the reason we aren’t on the gold standard is because governments do not like being constrained. That’s the only reason. you can argue whether or not they should be constrained, but that’s it.
Bryan was a loon in every conceivable way. I guess we should take his advice on biology education as well?
Wow, really bad economics here. As the supply of goods increases relative to the quantity of gold, prices decrease. Is it your contention that population declined during the most prosperous period in U.S. history, in the late 19th century?, or that wealth declined?
If you would, could you give a short summary in defense of the gold standard? With respect, the idea has been so thoroughly debunked, not only in this thread, but in many others and in any contemporary economics article. Why is paper money backed by gold, with the promise that the government will not toy with that relationship any better than paper money backed with simply the promise?
If an out of control government is the concern, what is to stop them from pegging the dollar to gold at $1 trillion per ounce?
So you just wave away all the panics and depressions pre-Bretton Woods? This is why it’s difficult to take gold bugs seriously; they conveniently ignore history.
Yes. This was the basis for Bryan’s “Cross of Gold” speech. The problem was that there wasn’t enough gold to keep the economy going so the US government was supplementing it with silver. However, bimetallism has plenty of its own problems so the government was trying to keep the levels of silver to a minimum. A shortage of gold/silver made it difficult to borrow money. The biggest losers were farmers and Bryan was trying to push for more silver.
The gold standard is like horse carriages; they worked OK for a time but we now have better solutions.
The Roosevelt administration outlawed gold, repudiated gold bonds, and forbade the use of gold contracts which were in common use at the time. The gold standard was dead. The question was whether a President could unilaterally do that - sound familiar?
What they DID do, gold was officially valued at $20 per ounce prior to that. AFTER the confiscation they revalued gold to $35 an ounce, netting the government a huge profit. Domestically the gold standard was dead and buried. While collector coins were exempt, the penalty was $10,000 - no small sum in those days. In terms of gold at today’s prices roughly $625,000
One example that perfectly illustrates the erosion of purchasing power over time is the case of Trostel Vs. Des Moines
http://home.hiwaay.net/~becraft/Trostel.pdf
In 1917 the owners used a gold contract to set the 99 year lease for a downtown business building at $1500 a month. After the gold standard went away this went from a fair price to a steal. A the whole point of a gold contract was to protect the owner from future inflation. $1500 today is a small apartment in many locales, not an entire bank building at 25 stories or whatever. In terms of gold, the lease at today’s prices would be $90,000+ a month. At issue in this case, was whether when, gold was decriminalized in 1974, did the lease revert back to being payable in gold coin?
Gold stands as a protector of property rights. It doesn’t have to be gold but there has to be some sort of standard or everything financial becomes a fun house mirror over time, apparently. At least so far.
Of course, none of this would have happened had they not been on the gold standard. I’m glad they’re not bringing THAT silliness back.
Exactly. The only reason Roosevelt did this was because the US was on a gold standard. After the US went off the gold standard, there are no longer any restrictions on private ownership of gold.
The episode is a vivid illustration of one of the major flaws in the argument that the gold standard is somehow immune from government manipulation. It ain’t.
Gold was “decriminalized”, as you put it, when the government no longer had to manipulate the gold market to manage the value of the dollar. Nowadays we just add or subtract extra dollars from the system by fiat. No need to steal anyone’s gold or outlaw gold or declare ridiculous values for the price of gold. Gold and the dollar can fluctuate against each other and nobody cares. The supply of gold can decrease or increase, the demand for gold can increase or decrease, the supply of dollars can decrease or increase, the demand for dollars can increase or decrease. And that sets a market price for the gold/dollar exchange rate.
There is no objective standard for the right ratio of dollars/gold. It will vary due to thousands of factors. The second we fix the ratio of dollars to gold we have to start paying arbitrageurs every time the real value differs from the official value. Gold is too high, we have to sell them dollars until the value of gold drops. Gold is too low, we have to buy their gold until the value of gold rises. This keeps the gold:dollar ratio fixed at the cost of constantly paying speculators to keep it fixed. So of course the government has to make it impossible in practice to arbitrage gold this way, and pretty soon the official value of gold no longer has a sensible relationship to the market value. Then you get nonsense like in the Soviet Union where the official exchange rate of rubles:dollars was something like 3:1 while the black market rate was more like 17:1, and you could sell your Levis when traveling in Russia for a fortune in rubles. Good luck finding stuff to spend your rubles on, though.
Fiat currency is therefore more honest than gold. A piece of paper that lies and says that it can be exchanged for gold is a scam. A piece of paper that just says it’s a dollar and that the US government will accept it for payment of debts is honestly saying what it is. And you can take that fiat dollar anywhere in America and buy gold with it, which you couldn’t do when we were on the gold standard.
For everyone. And you’re still harping at the same absurd thought that brought you into this mess in the first place. You’re asking for a precise standard for something that is inherently variable.
Money is a place holder representation of power. As a productive member of society I am given the power to obtain some of its surplus. I could have an agreement with my self sustained village that said that as the teacher I should receive 4 loafs of bread, a pint of milk, a hock of ham and sundry toiletries per week, plus accommodations, but since I live in a country with a country wide integrated economy I get allotted 7000 money per week instead, and get to choose which parts of the available production I’d like to make us of.
Fiat money works great for this. As long as society is stable it can be manipulated to stay at pretty much the same value, and if society is unstable there’s going to be problems anyway. Absolutely any kind of commodity money is going to be less stable and useful. If the economy grows the commodity will be more sought after both as commodity and as money with serious deflation as a result, which leads to a self-reinforced removal of it from the market. That’s what’s happened to gold several times.
Whatever you do, the value of societies goods and products always fluctuate in relation to each other. Always! That fact that your starting out your train of thoughts with the absurd nonsense idea “specific standard for money” makes it very likely you’ll never pass a sensible station.
There are flawed arguments in this thread on both sides. There are facts on both sides. There are interpretations both good and bad on both sides, but you have to stop believing you’re pointing out the obvious.
There is no such thing as an objective standard of value. You’re like the crackpot armchair physicists trying to disprove Einstein because they can’t accept that everything is relative. Everything changes in value relative to everything else, and making something money doesn’t prevent that from happening, in fact it makes it worse.
Yes. There is something to be said for gold money as a prevention of government fiddling with money, but it’s not a guarantee by any means, and it comes with such a slew of other problems that no large groups of people on the whole planet have managed to set up a gold based economy after the solution of fiat money arrived. Those are the facts. Now either come up with a source of substance that never changes its value, despite all commodities fluctuating relative to each other, or sit and think for a while about what you’re actually attempting to argue.
You keep saying alternatives to state-issued money are illegal.
I don’t know what country you live in, because you don’t have your location set to display, but given that you type in standard American English I’m guessing you’re from the USA, in which case I will be the fourth or fifth person now to point this out:
Alternatives are perfectly legal.
You can literally create your own money and use it. Go right ahead. As long as it’s distinctively not U.S. currency, it’s quite legal. You can even pin it to a gold standard if you wish.
Why do you keep saying things that are so obviously untrue?
Can you clarify that? I’m a little unclear how government reneging on contract law is “silliness”. Because that’s what happened. I’m not making this up.
Do you at least recognize that a gold clause in a 99 year lease was an attempt to protect the purchasing power over time? Why is that so wrong?
Do you approve of the government outlawing such contracts? How would you write a lease to protect purchasing power? A lot can happen in a hundred years. Should gold clause contracts be illegal now?
How about all the gold bonds the government issued to fight the world war? Was the government right in repudiating those? Isn’t that kind of a default in a way? Does that sort of thing engender trust in a government?
How many of you have pensions? One thing (broadly speaking) I have discovered is that many people are quite flexible in how they believe laws should be interpreted and enforced, EXCEPT and especially when it applies to their pension. Then they inexplicably become literal textualists and full hard-on “rule of law” aficionados. Funny, that. “But… but… We were promised!”
Is it “silly” to expect that any pension will have some kind of parity in purchasing power in the future?
What you described as taking place **was possible because the United States was on the gold standard. ** A bad thing happened because the gold standard made it possible for it to happen by misleading people into the faulty notion that gold has a fixed value that can never change.
Had the USA not been on the gold standard, the story you told would not have happened, because the rather risky idea of a gold-based contract wouldn’t even have been considered.
Is that clear? Now, could you maybe explain your claim that alternatives to fiat currency are illegal, when that isn’t true?
Tater, you’re asking us to refute things that never happened.
Nobody was ever promised a pension of five grams of gold each month. Nobody ever bought a treasury bond that promised to give them a pound of gold in twenty years. They were promised a certain amount of dollars and they were paid that amount of dollars.
Did the value of those dollars change over the years? Yes. Does the value of everything change over the years? Yes. Does the value of gold change over the years? Yes.
That last one seems to be the problem you’re having. You still seem to believe that gold never changes in value. This is not true. The value of gold goes up and down just like the value of anything else.
If you buy gold and its value goes down, do you run around claiming somebody stole that value from you?
Suppose in 1990 we agreed on a 30 year lease for an apartment at the rate of one ounce of gold per month. Would you agree with the idea that the monthly rent fluctuated wildly over that time and that it would be very difficult for either of us to determine what to expect over the next four years?
From below $300 up to more than $1700 since 1996. How would our lease protect “purchasing power over time”? Some years the lessor made out like a bandit and other years the lessee.
In 1917, the gold standard was used to predict such purchasing power, but as others have said, that was only because the government arbitrarily pegged the dollar to gold. Arbitrarily. By fiat, if you will.
We could try to adjust our hypothetical 1990, 30 year lease for inflation by saying that the monthly rent is equal to $300 or 10 dinners at a local restaurant. In 1990, I took my date to a local nice place. $30 for the both of us.
In 2016, I pay $74 for two. Maybe we got that one right and $740 a month made it a good store of value. Conclusion: contracts should be based upon the price of a dinner for two at a local restaurant.
But instead, say, we priced it on 1/10 of a personal computer ($3000 in 1990). A decent one today sells for about $300, so I pay you $30 (or if you prefer I pay you 1 PC every 10 months). Bad deal for you so, Conclusion: contracts should not be based upon the price of personal computers.
However, the point is: how in the hell would we know these fluctuations in 1990 regarding gold, dinners for two, or personal computers? How about instead, we base it upon the CPI, plus a percentage, set by the U.S. government?
Is it because we don’t trust the U.S. government not to hyper-inflate the currency like Zimbabwe? If that happens, we have way whole bunches more to worry about than our 1990 lease, such as soldiers in the streets setting it ablaze.
This is a false choice. Nobody is claiming that the value of gold does not fluctuate.
Gold contracts, gold clauses, gold bonds promise a fixed measurement on redemption or maturity. This is why it was called the gold “standard”, it was of a specified weight and fineness. Pounds don’t fluctuate, yards and meters don’t fluctuate, etc.
This is precisely why gold clause contracts were written. Fiat currencies generally (so far) go down in purchasing power over time. A gold contract for whatever reason protects against this.
The error here is claiming that since gold does not maintain its purchasing power perfectly over time, it is therefore no better than fiat currencies.
Many currencies around the world have come and gone over the last 100 years and are completely worthless, historical curiosities perhaps at best. Gold, of an established weight and fineness is perfectly acceptable and would have protected the value of the lease, bond, contract, etc quite nicely.
Well that’s the beauty of the free market. Ya pays yer money and take yer chances? A contract requires two willing parties by definition.
You still haven’t answered those questions.
Then why don’t you use it? There’s no law against it. Nobody is stopping you. Go ahead.
You’re correct, as far as this goes. I’m on your side in many of the sub-arguments in this thread. But you’re committing the fallacy of debating only your weakest opponents.
Why don’t you answer my questions?
Start by telling us whether 2% annual inflation is the “problem” you’re focused on … Or whether you’re just worried about a future government hyperinflating your dollars. (Hint: If you’re going to maintain that these two cases are equivalent, all we’ll be able to do is laugh at you.)