So mmmbeer, how would I buy something off of Amazon? Mail them gold? Or use Amazonbucks which are backed by gold?
Th large find of gold (which occured several times) does bring about rampant inflation. Read about the prices of goods during a Gold rush sometime. So, it’s NOT true that inflation is automatically kept low.
The value of money would fluctuate with the supply of Gold. Nations with Gold Mines could manipulate the worlds economy.
A gold standard was normal simple due to the fact that for a while people needed time to get used to paper money, and then afterwards to the idea of non-cash money.
Now that we have electronic “money” the Gold standard is completely passe and crazy.
Yes and no.
If you allow a debt to be created to you, then you MUST accept US currency, paper or not, as legal tender for that debt. Otherwise, yes, you can only deal in bartered chickens if that is how you want to run your business.
However, if you want electricity and running water, if you want a telephone to do business, etc. as a practical matter to do business and survive, you will have to deal with what those suppliers demand - US currency.
Or you could move to Mexico to avoid the strict requirements of US law. But who does that?
There’s not enough gold to use for all business transactions, as a practical matter. Thee’s not even enough paper money, which is why eletronic transfers, credi cards, and such are not just a convenience, but often a necessity.
As for tariffs - why would anyone care? They were “protection” for a local business, raising the price of imported good to give local suppliers an edge. That’s great for a short term boost, but when evryone does it - all it does is raise consumer prices; your outbound trade suffers as much as your inbound trade. Unless you think the whole world is better than you are, low or no tariffs (free trade) makes sense.
Yes, that was my point. You want to trade with the Ooompa-Loompas, you better bring a wheelbarrow full of cacao beans, because that’s the only currency they accept. You want to pay your electric bill, you pay them in US fiat dollars, because that’s the only form of payment they will accept.
But, you aren’t legally obligated to buy electricity. You can do without, and live in a cabin, and only trade with people who will accept your gold coins.
It is not some government conspiracy that the electric company only accepts US dollars. They only accept US dollars, and not gold coins, and not cacao beans, and not chickens, because that is the method of payment they find most convenient. You might make another choice, you might prefer gold coins, but just because you would rather buy and sell using gold coins doesn’t obligate any other free person to go along. They have their preference, you have yours, and there are 300 million of them and one of you.
But, the fact that as a practical matter you have to buy and sell using US dollars is not such a hardship. If you really don’t trust banks and financial institutions, you can keep gold coins in your safe at home. And when you want to buy things, you take out a few coins of real money, go to the few places that accept them in payment–we’re talking coin shops here–and buy however much US currency you need for the next transaction.
But the thing is, money is just a technology to facilitate the trade of goods and services. The value of a dollar, or a yen, or a euro, is arbitrary. The only value a dollar has is that you can accept it when you sell things, and pay with it when you buy things. If you’re worried about inflation ruining the value of the dollars, you’re perfectly capable of keeping your savings in assets that are not denominated in dollars. Like, buy a bunch of gold coins and keep them in your safe. Or any other hard asset, stocks, land, whatever. You don’t have to care what the daily dollar value assigned to your asset is, the whole point is that you don’t care. It doesn’t matter if the value of the dollar drops through the floor or shoots through the roof, you’re insulated from the manipulations of the International Bankers because you don’t keep your retirement in a savings account.
FWIW, and related to the notion that the gold standard “per se” somehow prevents inflation – In the 16th and 17th centuries, after the colonization of America by the Spanish Empire, Spain brought back HUMONGOUS amounts of gold and silver.
The final result? Complete economic ruin and hideously rampant inflation. The injection of huge amounts of gold and silver into the economy was actually deleterious in the long term… Because the value of the precious metals themselves went way down. Instead of (silly example here) a loaf of bread costing 1 small silver coin, you had to use 3 silver coins to pay for the same loaf, because the silver itself had fallen in value (OK, not exactly, but the final effect was the equivalent of that).
Another example: When the Emperor of Mali Mansa Musa went on pilgrimage to Mecca, he introduced so much gold in Egypt and other areas through which he passed that he actually devastated their economy. Copy/paste from the relevant wikipedia article:
“Musa’s generous actions, however, inadvertently devastated the economy of the region. In the cities of Cairo, Medina and Mecca, the sudden influx of gold devalued the metal for the next decade. Prices on goods and wares super inflated in an attempt to adjust to the newfound wealth that was spreading throughout local populations. To rectify the gold market, Musa borrowed all the gold he could carry from money-lenders in Cairo, at high interest. This is the only time recorded in history that one man directly controlled the price of gold in the Mediterranean.”
Gold standards “per se” don’t protect against inflation, especially when there are big changes in the amount of gold in the economy.
In any case, I have a feeling that the situation nowadays would be problematic, but from the other side: I doubt that the total amount of gold ever mined in history in the whole world would actually “cover” the total amount of money circulating around the world right now. I have the hunch that a return to the gold standard might actually trigger humongous deflation.
That’s how the law works. Interpretation and opinion is an intrinsic part of American jurisprudence. I’m sorry you don’t like it, but that’s the law.
That seems simple enough. Are any of the 50 states doing any of these things?
Does a gold standard really change much with regards to inflation? Can’t the government simply devalue the currency?
No, that’s what a gold standard is supposed to prevent. The value of your currency is based on an amount of gold and you can’t unilaterally devaluate gold.
Well, not exactly. Spain did precisely that to itself (devaluate gold) in the 16th and 17th centuries, “thanks” to huge injections of gold and silver into the economy, from the Americas, as I mentioned in my previous post (#45). Of course, it was a somewhat “special” situation, but even so…
IMHO, that’s part of the allure of the gold standard. I won’t speak for posters, but I think that subconsciously they think things will be back to the “good old days” if we are buying a gallon of gas with a silver dime, a new car for $1000, or steak dinner for $1.00.
It’s absurd, of course, but the mind thinks of these numbers and feels that is somehow better than the current situation. Never mind that you would likely make $2000 per year at your job.
The problem with that kind of subconscious feeling is that a big deflation is very deletereous to the economy. It is the best recipe to seize it up.
Deflation goes together with an anemic economy, and is a killer for those who have debts (which means practically everybody in the world): You owe X amount of dollars, and even though those dollars increase in value, you will have to pay those X dollars back.
Even though, in terms of purchasing power, those X dollars are now worth 2X pre-deflation dollars (and your income most likely will have gone down when compared to the pre-deflation situation). This is a recipe for, in the worst case, ruining debtors and, in the best case, making them much more reluctant to spend money, which chokes the economy.
Can & does.
To over-simplify, the value of money is equal to the value of economy divided by the amount of money in circulation. The gold standard does not solve anything there, it only makes the amount of money more difficult to manipulate.
Either way, it is quite irrelevant in present economy. The bulk of money in circulation (90+% IIRC) is actually created by banks, not printed by the government. A rigid adherence to a gold standard (or any standard) would require return to full reserve banking, which would be quite unpopular with most consumers.
But it wasn’t a decision that the government of Spain took one afternoon. The price of gold just moved to its market value and Spain was taken along for the ride.
Fractional-reserve banking existed under the gold standard.
Right. It’s very helpful to realize that the situation with Spain’s inflation was more simply explained not as inflation, but as a drastic reduction in the value of gold and silver. The Spanish sent shipload after shipload of gold and silver back to Spain. Law of supply and demand, drastically increased supply means a drastically lower price.
To address the fractional reserve banking issue, any time you deliver goods and services, and send your customer a bill to be paid at the end of the month, you’ve created money. If a bank takes in gold coins, and lends out gold coins, they must be using fractional reserve banking, because the minute they lend gold coins they don’t have enough gold coins on hand to repay their depositors.
Without fractional reserve banking, you don’t have banking. You have two businesses instead. Safety deposit boxes, where people can put piles of gold coins in a safe place. And venture capitalists who have a bunch of gold coins and lend them out to likely business prospects. You don’t have anything like our current banking system where banks take deposits and then lend out those deposits.
Any sort of “gold standard” money is a form of fractional reserve banking. The government has a pile of gold, and they print up paper coupons promising to exchange the coupon for gold on demand. But they don’t have to have one ounce of gold in Fort Knox for every gold ounce certificate they issue. They just have to have enough gold to cover expected demand. If they had enough gold in the vault to cover each and every gold certificate, they wouldn’t need to bother with gold certificates, they could just issue coins. That’s the whole point of goverments using a “gold standard”, you can issue more money than you have gold. If the government has some sort of philosophical objection to that, they wouldn’t try to pay people with coupons redeemable for gold, they’d pay them with gold.
The other major problem with a precious metal standard is that the value of precious metals fluctuates with regard to other goods and services. You’ve seen the news where the price of gold rises, or falls, right? A portion of that can be attributed to inflation–the price of gold is rising not because the value of gold is increasing relative to other goods and services, but because the value of the dollar is falling. But gold can increase in value if the supply falls or demand rises, and decrease in value if the supply increaes or demand falls. And a gold standard, where a dollar is always exchangable for a certain weight of gold, allows people to arbitrage the value of gold with the value of the dollar. When gold decreases, people sell their low value gold for higher value dollars. When gold increases, people sell their low value dollars for higher value gold. And since the price ratio of gold to dollars is fixed by the government, that means speculators regularly extract value from the treasury.
But all this is nonsense. If you really want gold coins, you can go out and buy them. If you want coupons redeemable for gold, you can buy gold certificates. Lots of people “investing” in gold don’t own gold bullion, but rather a peice of paper that represents a certain weight of gold. Good luck with that when the predicted economic collapse comes.
don’t forget the “virtual money transport” business where you can deposit at one location and pick up different gold coins at a completely separate location. Still doesn’t pay any interest though…
What’s stopping them from just changing the amount? If they peg the dollar at, say, $1000 to an ounce of gold, what’s to stop them from eventually going, ok, now we’re changing it to $1100 an ounce?
I thought Japan did something like that around 1931-32 instead of dropping the gold standard entirely like other countries were doing. I may be mistaken on that.
They can. But the basis of having a gold standard is people knowing their money is worth a certain fixed amount of gold. If the government arbitrarily changes that amount of gold, then the people aren’t go to maintain faith in the system. They’re going to want to convert their currency into gold before the government-set exchange rate changes. You’ll end up having everyone dumping the currency. The government would end up being worse off then if they hadn’t had a gold conversion rate at all.
This is called “debasing the currency”. The other way to do it with precious metal coins is to mix in a certain percentage of base metal in with the gold or silver, and then pass a law requiring everyone to accept the base coins on par with pure coins. Of course, then everyone hoards their old non-debased coins and spends their base coins. Gresham's law - Wikipedia