You don’t expect a government’s fiat currency to be around in 99 years, but you expect the government will enforce a gold payment lease 99 years later?
If the government collapses such that the fiat dollar is essentially worthless in 2115, who’s going to enforce your contract? Back in 2016 you wrote a contract saying you’d pay me such-and-such weight of gold every year, now it’s 2064 and the US economy has collapsed and the dollar is wastepaper. You refuse to pay me my gold, and I go to the courts to force you to pay me. Except what courts? The courts of the new provisional national salvation government?
99 year leases are not really a thing. The point is at common law anything longer than 99 years was really a sale, not a lease. You cannot predict that you’ll be able to make your lease payments 10 years from now. Try to find a landlord willing to sign a 99 year lease, and you won’t be able to do it. Not going to happen. Not even if you say you’re willing to pay in gold.
You’re obsessed with the idea of creating or preserving economic relationships over centuries, but you aren’t going to live for centuries. And once you’re dead your attempts to dictate the economic behavior of your descendants will come to naught, because you’ll be dead. You’re not going to be able to lock in your rent for 99 years, because nobody would be willing to make such a deal. If you really want such a thing you’ll have to purchase the property, not rent it for 99 years. Then it won’t matter how much the dollar fluctuates or what happens to the price of gold. You’ll own the property, and it will be disposed of in your estate and your heirs will decide what to do with it. Renting for 99 years is not a thing.
You may not be explicitly claiming it but your entire argument seems to be based on pretending it’s true.
Your argument seems to be that dollars are worthless because they change in value over time. So you want to use gold instead. Which is a weak argument if gold also changes in value over time.
And stop throwing Zimbabwe into the argument. We don’t live in Zimbabwe. United States currency isn’t going to collapse just because Zimbabwean currency did.
Disney issued them starting in 1987, and they could only be used inside Disney parks (I’m not sure if the Disney Store was a thing then). I remember paying cash for my ticket, and being offered change in Disney Dollars. It was perfectly legal for Disney to do that.
If you keep comparing this to pounds, yards and meters everyone will just keep laughing at you.
Your hypothetical “protects” your interests in a very narrow and, as has been pointed out, fairly irrelevant sense, while creating a slew of problems you are flat out ignoring.
People aren’t claiming that since gold doesn’t maintain its purchasing power perfectly over time it is no better than fiat currencies, they are pointing it out to refute your basic premise that it protects everyone’s financial interests better than fiat currency when used as money.
Thanks for the education I had never heard of Fiat money before and my immediate thought was of Fiat cars and the way they depreciate faster than they have rusted in the past if that is possible. Having read a little it seems that I was not far wrong.
Gold in theory is the perfect standard as it does not corrode and is a stable material, the problem is man he is corrupt and will always try to manipulate the standard. The only way to overcome this is for a standard with a fixed value, gold is an ideal material. people will not be able to profit from scrap gold but the public would be able to protect savings investing in gold knowing that it would not fall below its set value.
Just to elide a round of redundant surrejoinders, Tater’s focus is on the corrupt 1934 Act of Congress that raised the price of gold from $20.67 per troy ounce to $35, “confiscating wealth.” It became illegal for U.S. citizens to demand that debtors pay them in gold, even at the new price. As RickJay pointed out in another post, the opportunity for such government “fraud” disappeared when the U.S. went off the gold standard, but Tater’s anger persists—maybe his great-grandmother was “defrauded” by Roosevelt 82 years ago.
It’s hard to figure out how to educate Tater. He might be inspired by some brand of YouTube economists, but he hasn’t mentioned The New World Order, or Auditing the Fed. He’s presumbaly not a Libertarians—they like Bitcoin which doesn’t provide the “stable value” he seeks.
I’ll assume, until he says otherwise, that he understands and approves of the way the F.R.B. ties the dollar’s value directly to a basket of consumer goods, but objects to the 2% deliberate inflation of typical Fed policy. If he wants to understand why 2% inflation functions like a useful lubricant I’m afraid he’ll have to go beyond YouTubes and study real economics.
The argument is not that the gold standard is immune from manipulation, it’s that the gold standard is a constraint on the ability of the government to inflate. Both sides of the argument accept this. Indeed critics of the gold standard list it as one of the top problems with a gold standard.
Alternatives are legal, but severely hampered by government regulation and taxation as I have shown. No sound money advocate laments that Disney Bucks or whatever are not able to compete with Fed notes. Specifically sound money advocates complain about gold and silver being taxed.
As an aside, sophisticated posters know so much real economics, but they don’t even recognize Tater’s discussion of Cantillon effects as they relate to monetary inflation. The more knowledgable statists tend to sit these discussions out.
This shows lack of understanding or lack of imagination.
Of course it is the inertial mass of the money supply that keeps the dollar’s value stable, just as a large wingspan keeps a plane aloft. But, like ailerons, Fed policy serves as a governor: F.R.B. will adopt inflationary programs like QE when prices are falling; and raise interest rates (and sell bonds) when prices are rising.
Yes, you can buy gold bars to protect your savings. But, as is typical in this sort of discussion, you fail to distinguish between a gold standard currency and using gold as money.
Any scheme where you use a representation of gold instead of gold is subject to exactly the same sorts of problems that fiat currencies have. Any system where you can buy and sell on credit is a system where people can create money by fiat. If you want to avoid fiat money you absolutely have to make buying and selling on credit illegal.
It is simply a fact that our modern economy would be impossible if you had to exchange physical coins of gold and silver for every transaction. Agreed? In fact, even in the old days when gold and silver coins were a common form of money, most transactions were not in fact an exchange of gold and silver coins for goods and services. People owed each other obligations of goods and services that could not be discharged by money. Merchants would conduct exchanges with trusted people simply by changing ledger entries. Merely promising someone that you will pay them gold Tuesday for a good or service they provide on Monday is creating money by fiat.
And so it’s simply ludicrous to imagine that if we had “sound money” or “money backed by gold” that we would be using gold coins. We’d be using paper or electronic coupons that could be exchanged for gold. And guess what? WE HAVE THAT SYSTEM TODAY.
I repeat: We have that system today. You can exchange your fiat dollars or euros for gold today. It is not against the law.
Your paper money is backed by gold, or frozen pizzas, or whatever you like. The only thing you don’t have is a guarantee that your paper money could be exchanged for a particular good at a particular price. So yes, it is possible that today you might pay $50 for a gram of gold, while tomorrow you might pay $60 or $40. If you don’t like this, buy the gold today.
Of course gold can be subject to inflation or deflation, just like any other system of money. Increase the supply of gold and you have inflation. This famously happened when vast amounts of gold and silver were looted from the Americas and dumped into Europe. Prices for goods skyrocketed. Or another way of putting it is that the price of gold plummeted. And with the economic expansion of the industrial age we had periods of deflation, because the supply of gold was not able to expand to meet the demand for more money.
Gold can only be a useful form of money when the supply of gold is sufficient to meet the number of transactions needed. In an ancient economy very few monetary transactions took place, which meant a very low demand for money. And so gold and silver coins could meet the need for money. But this quickly broke down as the demand for money increased, and so we had schemes such as paper money “backed” by gold.
There are no countries in the world today that are on a gold standard. For all the gold bugs, why do you think this is?
Is it because every government in the world is authoritarian and trying to control the people? OK, let’s say it is. Now what are you going to do about it? You can’t have a return to real gold money without defeating the authoritarian statists. So what’s the point of advocating for a gold standard, when you know that even if the governments of the world pretended to do such a thing it would be a fraud?
The system of money used in the middle ages no longer suits the needs of global economy. The system of money used in the industrial age no longer suits the needs of the global economy. Even if the powers that be wanted a gold standard currency, it would make the current global economy impossible, and so we’d just have a fraudulent gold standard currency.
The current fiat money system is transparent in that the value of money is transparently arbitrary. Yes, governments can inflate their currencies at will. If they do that then they suffer the bad effects of that inflation. You might notice that although the US government could double the money supply tomorrow and create a disastrous inflation they haven’t done so. Why is that? Why is the inflation rate a paltry 1 or 2%?
I guess some gold bugs believe that a 1% inflation rate is equivalent to the government confiscating 1% of the country’s wealth every year. But this is simply false. Only a tiny fraction of the country’s wealth is held as dollars. If you have very small cash holdings, if you don’t keep your savings in dollars but in real assets, then inflation can’t destroy the value of your savings. Again, if you’re really worried about the dollar becoming nearly worthless in the near term, go ahead and buy gold today, when gold is low. But get physical delivery of that gold, because a piece of paper that says that somebody owes you a certain amount of gold is just a piece of paper.
You first explicitly stated that the dollar is “directly” tied to a basket of goods. it would indeed take quite an imagination to go from that to your economically confused metaphor.
If the dollar was directly tied to a basket of goods, it would purchase the same basket at the inception of the link as it would now. That is simply not the case.
If the dollar was directly tied to gold, it would purchase the same amount of gold at the inception of the link as it would now. That would be the case in a sound money regime.
You derailed when early on you claimed buying goods on credit was creating fiat money. That’s false. The rest was fairly standard stuff already addressed.
Of course buying goods on credit is creating fiat money. Alice sells $10 worth of widgets to Bob on credit. She writes that $10 credit as an asset on her books, and subtracts the widgets. Bob writes $10 as a liability on his books and adds the widgets as an asset. $10 has been created out of thin air. Yes, the books balance. But how did the transaction take place when Bob had no money?
Bob created his own personal $10 bill and handed it to Alice, who accepted it. That IOU is money created by fiat. The IOU becomes even more useful if Alice could take Bob’s IOU and give it to Carol in exchange for goods and services. Then we have an even more useful form money. But that can only happen if Carol believes that Bob’s IOU is valuable. If she doesn’t then she won’t accept it, or only accept it at a discount.
And this is what used to happen back in the old days when banks could issue their own paper money “backed by gold”. Except those notes only circulated at face value when people trusted the issuing bank. The lower the trust in the bank and the higher the discount you’d demand to accept paper money.
Borrowing and lending and buying and selling on credit creates money. Banks create money all the time by borrowing and lending, and merchants do it on a small scale when then buy and sell on credit. Any time you buy something Tuesday and pay for it Wednesday you increase the money supply by that amount for a day.
Alice allowed him to have the widgets before payment.
Bob’s IOUs are not money. They do not circulate as a medium of exchange. Dollars do. Demand deposits do, but Bob’s IOUs do not.
Alice take’s Bob’s IOU because she believes in his ability to acquire $10 from the existing money supply. No new money necessary.
True. The difference between this type of banking and today’s is that banks create demand deposits that circulate as money and bid up resources. Bank scrip circulated in a limited fashion and expansions were checked by specie withdrawals and note clearinghouses.
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Yes banks do now.
IOUs are not money. Clams circulate as money. Say Crusoe sinks Friday’s boat. Friday says Crusoe now owes him 100 Clams. Has the money supply been increased?
No, gold is not a perfect standard as many of us have explained in this thread and others like it. Gold is just a holdover from outdated mercantilist economics - the belief that there’s a fixed amount of wealth in the world and all you should be doing is accumulating the largest share of it.
Capitalism has replaced mercantilism and goldbugs need to catch up. We now know that it’s possible to create wealth. The economy is not a zero-sum game: two people can have a financial transaction and both of them can end up richer. You can have an economy where there is more total wealth every year and fiat currency reflects this growth. As your economy gets bigger, you add more money to it to help people engage in transactions. As long as the growth of your economy keeps pace with the growth of your money supply, you’ll be fine.
A gold standard brings the economy to a halt. It arbitrarily places an upper limit on the amount of money in the economy and prevents your economy from growing beyond that limit.
If you can get Disney Bucks going as an alternative, it would be easy to convert them to greenbacks to pay your taxes.
If I had a lot of Bitcoin, a rather obvious example of a thriving alternative, I’d have no problem paying taxes with it; they can be converted to government currency in a few clicks of the mouse.
Disney bucks do not exhibit the characteristics valuable for a money to have, therefore individuals would not choose them on a free market. Gold does exhibit those characteristics and would be chosen on a free market, but government has hampered its use as money.
Bitcoin is not thriving and has many problems that gold does not have. It will also be taxed upon its appreciation with dollars, so it too would not be chosen on a free market.
This shows lack of understanding or lack of imagination.