to rise dramatically–300 percent by 1600, according to economist Earl Hamilton, who wrote a well-known book on the phenomenon. The reasons for this are complex, but it seems clear that at least in part it was a matter of a sharply increasing amount of money (in the form of silver and gold) chasing a relatively fixed output of goods and services, thus bidding up the price. Among other things the higher prices meant Spanish goods became uncompetitive on European markets. Even the Spanish themselves began buying foreign products, resulting in a lot of cash leaving the country. In addition, inflation stifled local investment, with the grandees spending their dough on conspicuous consumables instead. > [@Cecil](#): > > The problem was that the conquest of the New World left Spain with a lot more money, but not that much more wealth, if you follow me. They didn’t realize that until too late, and suffered centuries of poverty as a consequence. So obviously Gold-based currency is not the wonder solution for every economic development. ---
**Author:** ![Lumpy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lumpy/32/446_2.png) [@Lumpy](https://boards.straightdope.com/u/Lumpy)\ **Post date:** [September 25, 2009, 4:35pm UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/83 "2009-09-25T16:35:48Z")
> [@IdahoMauleMan](#): > > I utterly, completely, totally disagree. The money supply does not need to expand at the same rate as the economy. Why do you think that must be? What others have said upthread but I’ll add my 2¢ as well. The money supply needs to expand at the same rate as the economy because deflation can be as destructive as inflation. In a deflationary scenerio gold and silver are the **only** things worth holding onto as stores of wealth; **everything** else, with the possible exception of productive real estate, is a loss. So you have a medieval situation: If you are lucky enough to get a hold of some specie, you hoard it instead of letting it circulate; quarter-farthings (one-sixteenth of a penny) are minted because coin is so precious relative to goods and services; and production is hobbled not only because loans are almost impossible to get at anything short of ursurious rates but because expanding production simply exacerbates the money shortage, making the economy self-limiting. Some historians believe that the injection of New World gold and silver into the European economy is what made the end of feudalism and the establishment of market economies possible. And it’s no accident that the rapidly expanding industrial economy of the nineteenth century produced floods of paper money- it was _needed_, even when it was of shaky value, because a “coin of the realm” economy just wasn’t workable anymore. The unregulated paper money supply did contribute to vast booms and busts, and by the twentieth century establishing national fiat money had become the lesser of two evils. ---
**Author:** ![Lemur866](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lemur866/32/434_2.png) [@Lemur866](https://boards.straightdope.com/u/Lemur866)\ **Post date:** [September 25, 2009, 4:46pm UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/84 "2009-09-25T16:46:09Z")
Of course, anyone who wants gold as a store of value can walk into any coin shop and purchase as much gold as they like, and bury it in their backyards. The fact that they can’t get government-issued coupons redeemable for a certain weight of gold isn’t exactly a cause for worry. And ironically, when we were under a gold standard it was actually illegal to hold gold this way. But of course it makes perfect sense when you realize that since the currency is backed by gold, and the government has extremely strong incentives to control the currency, therefore the government must control the market for gold. So far from a system where free and sovereign citizens trade using real gold, it turns out that under a gold standard real actual gold is taken out of the hands of private individuals because it’s too important. And of course, history shows again and again that even gold and silver coins are subject to manipulation when things get tough–the tyrants just add base metal to the coins, and then make it mandatory to accept the debased coins at the same rate as the pure coins. Of course, once we accept debased coins, we might as well go whole hog and require people to accept wooden nickels rather than precious metal. And there we go, fiat currency. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [September 26, 2009, 12:44am UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/85 "2009-09-26T00:44:22Z")
> [@Exapno\_Mapcase](#): > > The important chart on [this page](http://www.practical-investing.com/article.php?article=inflation)\* is the second one, in which the smoothness of long periods of time is erased and the underlying messiness of history revealed. Note that inflation dominated the entire period from 1900, the enactment of the Gold Standard Act, to 1934, when gold was depegged. The importance of the first graph is not that inflation has soared since Nixon removed the last link to the gold standard in 1971 but that inflation is never negative. Long periods of even 1% of inflation will double prices (in 72 years to be exact) and that makes a fixed price of gold uneconomical for the gold producers. You seem to be misreading those charts. The first is the CPI, which is to say, the general price level. This is the sticker value of goods and services. The second is the _change_ in the general price level: the inflation rate. (In math terms, we could look at these as the general price level and its first derivative). On a long scale, general price levels were stable with metal-backed currency. Any increase in prices was met with a deflationary period later. But you’re absolutely right that in the second graph we’re looking at the underlying historical messiness of the rowdy and unpredictable boom and bust cycles of the 19th century, with its rampant speculative bubbles and then deflationary panics. But for my purposes, what’s most telling about the second chart is what happened after Paul Volcker’s term as Fed chair: there was still inflation, but _it was steady inflation_. Nice, calm, predictable inflation. Look at how wonderfully smooth that inflation rate is from the 1980s on. Shame that it doesn’t go up to the present day, or we should see that inflation rate drop to 0 (bad juju there). But even with the latest crisis, we’ve had some deflation but not the terrible pits of deflation that they saw in the 19th century, and all because Bernanke was able to fire up the printing presses and issue another trillion dollars worth of monetary base. So much easier and less traumatic than dropping a peg. All this Fed bashing, and people miss the point that the Fed has done a better job than precious metals ever managed in making sure people would know what prices would be like next year. We just had to unleash the wonks. The Fed was severely constrained in what it could do under the gold standard because the Federal _Reserve_ had to ensure it had the gold reserves available, which tied its hands. The Fed gained its current monstrous importance precisely because the politicians gave it that power by dropping the gold standard, and yet what this means on a deeper political level is that control of our money supply is now completely in the hands of staid, boring technocrats instead of Congress and the president. The result? The most predictable, reliable, dependable, steady inflation we’ve ever had. The fiat system’s not perfect (and it’s only gone for 40 years), but it’s already made an overwhelmingly strong case. ---
**Author:** ![Exapno\_Mapcase](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/exapno_mapcase/32/1051_2.png) [@Exapno\_Mapcase](https://boards.straightdope.com/u/Exapno_Mapcase)\ **Post date:** [September 26, 2009, 2:43am UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/86 "2009-09-26T02:43:37Z")
> [@Hellestal](#): > > You seem to be misreading those charts. > > The first is the CPI, which is to say, the general price level. This is the sticker value of goods and services. The second is the _change_ in the general price level: the inflation rate. (In math terms, we could look at these as the general price level and its first derivative). On a long scale, general price levels were stable with metal-backed currency. Any increase in prices was met with a deflationary period later. But you’re absolutely right that in the second graph we’re looking at the underlying historical messiness of the rowdy and unpredictable boom and bust cycles of the 19th century, with its rampant speculative bubbles and then deflationary panics. I was noting what the caption under that chart says: > [@](#): > > In fact, the loss of purchasing power in the 19th century is not small. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [September 26, 2009, 3:55am UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/87 "2009-09-26T03:55:51Z")
> [@Exapno\_Mapcase](#): > > I was noting what the caption under that chart says: Gotcha. Silly misreading on my part (for some reason, wasn’t thinking net inflation when I was reading your post). ---
**Author:** ![Animastryfe](https://avatars.discourse-cdn.com/v4/letter/a/8797f3/32.png) [@Animastryfe](https://boards.straightdope.com/u/Animastryfe)\ **Post date:** [September 26, 2009, 4:28am UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/88 "2009-09-26T04:28:23Z")
Just a note, my friend is “Raptoreyes”. He’s already posted once in this thread (second page). I’m not going to take any sides on this thread, since my knowledge of economics is pretty basic, but Raptor is a reasonable person who does have an open mind most of the time. ---
**Author:** ![IdahoMauleMan](https://avatars.discourse-cdn.com/v4/letter/i/71c47a/32.png) [@IdahoMauleMan](https://boards.straightdope.com/u/IdahoMauleMan)\ **Post date:** [September 26, 2009, 2:20pm UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/89 "2009-09-26T14:20:09Z")
> [@Lumpy](#): > > What others have said upthread but I’ll add my 2¢ as well. The money supply needs to expand at the same rate as the economy because deflation can be as destructive as inflation. In a deflationary scenerio gold and silver are the **only** things worth holding onto as stores of wealth; **everything** else, with the possible exception of productive real estate, is a loss. So you have a medieval situation: If you are lucky enough to get a hold of some specie, you hoard it instead of letting it circulate; quarter-farthings (one-sixteenth of a penny) are minted because coin is so precious relative to goods and services; and production is hobbled not only because loans are almost impossible to get at anything short of ursurious rates but because expanding production simply exacerbates the money shortage, making the economy self-limiting. Some historians believe that the injection of New World gold and silver into the European economy is what made the end of feudalism and the establishment of market economies possible. And it’s no accident that the rapidly expanding industrial economy of the nineteenth century produced floods of paper money- it was _needed_, even when it was of shaky value, because a “coin of the realm” economy just wasn’t workable anymore. The unregulated paper money supply did contribute to vast booms and busts, and by the twentieth century establishing national fiat money had become the lesser of two evils. No, you don’t hoard it. You spend it, or invest it, or perhaps save it, according to your preferences for consumption vs deferral. You don’t sit on a giant pile of gold, and then go without food, or a TV to watch the NFL, or an occasional trip to Cabo San Lucas. Why would a change to the gold standard cause people to change their behavior w.r.t. savings and consumption? The only time I could see that happening is if **they lose confidence in the currency** , which is of course what happened pre-Great Depression. You deal with deflating prices every day, and tradeoffs between consumption and deferral, without even realizing it. Here are three examples from modern life: 1. The computer example I cited above. Millions of people worldwide consider the tradeoff between buying a computer now, or waiting. Many have built in the expectation of more powerful computers at lower prices, coming slightly later in time, into their purchase decision. Perhaps you have as well. The computer industry, along with the consumer electronics industry, has experienced some of the most massive price deflation in the history of mankind over the past 40 years. And yet billions of computers have been manufactured, creating trillions of dollars worth of wealth, and employed 10s of millions of people. How can that be? 1. Ever consider going to see a first-run movie, but then decided ‘Naah. I don’t want to wait in line, and spend $15 on a ticket. I’ll just wait until later until it comes out on DVD, or until the lines are shorter. It might also go to second-run theaters by then, and be cheaper.’ That’s baking in an expectation of deflation into a decision of immediate consumption vs deferral. 2. How about buying a car? Ever wait until next years models have come out, so you can get a good deal on the previous years models sitting on the lots? People do this all the time. I could cite a billion other examples of where you, and other regular citizens, deal with deflating prices. Deflation by itself doesn’t cause any problems whatsoever. People manage expectations of increasing, or decreasing prices into their purchase decisions, and the tradeoff between consumption, investment and savings all of the time. Why would any of that change because we went on the gold standard? The posts above are bizarre. You, and others, postulate that (somehow) if we went back to the gold standard, people would huddle around their little piles of gold, never going out, never spending anything, and never investing. What makes you believe people would change their behavior like that? It’s the large whipsaw from inflation, to deflation, and back…and the associated uncertainty in prices, that causes problems. Because then you don’t know what to expect and cannot plan for the future. And THAT, my friend, is caused by fiat money. Not the gold standard. ---
**Author:** ![Exapno\_Mapcase](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/exapno_mapcase/32/1051_2.png) [@Exapno\_Mapcase](https://boards.straightdope.com/u/Exapno_Mapcase)\ **Post date:** [September 26, 2009, 2:32pm UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/90 "2009-09-26T14:32:40Z")
We can say as many times as necessary that having the prices on certain objects go down is not the same as deflation. Nor is being a cheaper object in preference to a more expensive one an example of deflation. Deflation by definition is applied to the entire economy, not to individual pieces of it. Even your pet nutball, Murray Rothbard, defines deflation as a contraction of the money supply as a response to inflation. That may not be an orthodox definition but it can be defended, unlike yours. [Man, Economy, and State with Power and Market, Scholar's Edition - Murray N. Rothbard - Google Books](http://books.google.com/books?id=YGi5EbO32hgC&printsec=frontcover&dq=Man,+Economy,+and+State.&ei=nya-SpmTMJvcyQSAobG0Dw#v=onepage&q=deflation&f=false) ---
**Author:** ![IdahoMauleMan](https://avatars.discourse-cdn.com/v4/letter/i/71c47a/32.png) [@IdahoMauleMan](https://boards.straightdope.com/u/IdahoMauleMan)\ **Post date:** [September 26, 2009, 2:34pm UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/91 "2009-09-26T14:34:55Z")
> [@constanze](#): > > [Cecil once explained](http://www.straightdope.com/columns/read/611/what-happened-to-all-the-gold-spain-got-from-the-new-world) why the pile of gold from the plundered South American kingdoms didn’t help Spain become wealthier. > > So obviously Gold-based currency is not the wonder solution for every economic development. I love that article. But I don’t see why you make the connection between a gold-based currency and the decline of the Spanish empire. What would the connection be there? ---
**Author:** ![IdahoMauleMan](https://avatars.discourse-cdn.com/v4/letter/i/71c47a/32.png) [@IdahoMauleMan](https://boards.straightdope.com/u/IdahoMauleMan)\ **Post date:** [September 26, 2009, 2:38pm UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/92 "2009-09-26T14:38:10Z")
> [@Exapno\_Mapcase](#): > > Thank you, Hellestal. We needed that. > > I dropped out of this thread when Animastryfe’s friend pegged my blood pressure. I need first to acknowledge that Whorfin was right and my attempt to oversimplify the story of fractional reserves was wrong. > > There are two aspects to the fraudulence of the goldbugs. No, three. > > There is the imaginary economics that does not take any identifiable understanding of how an economy works into account. I’m a historian so I’ll leave that in the others’ good hands. > > There is the imaginary history that simply lies about what has happened. Fractional reserve banking occurred before central banks and the Fed. Inflation occurred before central banks and the Fed. Inflation occurred on the gold standard. Costs are more correlated with macro events than with manipulation. The important chart on [this page](http://www.practical-investing.com/article.php?article=inflation)\* is the second one, in which the smoothness of long periods of time is erased and the underlying messiness of history revealed. Note that inflation dominated the entire period from 1900, the enactment of the Gold Standard Act, to 1934, when gold was depegged. The importance of the first graph is not that inflation has soared since Nixon removed the last link to the gold standard in 1971 but that inflation is never negative. Long periods of even 1% of inflation will double prices (in 72 years to be exact) and that makes a fixed price of gold uneconomical for the gold producers. > > The third is that a single country can maintain a gold standard in a modern global economy without that having enormous effects on the price of gold throughout the world that would defeat any attempt to steady the economy. How would a gold standard operate without one country controlling all sources of gold? Gold would soon flee the country seeking higher prices which would inevitably happen unless an imaginary permanent global deflation sets in. That would destroy all economies so I wouldn’t root for it myself. > > \*The rest of that page nicely backs up what we’re been saying, although I came across it merely by searching for a good chart. Those are great charts. But I would claim that they prove my point. Even some of the commentary in edges reinforces what I’ve been saying in my posts above. You’ll note that pre-FDR inflation occurs in your charts primarily in periods surrounding wars, when 1. Wealth is destroyed, thereby driving up the prices of available goods 2. Large bottlenecks and distortions are introduced into the economy, due to embargoes and other barriers to entry. ---
**Author:** ![IdahoMauleMan](https://avatars.discourse-cdn.com/v4/letter/i/71c47a/32.png) [@IdahoMauleMan](https://boards.straightdope.com/u/IdahoMauleMan)\ **Post date:** [September 26, 2009, 2:39pm UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/93 "2009-09-26T14:39:48Z")
> [@Exapno\_Mapcase](#): > > We can say as many times as necessary that having the prices on certain objects go down is not the same as deflation. Nor is being a cheaper object in preference to a more expensive one an example of deflation. Deflation by definition is applied to the entire economy, not to individual pieces of it. > > Even your pet nutball, Murray Rothbard, defines deflation as a contraction of the money supply as a response to inflation. That may not be an orthodox definition but it can be defended, unlike yours. > [Man, Economy, and State with Power and Market, Scholar's Edition - Murray N. Rothbard - Google Books](http://books.google.com/books?id=YGi5EbO32hgC&printsec=frontcover&dq=Man,+Economy,+and+State.&ei=nya-SpmTMJvcyQSAobG0Dw#v=onepage&q=deflation&f=false) Nice. Ad hominem attacks. So if X = computer industry, Y = cars, and Z = movies, then somehow me saying that [X+Y+Z] examples _are not_ deflation, but adding in 1 - [X+Y+Z] from the rest of the economy is deflation? Explain that one to me. Perhaps I’m misunderstanding. I’ll let you define deflation, then. Go ahead. Do me a favor and try not to make it a circular definition, that somehow sneaks in something ‘bad’ as part of the definition. ---
**Author:** ![IdahoMauleMan](https://avatars.discourse-cdn.com/v4/letter/i/71c47a/32.png) [@IdahoMauleMan](https://boards.straightdope.com/u/IdahoMauleMan)\ **Post date:** [September 26, 2009, 2:57pm UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/94 "2009-09-26T14:57:31Z")
> [@Hellestal](#): > > So much easier and less traumatic than dropping a peg. All this Fed bashing, and people miss the point that the Fed has done a better job than precious metals ever managed in making sure people would know what prices would be like next year. We just had to unleash the wonks. The Fed was severely constrained in what it could do under the gold standard because the Federal _Reserve_ had to ensure it had the gold reserves available, which tied its hands. And here, my friend, is where we shake hands and part friends. I don’t want to turn over the control of my country’s monetary supply to ‘wonks’. I want them constrained by a physical resource. I want their hands to be tied…that’s the whole point of a gold standard. You can’t arbitrarily increase or decrease the money supply based on the decisions of a dozen or so human beings. You leave it to the market. And that applies in general to government. I don’t want enlightened, elite people making decisions about my life. Amazingly, many many millions of people do. And they don’t just want to take those ‘wonks’ advice, and decide for themselves whether or not to implement that advice. They are willing to sign over the right for the ‘wonks’ to _force_ them to do whatever they want. You keep referring to the 19th century as a period of terrible deflation. Why was it so terrible? I think it was good. If you look at the wealth created between 1800-1899, and the increase in living standards as measured by - Life expectancy - Recovery from physical trauma - Power production - Time and cost required to travel, or send a letter - Communications, which went from somebody carrying a letter on the back of a donkey, to the wireless - Clean drinking water and sanitation It was one of the greatest explosions of increased living standards, and creation of wealth, in the history of mankind. How could the deflation be so ‘terrible’? I would argue it was irrelevant, and possibly supportive of those business endeavors. ---
**Author:** ![Exapno\_Mapcase](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/exapno_mapcase/32/1051_2.png) [@Exapno\_Mapcase](https://boards.straightdope.com/u/Exapno_Mapcase)\ **Post date:** [September 26, 2009, 3:37pm UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/95 "2009-09-26T15:37:32Z")
> [@IdahoMauleMan](#): > > Nice. Ad hominem attacks. > > So if X = computer industry, Y = cars, and Z = movies, then somehow me saying that [X+Y+Z] examples _are not_ deflation, but adding in 1 - [X+Y+Z] from the rest of the economy is deflation? Explain that one to me. Perhaps I’m misunderstanding. Please tell me that this is a whoosh. Let X=-2, y=-4, Z=-3 and A=10. Net total is +1. That’s how the CPI works, except that the CPI uses 211 categories and 38 geographic areas and more advanced math like a Laspeyres index. It’s the net total movement of the multivariate items that determines inflation or deflation. No individual examples need apply. That’s how orthodox economists calculate inflation. > [@](#): > > I’ll let you define deflation, then. Go ahead. Do me a favor and try not to make it a circular definition, that somehow sneaks in something ‘bad’ as part of the definition. However, for this discussion I’ll be happy to use Rothgard’s definition of deflation as “a contraction in the supply of money.” p. 1005 Your turn. ---
**Author:** ![jakesteele](https://avatars.discourse-cdn.com/v4/letter/j/ed8c4c/32.png) [@jakesteele](https://boards.straightdope.com/u/jakesteele)\ **Post date:** [September 26, 2009, 4:00pm UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/96 "2009-09-26T16:00:41Z")
> [@IdahoMauleMan](#): > > Interesting editorial that came out yesterday. It doesn’t directly answer a lot of the questions in the thread, but I’m posting it here because it’s timely, and talks about the gold standard in the second half. > > Including how FDR forcibly expropriated wealth from US citizens and devalued the dollar in one fell, brazen swoop. > > [http://online.wsj.com/article/SB10001424052970203440104574402822202944230.html](http://online.wsj.com/article/SB10001424052970203440104574402822202944230.html) Sweet, great article. Thanks. ---
**Author:** ![Lumpy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lumpy/32/446_2.png) [@Lumpy](https://boards.straightdope.com/u/Lumpy)\ **Post date:** [September 26, 2009, 6:42pm UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/97 "2009-09-26T18:42:08Z")
> [@IdahoMauleMan](#): > > I love that article. > > But I don’t see why you make the connection between a gold-based currency and the decline of the Spanish empire. What would the connection be there? Because the sixteenth century was one of the few times in history that at least temporarily and locally, a country had **too much** gold and silver. Gold and silver had been so dear for so long that people had fallen ito the habit of thinking gold=wealth. The kings of Spain didn’t understand that you can’t buy whatever you want simply by dumping more money into the economy. In this case all those Spanish pieces of eight were as harmful to Spain’s long term economic health as any run of a printing press. Being on the gold standard didn’t magically protect them. ---
**Author:** ![Exapno\_Mapcase](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/exapno_mapcase/32/1051_2.png) [@Exapno\_Mapcase](https://boards.straightdope.com/u/Exapno_Mapcase)\ **Post date:** [September 26, 2009, 7:49pm UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/98 "2009-09-26T19:49:40Z")
> [@IdahoMauleMan](#): > > I don’t understand how the gold standard could jack up the price of gold relative to other goods and services. Gold is money. The piece of paper in your hand that says ‘20 dollars equals one ounce of gold’ is fixed. It never changes. How can that jack up the price of gold relative to other goods and services? Those goods and services are priced in weight of gold. Missed this before. From your own link to [Arthur Laffer’s Wall St. Journal column](http://online.wsj.com/article/SB10001424052970203440104574402822202944230.html): > [@](#): > > The increase in the demand for paper currency and gold not only had a quantity effect on the money supply but it also put upward pressure on the price of gold, which meant that dollar prices of all goods and services had to fall for the relative price of gold to rise. The deflation of the early 1930s was not caused by tight money. It was the result of panic purchases of fixed-dollar priced gold. From the end of 1929 until early 1933 the Consumer Price Index fell by 27%. If Laffer, one of the most monetarist economists still left on the ground, believes that a gold standard is the cause of the most devastating deflations we seen - and that deflation was a bad thing - I’m not sure what your argument is. He also argues that the Fed had little influence or effect on the Depression, something else that the rest of us have been saying. I don’t agree with the implications of everything he says, particularly on taxes, but he undercuts your case so severely I no longer understand what you’re saying other than government = bad. ---
**Author:** ![Miller](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/miller/32/481_2.png) [@Miller](https://boards.straightdope.com/u/Miller)\ **Post date:** [September 26, 2009, 9:38pm UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/99 "2009-09-26T21:38:19Z")
This is more of a Great Debate. Moving it over yonder. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [September 27, 2009, 8:41am UTC](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665/100 "2009-09-27T08:41:26Z")
> [@IdahoMauleMan](#): > > And here, my friend, is where we shake hands and part friends. > > I don’t want to turn over the control of my country’s monetary supply to ‘wonks’. I want them constrained by a physical resource. I want their hands to be tied…that’s the whole point of a gold standard. You can’t arbitrarily increase or decrease the money supply based on the decisions of a dozen or so human beings. You leave it to the market. We’re in GD now, so yeah, you can hold fast to your opinions. They are yours, and this is the place for it, and you have every right to them, even when they’re based on fantasies no more real than unicorns and pixies. > [@IdahoMauleMan](#): > > You keep referring to the 19th century as a period of terrible deflation. Why was it so terrible? I think it was good. I’ve already explained why deflation is bad. Repeatedly. I’ve got all of mainstream economics at my back from all over the spectrum. This is not a dispute between professionally trained libertarians and liberals. It’s a dispute between people who know what they’re talking about and people who haven’t the slightest clue. And **Exapno** has already pointed out that the 19th century had _inflation_ on net. On the long haul, prices were stable during the 19th century compared to the 20th, _but the currency still inflated on net over the entire time period_. My point, the point that I made repeatedly, is that periods of deflation can be especially harmful. And you know what? Those periods of deflation in the 19th century were especially harmful. They coincided with the “Panics” of that age, and they exacerbated those panics. Did average human welfare increase in the 19th century? Of course it did. But human welfare would’ve done even better if they could’ve avoided the deflationary periods. This is not the difference between growth and no growth–it’s the difference between strong, steady growth and growth that’s interrupted by long periods of suffering that could have been avoided with a different monetary system. Evidence for this can be seen today. Right now, China is rapidly catching up from those centuries when it was left behind, and they’re doing it without a gold standard. They were having 10% annual growth before the crisis, and it seems they managed to avoid the worst of this latest worldwide downturn. China doesn’t have a gold peg. China doesn’t need a gold peg. A gold peg would be _less stable_ than what they have now. What’s especially hypocritical about this is that you have already admitted some of the problems of the 19th century. From your own post: > [@IdahoMauleMan](#): > > It’s the large whipsaw from inflation, to deflation, and then back to inflation, that causes problems. It muddies investment and consumption decisions and distorts the value of money. I agree entirely that large whipsawing in the price level is damaging. Now read [the second table from **Exapno** ’s cite](http://www.practical-investing.com/article.php?article=inflation). Where is the whipsaw effect? Not in the present era under fiat currency. The real whipsawing happened under the gold standard. You claimed earlier that whipsawing was bad, and when I pointed out that the most stable inflation rate we’ve ever had happened with the wonks’ control of the fiat currency, you immediately flipped and said that was a bad thing. Typical from any fundamentalist. The argument changes like mercury to support what you always wanted to believe. It’s the same reason you provide a link to Arthur Laffer about scary FDR and ignore him when he undercuts your deflation arguments (great catch from **Mapcase** there). You use what you think helps you and ignore the rest. Well, you were right in the first place about whipsawing in the change prices. It’s bad, and if you really cared about that (which you don’t), you’d acknowledge the Fed’s superior ability so far to control those fluctuations with fiat currency. My other, deeper point about deflation coincides with this: the downward portion of that whipsaw is _especially_ damaging. This is not disputed by any respectable modern economist in the world. Even today’s professionally trained hacks don’t dispute this, so far as I know. > [@IdahoMauleMan](#): > > I would argue it was irrelevant, and possibly supportive of those business endeavors. I know you argue thus. You do so because your beliefs are based not on evidence, but on personal dogma. You believe what you believe, facts be damned. This is GD, but I’m not going to debate with a market fundamentalist. But since this used to be a GQ thread, if you continue to post errors, I will continue to correct them for as long as it seems worthwhile. You want to make a moral argument? That’s fine. More power to you. But I’m not going to let you pretend that your moral arguments have some sort of factual foundation. They don’t. They never have. [Previous page](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665.md?page=4) [Next page](https://boards.straightdope.com/t/gold-standard-yea-or-nea/510665.md?page=6)