Question about Gold Standard and Tariffs

Factual Questions
61

Does anyone else find this measure of worth hilarious? Why a man’s suit in particular? A perfectly nice suit can easily be had for a couple hundred bucks from MW or Jos A Bank. Even less if you wait for a sale. If you’re talking about a tailored suit the price starts under a thousand and can hit 5 figures if you want to go wild with fabrics, liners, multiple fittings, etc. A fairly standard Brooks Brothers made to measure suit might be around 1000-1500, which isn’t far from current gold prices I suppose, but I think most people would say that’s a cut above just a “decent suit”.

What a weird and arbitrary standard to use. I have no idea why gold enthusiasts like it so much.

62

But this is a recipe for a financial crisis. A currency can be stable when all of its units are backed by gold or it can stable when none of its units are backed by gold. But a system where some units are backed by gold and others aren’t is a disaster waiting to happen.

If the government were to issue paper certificates that are supposedly convertible to gold but issued a hundred million certificates while only having enough gold to redeem twenty million certificates, it’s pretty obvious what’s going to happen. Everyone will try to convert their certificates into gold before the supply runs out. And once the first twenty million certificates have been converted, the government has no gold left and the people holding the other eighty million certificates realize they’re only worth the paper they’re printed on (which means the government just gave away a pile of gold in exchange for a bunch of paper).

63

You can have a system where a gold certificate represents a particular gold ingot, and only issue paper certificates for the amount of physical gold you have in your vaults. But this is not the way most gold standard currencies operated.

You don’t need enough gold on hand to redeem each and every certificate issued for the same reason a bank doesn’t need enough cash on hand to pay out each and every depositor. Of course, back in the old days you would get runs on banks, when people feared the bank was going to fail they would rush to withdraw their funds, and this rush to withdraw funds would cause the bank to fail when they didn’t have enough funds to pay their depositors.

Likewise, the same thing could happen to a government, if people stopped trusting the gold certificates and everyone wanted to convert them to gold, the government wouldn’t have enough gold to cover the certificates. But then the government can just tell the certificate holders to fuck off, we are suspending redemption of certificates now, you’ll get your gold later. If people believed that pretty soon after the crisis was over gold redemption would resume, then the currency would take a hit. If people started to suspect that redemption would never happen, then the currency would nosedive as you said.

But if everyone rushed to convert their certificates to gold right away, there wouldn’t be any point to trying to create a gold standard currency, because no one would accept a certificate in the first place, they’d only take gold. You can only create a paper currency if people already trust the issuer enough to take the paper, believing that the paper could be redeemed in the future even if there isn’t enough gold to cover the paper. If no such trust exists, then your scheme of getting people to accept worthless peices of paper instead of real gold will fail.

Remember that even though a given government might not have enough gold on hand to redeem each and every certificate, they still have the power to tax, said power to tax being backed up by the police and courts and jails and army. So if a crisis occurs and there’s not enough gold, they can raise taxes, squeeze the peasants, shake down the merchants, confiscate the estates of the nobility, borrow from overseas, and get the gold they need. Later. If there’s a war or a revolution or a financial crisis, you aren’t getting your gold today. You’ll get it when the crisis is over, assuming the government survives the crisis or doesn’t default.

So yes, paper money was considered a huge risky innovation, even though the paper was backed by gold, because a gold certificate isn’t gold, is a promise to pay gold someday in the future. And that promise was only as good as the issuer of the promise. Low trust societies would never take paper certificates, or buy and sell on credit, or put money in a bank, because what happens when the promise gets broken?

64

One other issue with it is that 12 years ago it wasn’t true. The notion that gold has maintained its purchasing power throughout the ages is based on cherry picking data (and ignoring massive amounts of contradictory data).

Rob

65

The notion that a given weight of gold that would buy a given basket of goods in 1912 (or 1812) should buy you the exact same basket of goods in 2012 is kind of weird. Our economy has changed radically. Some goods are dramatically cheaper than they were in 1912, some are dramatically more expensive. This is just counting goods and services available in 1912. And there’s no reason to expect that gold or silver shouldn’t be among those goods. The supply of gold increases or decreases, the demand for gold increases and decreases. It’s just ridiculous to declare that an ounce of gold is worth exactly the same in 1912 as it is in 2012.

On the one hand, an ounce of gold is still an ounce of gold. And a bushel of wheat is still a bushel of wheat, and a plot of land on Manhattan Island is still a plot of land on Manhattan Island, and an hour of work by an unskilled laborer is still an hour of work by an unskilled laborer. But the supplies of those things, and the demands for those things are not the same as they were in 1912. There thousands of goods and services that would trade for about the same weight of gold in 1912 and 2012. And there are thousands more that trade for drastically different weights.

66

But any currency which is backed up by real gold on a one-to-one basis is really fiat currency. It’s not based on gold; it’s based on faith in the government.

67

A man’s suit is pretty damn stupid, I agree. But here I looked into the price of a meal vs labor in gold:
http://boards.straightdope.com/sdmb/showthread.php?p=13231975&highlight=gold#post13231975
*Right now, a oz of gold will buy about 40+ cases of MRE aka 500 meals. A worker will have to work for about a month to earn a oz.

Now let us assume, the economy crashes. How many cases of MREs do you think you could buy for a gold coin? One? Your gold just got devalued by 40.

During the Warsaw Ghetto Uprising, a gold coin bought a meal. Thus, gold got devalued by a factor of 500.

During the 1930’s a oz would buy you about 80 meals. Unskilled workers would work about 20 days to earn a oz.

Post WWII, one OZ would buy you about 20- 30 meals. You’d work about a week.

During Roman times a OZ of gold could buy you about 1000 meals, thus the value was higher. You’d work about 2-3 months to earn a oz.

Thus the value of gold has fluctuated from one meal per oz to 1000 meals. A week to 3 months of work.

The value of gold has fluctuated greatly.*

It’s not perfect but it shows that the value of gold is hardly stable.

68

How much does a man’s suit cost? Well, pretty much anything you want.

How much does a meal cost? Well, pretty much anything you want.

When people make these comparisons they get to choose from all times and all places, and get to define average in any way they want.

The numbers don’t matter. As soon as you see anyone start to make such a comparison, run. And hold your wallet tightly. It has no purpose except to con you.

69

The best is when they say “How many gold coins can a dollar buy today? How many gold coins can a gold coin buy today? See, the value of gold is completely stable!”

70

To me, this post summarized the facts best:

A gold standard was fine back when you had an economy based on growing crops year after year. It was a stable economy because it was a stagnant economy.

But we don’t have that kind of economy anymore. We have an economy that moves and grows and we can’t hold it back with a gold standard. We couldn’t even freeze it in place with a gold standard because the current economy is too big for gold. To try to go back on a gold standard, we’d have to somehow shrink the economy back down to where it was a couple hundred years ago.

71

That is called inflation. It happens when governments just print up more money, not because suit makers decided to raise prices. If they could do that, why not charge $1 million per suit? Price isn’t just an arbitrary figure.

72

Just because the government can get 5 men to put on little black dresses and proclaim that:
“No State shall…coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debt.”
actually means:
No State shall…coin Money; emit Bills of Credit; make any Thing but gold and silver Coin, or anything else the government says, a Tender in Payment of Debt.
Doesn’t make it true.
It isn’t my opinion that the Constitution says that, it is a fact. You could read it for yourself, so as to be sure I’m not manipulating the Constitution.
It IS an opinion that it means “or anything else the government wants to use”…That’s what they call it…The majority opinion.

73

You can repeat this over and over if you like. The fact remains that the definition of constitutional is what the Supreme Court says it is. Period.

74

You’re quoting Section 10. That talks about things states can’t do. You see any states issuing money - gold, silver, or otherwise? We’re talking about the national government issuing money and Section 10 has nothing to do with that subject.

But look what Section 8 says: “The Congress shall have power To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures” No mention of gold or silver there.

75

You guys are right. That is what it says right there in the Constitution. The government can use whatever they want to use as a money…I found it…My bad, I overlooked it earlier. Thanks

76

It was right there by the quote by H. L. Menken that says: Democracy is the theory that the common people know what they want, and deserve to get it good and hard. And the government will surely give it to you, usually right after…We’re from the government, we’re here to help…

77

OK, Let’s talk about how crazy this is.

Your theory is that because you disagree with it, a decision rendered by the Supreme Court is inoperative.

This means that no law exists in America.

Seriously. None. That’s because every decision rendered by the Supreme Court is made on a case that reaches it because of a disagreement. The Constitution sets up a framework and the laws of the federal government, the state governments, and the many thousands of other governments state specifics within that framework and the subsidiary frameworks of the various state constitutions. Any and every line of every law can be interpreted in multiple fashions - or at least lawyers can make an argument for many interpretations to suit their clients. How are those disagreements settled? By taking the disagreements to court. Many courts, and many court systems, including a variety at the federal level. Most disagreements are settled at the lowest level, but some get escalated upward. Higher courts overturn lower courts almost every day. In fact, some cases that are decided by a panel of judges from a district are overturned when all the judges decide. And of course older interpretations are overturned, revised, narrowed, expanded, or otherwise altered by newer ones.

Wait, there’s more. Eventually, a small selection of the most serious disagreements make it to the Supreme Court. Only a tiny minority of these directly involve interpretations of the Constitution; most interpret legislation, although the Court handles an amazing variety of types of cases. Even so, all the cases fall within the framework created by the entire history of the entirety of the court system. You can’t abstract any single decision out of that history. Every decision of the Supreme Court eventually percolates downward to every other court in America that deals with that issue. Their restatements bubble up when others disagree. They all have to collectively agree that the law is the law. Legislatures also look to these decisions to decide what future laws can be written. Amendments look to these decisions to make what was unconstitutional constitutional.

So if anyone - anyone - gets to say that one decision is inoperative because they disagree with it, then every single decision ever made by every court in American history flies out the window. There is no law at all. Chaos descends.

This isn’t the way it works, obviously. When people who are totally ignorant of the law and the constitution and American history proclaim otherwise, they are ridiculed and hopefully ignored by everyone. Which we are doing here. You’re arguing against gravity because you once fell off a ladder. Good luck with that.

78

It wasn’t a theory. I didn’t say that because I disagree it is inoperative. I merely posted the constitution, and said I didn’t need anyone to tell me that what is says isn’t what it says.
But happy days are here. I found the part that says the government can use whatever they want to as money and may print up as much as they need. No, sorry, they amended that. The new part reads as much as they want to…and the people deserve to get it put to them good and hard.

79

I have seen the light and changed sides. The people for whom I argue aren’t interested and the people who just want big government don’t make sense. So, I’m all for helping bring down the current system and start all over. That isn’t gonna happen as long as Joe Six Pack still has a cold beer, remote control, and a BBQ. So, we need to help this whole mess just disintegrate. Nothing is going to change till there are people starving, mass hysteria, and blood in the street…picture downtown L.A. riots but on a national scale. So, I’m with you guys. Out with people who read the constitution…hell, out with people who read…like McDonalds with the picture menus, and let’s go with majority rule…Democracy may be the fastest way to bring it down. So, am I enlightened yet? I probably shouldn’t have said that out loud huh?

80

Cool story bro