Rturning to the Gold Standard

I was reading here about the Republicans in Texas. I noticed they wanted to return to the gold standard (check under monetary systems). What I found very interesting is that this isn’t reflected on the national level.

What affect would that have on the economy? Does anyone know? Would it be worth it to return to a gold standard? Gold in and of itself doesn’t have much value. It looks pretty, makes great dental work and wonderful electrical connections, otherwise, what’s it good for?

It would raise the value of the dollar. Which would hurt exports and help imports. Everyone who invested in US currency would be rich too:D

I read Freiderich von Hayek’s (Nobel Prize laureate in economics) analysis of the situation once, and it certainly seems reasonable. Basically, what he said was that the gold standard only worked when people thought it was necessary to a stable economy. Now that the US and Britain, as well as every other major economy I know of, have been off the gold standard for quite some time with no horrendous side-effects, everyone knows that it is not necessary. Therefore, any economy that adopts it will not hesitate to abandon it once it becomes burdensome. I’m not really clear about at what point this happens or why.

The people in support of the gold standard are usually libertarian types (like myself and Hayek, actually) who distrust the government to determine the value of money on its own. With the gold standard, there is something of inherent value that the money supply is related to.

Inherent value? Distrust the government to determine the value of money?

Ahem: What do you mean by the “value of money” – please be specific in re domestic versus international frameworks. Are you thinking of the price level?

Second, inherent value of gold. It’s a commodity like any other, once you strip away the neo-romantic nonesense that surrounds it. I hope that we can have monetary policy based on reason, not romantic ideas about gold or whatnot.

I’m not saying that gold does have any inherent value, just that it seems that those advocating a return to the gold standard think it does. Or something along those lines.

Aha, your phrasing re libertarian types led me to misunderstand you, thinking you had some support for the ideas expressed.

**Collounsbury wrote:

Second, inherent value of gold. It’s a commodity like any other, once you strip away the neo-romantic nonesense that surrounds it. I hope that we can have monetary policy based on reason, not romantic ideas about gold or whatnot.**

I agree with Collounsbury here; gold in and of itself has little inherent value, so way base our monetary system upon it? The only other value it has that I can think of it that it’s rare. Its value fluculates with the market, even tho the intrinsic quality of the gold doesn’t.

Isn’t there an inherent problem in tying the value of money to a commodity which is more or less static in quantity? The past half century has seen tremendous growth in the sheer amount of goods and services produced, I think even on a world per-capita basis. So if the dollar had been fixed at a certain weight of gold, wouldn’t that have led to near-catastrophic *deflation?

Could it be that romanticizing the days of the gold standard is more a matter of fondly remembering the days when a few coins in your pocket were a significant sum of money-- when you didn’t need a wad of dollar bills to buy a sandwich or or magazine? Think of it…a penny in those days was worth about $.20 in today’s money, and if coins were your thing,
you could even carry around eagles and double eagles, worth about $200 and $400 each, respectively. Nowadays our wallets are stuffed with nearly worthless singles, and coins pile up in jars and on dressers, worth so little it’s not worth the trouble of carrying them around. No, I don’t think returning to the gold standard would be a good idea,
but I wish to hell they’d revise the whole coinage system and mint conveniently sized and denominated coins.


one of the tracks from the movie THE GOOD, THE BAD & THE UGLY is named that. it’s a cool piece. a lot of people still get emotional abotu gold. it’s obsolete until society collapses.

Dal Timgar

Freyr wrote:

There’s one other factor operating on the side of the pro-gold-standard crowd: Not only is gold rare, it also exists in more-or-less fixed quantities. The government can’t just create more gold by fiat. You can’t synthesize the stuff. “Sure,” the pro-gold-standard crowd says, “The money supply is under pretty decent control now, but there’s always a danger that our government could get incredibly stupid tomorrow and print up a zillion jillion dollars and dump it straight into the economy. It would be like 1920s Germany all over again.”

Actually, though, the amount of gold isn’t fixed; people do still dig the stuff up (although it’s pretty hard to find just lying around in rivers these days). I believe two of the biggest gold-producing nations are Russia and South Africa.

Yeah…we definitely want to put the world’s monetary system in the hands of those two national models of stability.

Rubbish. Gold can certainly be added to the system, and if gold demand rose due to bullion holding requirements, production would certainly rise as currently uneconomic sources became economic. It’s rarity is relative.

Moreover, this ignores other issues:

Sure it can. It can re-equilibrate the legal tender to the amount of Gold. It can revalue the holdings. The shenanigans which might be pulled are endless. Plus, as noted, production would certianly rise as price rose: there are significant but currently marginal sources in Mali, Ghana, Congo Democratic Republic, Russia – I’ll not go on.

Anyone making such an argument is a fool:
(a) monetary policy is much better understood now.
(b) if a government decides to pursue a reckless and destructive monetary policy, nothing will stop it. Re-valuing the tender versus the Q of gold, revaluing the holdings etc.
© ignores the crippling effect of a gold standard on the ability to exercise an intelligent monetary policy.

There’s nothing to the gold standard. The old mystique, really based on a quasi-superstitious reverence of the commodity, should be dead by now.

A 5th century solution to 21st century problems.

But think about it, if there was a Gold standard, there would also be supervillians like Goldfinger and then we would have to have heros like James/Jane Bond (or perhaps the New Avengers, (MMMMMMMMMMMMMMM Purdey), to save the world.

**waterj2 wrote:

Now that the US and Britain, as well as every other major economy I know of, have been off the gold standard for quite some time with no horrendous side-effects, everyone knows that it is not necessary.**

Question, what about inflation? What are the rates of economic inflation between two similar economies, one on the gold standard and the other not? Is it possible to compare that?

Would it be right compare the early 20th century US economy with the one now (essentially comparing gold standard and off gold standard) and see which has worse inflations rates?

Collounsbury wrote:

Ah, but not if the gold is the only Legal Tender! Of course, then you’re not merely putting the economy on a gold standard, you’re putting it on a gold-is-the-only-money system. (There’s got to be a better word for it than that!)

The word is bullion. If you coin gold and have a value on that coin based on its mass, you are coining bullion. You have to weigh the coins at each usage, though, because chislers can literally chisel off little bits of gold here and there, cheating those he passes the coins off on and slowly getting richer.

Of course, you have to go full-bore bullion or it does not work. In any authoritarian society, Gresham’s Law applies to the effect that ‘bad money drives out good’. Look at it this way: The shops in a non-Libertarian society have to accept both currencies at face value, even if one is devalued. So would you rather hold $1 in a good currency or $200 in a less stable currency if both currencies were treated alike at the local market? Most people pick $200 with less than a second’s thought, a situation that leads to people hoarding the good currency and creating a massive surplus of the bad currency. Inflation results.

The way around this is for shopkeepers to be able to decide what currencies they will honor. In this scenario, the good money quickly drives out the bad. Would our government allow that? No, not really. That’s why I don’t like the idea of bullion.

I doubt we have the data to compare with. However, gold standard countries did experience inflation historically for various reasons, as well as debilitating deflation.

Nah, apples and oranges.

In any case, inflation is not bad. Too much inflation is bad. Inflation is neutral, neither necessarily good nor bad. Insofar as inflation comes with a flexible modern monetary system and insofar as that modern monetary system is well-managed, its a clear gain in stability over past systems.

Frankly, this idea that gold currency is somehow better is plain superstition.

The only real appeal of returning to the gold standard is the prospect of actually carrying gold coins! Of course, a gold dollar (at today’s rates, anyhow) would be tiny, wouldn’t it? What about 5, 10, or 20 dollar gold pieces? Anyone know how big they’d be?


[Warning - I’m not an economist!]

javaman’s comment about deflation:

sounds similar to Robert Samuelson’s recent comments in Newsweek, commenting on similarities and dissimilarities between today’s economy and the run-up to the Depression, which was a period of catastrophic deflation:

baloo- a $20 GP would be a bit smaller than a dime.

Return to the Gold Standard? Crikeys, why not return to the telegraph and abacus, also. There is not enuf gold to do so, in any case. Not only impractacle, but impossible.

It would raise the price of gold by quite a bit, tho.

Oh, and nowadays, Gold does have some intristic value, as it is useful in making computers.