And there is no higher authority than Congress to determine what the proper value of the dollar is. Again, Congress isn’t bound by some set of rules on how to value the dollar, it writes those rules. Bizzarro-Congress could just as logically decide that gold is too volitile and decide a diamond-backed dollar is the way to go.
Obviously, valuing the dollar isn’t a matter of arithmetic. Since the money supply is far, far, FAR greater than the amount of cash in circulation, there are firstly some real difficult decisions for what is money. Cash only? Cash and travelers checks? That plus demand deposits? What about long-term deposits?
There’s no simple answer here, despite some cranks who think gold is actually worth $7,500 an ounce, or other nonsense. Heck, even goldbugs can’t agree on how to value the dollar.
I’m thinking about how a market works. But I don’t know why you think we couldn’t fix the price of gold to the market value on day X.
Yes, the problem with this is that the government would be constantly buying gold when the price is high, and selling gold when the price is low. This is the opposite of how you get rich. But if we want to peg the dollar to the price of gold that’s what we’d have to do. That’s the cost of the “gold standard”. If you don’t want to pay that cost, don’t advocate for the gold standard.
You have to pick how to go on the gold standard first. Some examples:
You take all the US money supply (lots of ways of calculating that, lots) and divide by the amount of gold the US has. The result will be a huge value/oz. Suddenly, lots of gold starts turning up at the federal gold exchange with people wanting to swap their formerly “cheap” gold for lots and lots of dollars. More gold is being turned in than existed in the US beforehand and gold seems to be disappearing off the markets overseas. The US economy is ruined.
You only allow people to trade in dollars for US gold at current market prices and hope that you don’t run out of gold and that magically the value of the dollar doesn’t change. I.e., only some of the dollars are in fact backed by gold. This makes people nervous, too many cash in their dollars for gold, the feds start running low on gold, more people cash in their dollars, panic ensues. The US economy is ruined.
You issue an entirely new currency backed by gold at market prices. Their isn’t nearly enough gold to allow people to swap dollars for the new one. So the dollar continues to be used as an everyday currency. The new currency has to float against the dollar since the market price of gold varies. Very few people feel a need to get the new currency, your utility company and WalMart won’t accept it. It’s only used by traders and a few specialists. Since there already is a gold trading market that in effect uses pieces of paper/bits for trading gold, this is just another way of doing gold trading. Almost no one notices or cares. Tax payer dollars are wasted implementing/maintaining it but at least the economy doesn’t collapse.
If there is actually a call for a comission to look into the gold standard as part of the platform it is purely a political move to placate the Ronulans. Ron Paul was the only republican presidential candidate who even brought up the idea. Romney isn’t for it. Obama isn’t for it.Regardless of who wins in November its not going to happen.
Thanks for that link. It actually discusses some of the methods and problems during the three times England has gone off and back on the gold standard. There is a libertarian rant in the middle, and then it discusses some of the potential methods and problems of doing it in the US.
There’s a lot of whackadoodle stuff in there, so please don’t take it too seriously. It just illustrates the complexity of a imaginary problem that few real economists would have the spare time to comment on seriously.