Rturning to the Gold Standard

Great Debates
21

I used to think that the great debates section actually had smarter people posting on it. This thread and the Wild Bill Steroid thread have made me start to seriously doubt that.

Have any of you idiots heard of that crazy thing called globalization? It refers to this new-fangeled idea of trade between countries. People with any kind of financial education like trade because it allows us to be more efficient economies.

To return to the gold standard that we had prior to World War I, we would have to get every other country to agree to use it as well. Of course this is no small task, however even if we did accomplish this, we would run in to a few other problems.

First, since the supply of gold is not exactly increasing at a very high right, the growth of the world economy would be stifled. In fact, we would most likely experience deflation.

Second, countries wouldn’t be able to raise or lower interest rates to help stabilize their economies. This would make it pretty difficult to get out of recessions.

There are a myriad of other reasons, but stopping the growth of economy and inability to ward of recessions should be enough for anyone so I will quit there.

22

Thanks! I suppose the $10, $5, and $1 coins would be much too small for practical use, then. a $1 gold coin would be about the size of a small piece of confettii. :wink:

~~Baloo

23

Danielinthewolvesden wrote:

Except in D&D, where all coins weigh a tenth of a pound. :wink:

24

tracer - not when I’m DM’ing they don’t - copper coins in mhy world are much lighter than gold coins!

25

Well I’m just waiting for the day when all money is 100% electronic. I don’t like carrying all those damn bills and coins. Just got my electronic bridge toll device in the mail, which saves me having to hoard $1’s and open my window in the rain.

26

**sturmhauke wrote:

Well I’m just waiting for the day when all money is 100% electronic.**

Here, here! I agree completely!

It appears that the is particular platform for the Texas Republicans is just another “don’t trust the government” idea. From all I’ve read, going back onto a gold standard would severely shorten the money supply and make for some rapid deflation.

27

sturmhauke said Well I’m just waiting for the day when all money is 100% electronic

What! Why, that would mean no more “float.” Society would collapse in a week. :smiley:

28

So you’re suggesting we go to the electron standard? Just what is the market rate for an electron? :wink:

~~Baloo
[sup]Sorry. I just couldn’t help myself. Ignore this post.[/sup]

29

[QUOTE]
*Originally posted by Derleth *
tracer:
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.

[QUOTE]

You mean those little cubes they use to make soup?:slight_smile:

30

Interestingly enough Alan Greenspan was a supporter of the gold standard, at least in the 60’s. I wonder how he feels about it now…

31

I guess if you live here in California those electrons are pretty valuable at the moment, seeing as how we don’t have enough to go around…

32

Are you sure you’re not talking about the electrum standard? When I’m DM’ing, they’re fairly rare, but I think I usually price tham at about half a gold piece.

33

:rolleyes:

Somehow the Swiss seemed to manage.

34

First, I think the (any) government is incapable of determining the value of money. For an example, the old Soviet Union tried to regulate the value of the ruble at laughable rates, and even in a totalitarian state like that, people often abandoned use of the ruble and went to a black market that used other standards, perhaps barter, or even in some cases American dollars, as currency. Any attempt by a government to set the value of money is futile, as people can turn to other standards. The value of money is determined by people’s faith in that money, not by the government that prints the currency.

Secondly, paper has inherent value. I know, because I use it to write on every day. Perhaps you mean something of inherently more value than paper? And what is the advantage granted by that?

35

We gotta get a debate going, if only to let Collounsbury let off some steam. So, in the interests of same, first let us do our work of quelling ignorance by a brief discussion of how the gold standard worked:

If country A and country B both go by the gold standard, and country A runs a deficit with country B, then country B will ask for and recieve payment from country A for this deficit in the form of gold. In so doing, the monetary base, which is the reserve against which the currencies of these two countries are issued, will remain exactly the same. There was no increase in the money supply.

After WWI, the gold standard was replaced by the gold-exchange standard. What this meant as a practical matter was that if Britain ran a deficit with France, France could either hold sterling which in theory is exchangeable, ultimately, for gold, or it could hold gold. Obviously, politically, it was far easier to hold sterling. But if France chose to do this, then the monetary base was expanded. Despite the fact that Britain ran a deficit, it was not asked for gold. Instead, France held sterling, Britain got to keep its gold, and the worldwide money supply increased. Theoretically, this is inflationary.

After WWII, this was abandoned in favor of Bretton Woods, which made the dollar a reserve currency, with gold standing behind it. You could take the dollar, or you could take gold, as payment for international debts. They were exchangeable with each other.
In practice, this led to inflation in the U.S. that began, at first gradually, and then more quickly, to eat away at the value of the dollar. In 1973, even this was abandoned for freely floating currencies.
In theory, our current system, or lack thereof, should lead to wild inflation. That it hasn’t is a rather interesting commentary on all the gymnastics that were gone through in prior generations to try and preserve some kind of gold standard.
Or maybe it’s just that we haven’t had freely floating currencies long enough for us to experience the ultimate consequences of unfettered currencies? Debate anyone?

36

"Or maybe it’s just that we haven’t had freely floating currencies long enough for us to experience the ultimate consequences of unfettered currencies? Debate anyone?
"

Certainly, in the wonderful old days of the “gold standard”, 28 years would have been long enough to have experienced the consequences of any doomed policy, based upon archaic beliefs. Eat you heart out.

37

It depends on what you mean by determining. Setting a precise Y unit money = X amount commodity is of course a big problem. Managing the value, its done all the time. But then this is more like helping keep the free market boat stable…

And their faith in the currency is in part determined by the government that prints it. Perhaps a bit of semantics, but it is quite clear that government policy is extremely important in the process of determining the value of money (or the unit used). However, it is most successful in terms of managing value of money in the context of the free market – fiat obviously fails.

Otherwise, re freely floating currencies, what Samclem said… The system works well so far.

38

Something that the gold standard always had for it was that it fosters international trade (with anyone who is also on a gold standard).

But what I’ve never understood is how anyone expects to have a stable economy and have an increase in wealth. If we increase wealth by creditors then, if there is a “fixed” supply of gold, aren’t we actually devaluating the dollar instead of increasing wealth? Or are they the same thing?

How can we increase the number of dollars significantly without changing their value significantly? This clearly is the goal of a strong economy, and it seems to me impossible under the gold standard.

39

Even if you have a gold standard, or for that matter any money standard that relies on a commodity, it still comes down to faith in the system. Nothing is “intrinsically valuable”, value is only determined by people’s preferences. Gold has historically been considered valuable because it’s rare and it looks pretty. It doesn’t have much practical application, so if people thought gold was ugly it wouldn’t be so valuable. Some people think Pokemon cards and Beanie Babies are vaulable, and in a sense have their own mini-economies based on them. But if someone tried to offer me a bunch of Pikachus for my car I’d laugh at them. Since determining value is somewhat arbitrary to begin with, the current system of money being backed by nothing seems perfectly reasonable.

40

Bingo!

Thanks Sturmhauke for summing it all up in one pithy paragraph.