I had no idea the economy of the late 19th century had come to a “halt”. Please tell me more.
Well, the markets free now, so what’s the issue?
I mean other than the fact that hauling around gold or mailing bars of it to pay your mortgage is just impracticable.
How has the government hampered it’s use as money?
Seriously. Yes, in the past–when we were on the “sound money” “gold standard” there were all sorts of restrictions on gold, because the government needed to control the gold market to control the money supply. Now that we’re on a fiat money system we have a free market in gold.
I suppose your complaint is that if you buy a 1 oz gold bar for $1000 and sell it for $1500, the government believes you made a $500 profit and taxes you on the $500? And since it’s the same gold bar, it didn’t appreciate in value and therefore shouldn’t have been taxed? It’s really the dollar that went down by 2/3rds, not the gold bar that increased by 3/2ths?
Except that’s silly. Imagining that gold is the only substance in the universe that maintains the exact same value for eternity, and it’s every other good and service in the universe that fluctuates in value is literally the worship of a shiny rock.
Every good and service in the universe fluctuates in value. Including gold. Including–get this–the dollar. Yeah, you won’t be taxed on the increase in value if you have $1000 in the bank in 2016 and we have a massive round of deflation and you’re suddenly able to purchase a basket of goods and services in 2017 that would have cost you $1500 in 2016. How likely is that deflation? Such a thing would never happen, because it would defeat the purpose of fiat money. If we really had serious deflation they could just print more free money, and suddenly no deflation.
Wah, they tax gold. They also tax the value of my goddam house, and my house isn’t money. Yes, it turns out that in our world the Statists have the whole goddam planet sewed up, there’s no room for a free man to go out into the wilderness and create his own society free of moochers and muggers. This is because human society requires the presence of other human beings. And once you have more than one human being they start to cooperate, and once you have three people two of them start scheming on ways to gang up on the third. So there you go, the whole history of the human race in a nutshell.
The market is not free. The government taxes individuals who exchange gold for reserve notes. Reserve notes benefit from their legal tender status and the fact individuals must use them to pay taxes.
You correctly stated one way gold is hampered on the market. So will you admit that there is no free market in gold, and that it isn’t a simple case of reserve notes beating out gold on the market fair and square? Nobody wants to admit this simple fact. They want to pretend advocates of sound money are being hypocrites and that they are the true free marketers. It’s a fiction they comfort themselves with.
Most prices steadily decreased during the gold standard. That is, besides wages. Deflation was a wonderful thing for all. In fact it’s what you would expect in a world of increasing productivity and strictly limited money creation.
The late 19th century had a free market in bank fiat. How did it compete with gold then? The cartelization of the banking sector in the early 20th century allowed banks the cover to issue demand deposits that functioned as money on the market. Money was still backed by gold, but psychologically reserve notes became not money substitutes, but money proper. This coupled with confiscation allowed the government to replace gold with their fiat currency.
Please refrain from the ultra-individualist libertarian strawman. I cooperate in society just fine. Fiat money creation transfers purchasing power to the politically connected from dollar holders and creditors (I.e. Savers). It is the politically connected who are uncooperative and antisocial.
Your dollars/reserve notes are taxed also. All money is taxed. Gold is only taxed if you exchange it for reserve notes and have a gain. So, dont exchange it.
I must pay income, sales, property, and other taxes in dollars.
I think we’d all agree that letters of credit, common two centuries ago, issued by private banks, qualified as “money” and still do. Indeed personal checks constitute “money,” being a token of the FRB-defined M1. We’ll agree that “money” should be widely negotiable, but otherwise to hone in on an exact definition eventually becomes threading an irrelevant distinction.
In the sequel assume an Island with as few as two men—owner and laborer—about as reductio ad absurdem as we can get. (Better yet include a Thursday, who competes with Friday for Crusoe’s scraps. Or a Darby Crush who claims the verdant northern half of the island and demands tribute from trespassers. 
)
I agree with the sentiments here, if Mr. Lemur’s “money” and “even more useful money” are replaced with “money-like paper” and “widely accepted IOU markers.” We do want to conform with Merriam-Webster.
IIRC, even government-issued greenbacks traded at a discount to gold certificates in mid-19th century U.S. Surely scrip by the drunkard but rich and trustworthy townsman is “money” …
Well, we needn’t be so absolutist.
Suppose Bob’s IOUs circulate freely in the town, even trading at a smaller discount than greenbacks. Does @Mr. Farnaby agree that that would be “money” at least for intra-town transactions?
Yes! Crusoe signs an on-demand note and the the money supply does increase (temporarily)! Crusoe pays the fine, Friday happily buys the parts he needs to make a better boat (buying them from Crusoe’s store in fact, with both the marker and the need to actually hunt up some clams evaporating).
And, interestingly, Increase in economic value may have occurred—cheap wood turns into a better boat. The economic production (which needs an ignition, i.e. savings) does not otherwise happen—after all, Friday lacks the clams to buy the boat materials without Crusoe’s help. (Indeed the sinking may work out to Friday’s financial benefit. Farnaby, in your model how does Friday get the seed capital to build an improved boat? What if he spends the effort to gather 100 fresh clams and then Crusoe raises the price of wood?)
We could have deflation overnight with fiat currency. All the government has to do is hoover up enormous amounts of dollars. Dollars rise in value, prices fall all over the place, and instant prosperity!
Except deflation doesn’t actually increase the goods and services available. All it does is change the amount of money that is chasing the same number of goods. Prices falling doesn’t help anyone if your wages are falling.
What increases prosperity is increasing the goods and services produced. Removing money from the market doesn’t do that, it just makes money more expensive. It hurts the economy because there isn’t enough money to process all transactions.
It’s a bizarre assertion that, because inflation is bad, deflation must be good. Deflation only helps people with assets denominated in the deflating currency. It hurts everyone else. You can’t give yourself extra goods and services just by printing up more money, and you can’t make things cheaper just by destroying money.
I guess you missed the part that you quoted where I said wages did not decrease steadily.
You are just plain wrong on this. I’ve already given you the list of panics from the 1800’s. Back then the economy was unstable in large part because the gold standard meant that the money supply could not keep up with the economy. Deflation meant that farmers couldn’t borrow money to buy seeds or hire workers to reap the crops. Today’s economy is a model of stability compared to the 1800’s.
Of course it’s possible to increase the amount of goods and services provided, that’s what the industrial revolution was all about.
But it was all those factories and coal mines and steam engines that were producing the new goods that created the prosperity, not the deflation. And of course, as has been pointed out many times to you, the deflation wasn’t “steady”. Instead you had rapidly changing unpredictable periods of inflation and deflation.
In a well managed monetary system nobody thinks about the monetary system. You don’t have to worry about the value of your money tomorrow, or next year, or the year after that, you can bet that it will be pretty close to the value tomorrow.
But when you have no idea if next year will see 10% deflation or 10% inflation that’s a huge problem.
If it wasn’t for the industrial revolution the deflation would have crushed wages. Deflation isn’t some magic pixie dust that lowers prices while increasing wages. It affects all prices, and wages are just another price. If the value of the dollar doubles, your wages are going to be cut in half, maybe not today, but soon. And it’s more likely that your place of employment will just go out of business rather than they call a meeting an announce that everyone’s pay will be cut.
Every purchase is someone else’s sale. As a consumer when you see prices fall it’s good for you but terrible for the producer of the good. If the prices fall because it’s suddenly much easier to produce the good then that’s fine. If prices fall without changing the fundamentals then it’s terrible.
I’m afraid you have derailed again, bud. I never said deflation created prosperity. I simply stated the bald fact that deflation coincided with prosperity for many years in the late 19th century.
Deeg
Your claim that there were panics does not touch my claim that there was deflation and prosperity. It’s a non-sequitur. I agree there were panics. There was also deflation. There was also prosperity. You are simply spouting campaign rhetoric from the Bryanites.
Well, except for the people wrecked by panics and bank runs.
There’s always prosperity somewhere, even when there’s poverty.
"By some measures the 1880s was the most productive decade in our history. In their A Monetary History of the United States, 1867–1960, Professors Friedman and Schwartz quote R.W. Goldsmith on the subject:
The highest decadal rate [of growth of real reproducible, tangible wealth per head from 1805 to 1950] for periods of about ten years was apparently reached in the eighties with approximately 3.8 percent."
Yes, the 1880’s were a time of great economic boom. Which of the following do you think contributed more to that?
[ul][li] The price of gold was fixed by government fiat at $20.66 per ounce.[/li][li] A commercial electric lightbulb was developed in 1879.[/li][/ul]
(Or was it both? Thomas Edison would have petulantly refused to invent the lightbulb if he’d known jackbooted government thugs would force his grandson to sell them his gold?)
Here’s Alan Greenspan’s take on gold. Great minds think alike, etc.
"An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense - perhaps more clearly and subtly than many consistent defenders of laissez-faire - that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.
Snip
This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard."
Is that from 1966? When he was *completely *in the tank for Ayn Rand…as opposed to later in life when he was only mostly a nutball Objectivist?
Why do people put so much faith in something so useless? All you can do with gold is sell it to a greater fool.
Common Tater, you still haven’t figured out what your argument is.
Are you saying there shouldn’t be laws against owning gold? If so, I have good news, those laws were repealed in 1974. If you want to put your savings in gold, go ahead. If you want to live off of gold, you’re free to do that providing you can find businesses who are willing to sell you their products for gold. You’re free to go on the gold standard if you want to and laugh at all of us who are using dollars.