I’ll take Google stock over gold.
But why is maintainence of purchasing power the best metric for evaluating money?
You’re familiar, I’m sure, with the giant stone "coins " of the Yap Islands? If those coins maintained their purchasing power for generations, would that make them a good form of money for a modern industrial civilization?
Again, you argue that gold makes better money than paper. Is it true therefore, that you don’t actually want us to go on the gold standard? You don’t want paper money that has a fixed value relative to gold, you want actual gold coins?
Under your system, would writing a check be illegal? How about delivering a good or service, writing down the amount of gold to be paid, and accepting payment later? How about depositing gold in a bank?
I will give you the benefit of the doubt that reading all the above was too much trouble and that this is a serious inquiry and repost:
Gold and silver were good money. There are characteristics of good money widely recognized:
- Acceptability - Everyone must accept it to purchase goods and services
- Durability - It should last a long time
- Portability - Easy to carry around
- Scarcity - Scarce enough to be valuable, not common such as sand or pebbles on a beach
- Divisibility - Can be divided into small units
Scarcity is answered by having a limited supply.
Portability sort of negates Giant Coins.
I didn’t come up with these characteristics. They are the result of thousands of years (for those of us with more than a 6000 yr history) of use. It is hard to deny that they are useful characteristics for a money. It is the scarcity one that paper fails at.
Paper money is actually pretty scarce.
You’ve never tried to carry around a large amount of gold, have you? It’s denser than iron. It is not easily portable.
Not without a goldsmith’s skill and a goldsmith’s tools, and even then there are limits. Ledger book entries (which is what the vast majority of money is nowadays) can be divided up pretty much arbitrarily finely, which is essential given how compound interest works.
So gold fails at two of your desiderata. We have a currency that succeeds at all of them. You want us to go back to gold. And you still don’t see the contradiction here, do you?
Does gold succeed at criteria #1?
That is, can you buy and sell things for gold?
It is true that you can buy and sell gold almost anywhere in the world. But most people will be unwilling to accept gold as payment, because they don’t have the equipment to assay the gold, and don’t know the current spot value of gold.
It’s true that you could very easily take your gold to a coin shop and walk out a few minutes later with the local paper money.
But an even better thing to do is carry a credit card, or a debit card.
Electronic money of this sort is even better than paper money. Commodity money like gold performs better in some context than paper money.
But you were earlier advocating a return to the gold standard. As I’ve said many times, a coupon entitling you to a given weight of gold under certain circumstances is not gold. What you really seem to want is commodity money, that is, gold coins. Is this true?
True. I could argue gold currency is better than paper by the standard of conducting electricity. And paper currency is better than gold currency by the standard of making origami figures.
Sticking with realistic financial standards, paper currency is better than gold currency for promoting economic growth.
This isn’t a system. It’s a rationale. But it doesn’t make any sense in any modern economy and by modern I mean the 20th century. Metallic gold has no acceptability. It didn’t even during the later part of the gold standard. The U.S. alone had gold certificates and silver certificates, (along with federal reserve notes and a dozen others simultaneously) because metals are ridiculously unacceptable in bulk. If metal is magic, then why are paper representations of them used in the real world? Because representational money can be issued on any agreed base.
Yesterday’s world threw out gold because it was inflexible, costly to mine, process, move and store, subject to horrendous dislocations because of new strikes, and utterly arbitrary. If you’re going to use an arbitrary base, the cheapest and most efficient one is confidence in the world’s total economic wealth. And that’s the one we use today. We don’t even have a true paper money system any more. It’s been superseded by an electronic money system. As soon as you realize that money is just an arbitrary symbol, then electrons moving balances around is exactly as sensible as moving tons of gold from one vault to another in the basement of a bank and infinitely quicker and cheaper.
My proof of this is the world. As I said earlier, every country in the world uses this system. Not one country in the world has ever gone back to a true gold standard. How is that remotely possible if gold is superior and would prevent us from going smash? A gigantic conspiracy of everybody? Everybody in the world is stupid except you? You never addressed that.
Gold today is a utopian religion. It can only work if every person in the world believed in it. As soon as you stop believing, though, it collapses utterly. You may think the world system is going to crash, but I guarantee that it won’t for any foreseeable future. But your gold system would, and do so as soon as anyone woke up and saw reality.
The nonsensicality of the “gold standard” can be shown by how transfers of gold between nations was handled. Central banks all over the world had huge warehouses filled with gold ingots. And various national governments owned those gold ingots. And when nations made payments to each other, they paid in gold.
Except, they didn’t load gold ingots into ships and physically deliver the gold to another central bank. Instead, the gold would stay in the same place. On the same shelves. They’d just change the ledger entries that said a given gold bar was owned by France, or Germany, or Canada, or whatever.
So France’s gold reserve would be held all over the world in various banks and vaults, and when Canada needed to pay gold to France, they’d telegraph the bank and the bank would change the labels on their shelves.
They did this because gold was heavy and cumbersome to transport, and could be stolen or lost. A telegraph signal could be sent instantaneously, and couldn’t be stolen.
So what’s the difference between a bank that has shelves of gold bars labeled “France”, and “Germany” and “Japan”, and a bank that has a book with entries that say “France: 150,000 Qatloos. Germany: 235,000 Qatloos. Japan: 32,000 Qatloos”? Of course, banks nowadays don’t use ledger books, they use computers, and they don’t use telegraphs, they use the magic of the internet.
The gold was transfered between countries on trust. Except once you have enough trust that you can transfer gold by changing the labels on the shelves, you don’t actually need the gold.
Or to relay another parable, consider a gold miner. He works for years digging gold out of the Earth. And once he has amassed a fortune in gold, he puts it into a chest and buries the chest in his backyard, where it will be safe.
Yeah, there is only as many dollars floating around as there were in 1920. Just can’t seem to find any. We’ve actually been in a period of deflation since the Great depression because there just aren’t any dollars to pay people with.
In the words of Fred G. Sanford, “Lamont, you big dummy”
What is curious is that none of your anti-gold/pro-paper buddies who are so knowledgeable didn’t point out this error. What I see is that big glaring errors made by any of you aren’t pointed out by the rest. Just keep jumping the gold guy.
I have answered this before. Paper issued at a 1 to 1 ratio is OK with me. Electronic funds limited by the amount of gold is also great.
I think you guys are intentionally misunderstanding over and over. Gotta be.
Did Ludovic say that there were the same amount of dollars in circulation in 2012 as there was in 1920? No.
Is that a bad thing? No.
Why isn’t it a bad thing? Because the economy grew a lot bigger from 1920 to 2012 so we needed more money.
Could we have prevented all that economic growth? Sure, we could have stayed on the gold standard.
No, we understand everything you’re saying. It’s a really simple concept.
We understand everything you’re saying and we understand a whole bunch of more complicated things you’re not saying.
We keep trying to explain the complicated things to you and you just keep repeating the simple thing.
I give you the floor. Point out the complicated things that I don’t get as far as why paper is a better money than thing X that is in limited quantity. This is what I asked in post 95
Hey, I can play this game too.
Why has no nation ever re-adopted the gold standard?
Why has no nation ever re-adopted the gold standard?
Why has no nation ever re-adopted the gold standard?
Why has no nation ever re-adopted the gold standard?
Why has no nation ever re-adopted the gold standard?
Why has no nation ever re-adopted the gold standard?
Why has no nation ever re-adopted the gold standard?
Why has no nation ever re-adopted the gold standard?
Seriously asking for an explanation.
That is the essence of the argument. I believe that a money in limited supply is best. You all believe that the less limited is best. Can we at least agree on that?
So please point out the superiority of unlimited money in an economy.
First off, nobody but you thinks we have an unlimited money supply. We’ve been off the gold standard for decades and have managed to avoid hyperinflation.
A gold standard is a fixed currency and that leads to a static economy. Fiat currency is expandable currency and that leads to a growing economy. Growing economies are better than static economies so fiat currency is better than gold currency.
Is that simple enough for you? At the very least, stop pretending that nobody’s explained it to you.
I think this is most of your problem right here. Maintaining buying power in perpetuity is not a requirement for a good currency. In fact, it’s not even much of a benefit. Any modern economist will tell you that a small (few percent) amount of inflation is better than stasis (and way better than deflation).
Yes, maintaining perfect buying power in perpetuity is much better than hyperinflation when money becomes worthless faster than you can spend it. But those are not the only alternatives. Do you actually think that 0% is the best possible amount of inflation, or are you worried that fiat money won’t be able to hold to the “ideal” of 2-3%?
OK, so I can write a check for 1 gram of gold, as long as I have at least one gram of gold on deposit at the bank.
Can I write a coupon good for one free backrub? Or can I only write coupons/checks payable in gold that are covered 100% by the amount of gold I have on hand? Or could I take out a mortgage on a house? In this case I’m not borrowing against gold, I’m borrowing against my house. Can notes be issued for commodities or services other than gold? If they can be issued for services, then you can’t guarantee 100% reserves, because what if you drop dead before you can provide the service? But what about other commodities? Or, say, a basket of commodities?
See in the modern world nobody has enough physical paper money to cover all the transactions. But according to you, a bank could not issue someone a credit card with a credit limit of X grams of gold, unless they had X grams of gold in the vault. They don’t have to have physical paper bills to cover the credit limit of each of their customers, so why should they need gold bars? I assume you wish to ban modern banking, where a bank takes deposits, keeps a fraction of those deposits and lends out the majority of the rest?
This is what Ludovic was getting at when he said paper money is scarce. I hardly ever deal with cash nowadays. I pay my bills online, my paycheck is directly deposited, I pay for most things by credit card, and then pay my credit card with a transfer from my bank account. Payments in cash are less than 10% of my monthly transactions.
But you want to stop modern financial transactions, and make me keep a giant reserve of gold in a vault somewhere just so I can process my daily finances.
As I said before, you’re perfectly free to use a currency denominated in gold. But nobody else is obligated to play with you if you choose to do so. And the only time you are legally obligated to accept federal reserve notes in payment is to satisfy a debt.
A small consistent amount of inflation isn’t a severe problem. Yes, over a century 1% inflation will change prices radically. But keeping prices stable over centuries isn’t a very important monetary goal. Yes, it helps you compare historical trends easily, but so what? You aren’t putting $10,000 in a checking account for a century, and then waking up crying that youv’e lost half your purchasing power. If you’re worried about it, buy $10,000 worth of gold and stick it in a vault for a century, and your gold will weigh exactly the same. It might be worth more, if gold appreciates radically over the century, or it might be worth less. But it will still be the same amount of gold. Unless it gets stolen, or you lose it, or whatever. Treasure troves of gold from ancient times are still uncovered from time to time. The original owners don’t complain, because they are long dead.
Requiring a 100% reserve for all issued credit is nonsensical, and would outlaw modern banking. It’s not going to happen. Even if we somehow did go back on the gold standard, we certainly would not require 100% reserves on all paper notes, or require banks to keep 100% of all deposits on hand. That never happened even back in the golden days when we were on the gold standard for really-real, before the Great Depression.
Of course we can’t agree on that. Nobody in the world has ever argued in favor of unlimited money. Money today is quite limited. Most of the nations in the world - you remember them, all the nations who refuse to go onto a gold standard that your argument requires you to ignore - are yelling quite loudly about how limited their money supplies are.
Let’s go back to gravity. Ever since you fell off that ladder you’ve been arguing for weightlessness and insisting that anybody who disagrees wants to be on a neutron star. Put that way, the argument is totally nuts. So is yours.