Accepting gold or silver as the standard medium of exchange is an act of faith.
What the hell good does silver do me? I’m not a silversmith. It’s only valuable if I can trust other people to use it as a standard of currency.
Worse, it’s been tried it in the past and we experienced some hellacious periods of both inflation and deflation with concomitant bank runs and panics that make modern recessions looks like a joke. The lessons of history are wasted on some people.
Those who forget famous quotes are condemned to repeat them.
Some notes on history:
The greenback and the continental both failed miserably to inflation. The OP would be wise to adjust his perspective based on these failed attempts at govt issued paper money.
Commodity standards have nothing to do 19th century Panic(!)s. They were caused by fractional reserve banking and the assumption that specie payments would be suspended in times everyone remembered the banks were insolvent. The advent of FDIC made those types of panics obsolete. Why rush to withdraw under FDIC? I never understood the claim that the panics were ended by the Fed. The only thing that changed after the Fed was they stopped calling them Panics and called them the Great Depression.
The depression proves that the Fed’s lauded stabilizing mechanisms are inept and that the government needed a more direct intervention like black plastic signs next to every bank teller in America soothing the depositor into recognition that the government will extort his neighbor for them no matter how mismanaged the bank is.
Which is pretty much exactly what I was getting at in my post- gold, silver, copper, etc… are only worthwhile as currency because they’re sufficiently rare, and everyone agrees that they’re valuable as currency, because they haven’t been historically particularly intrinsically valuable on their own outside of jewelry making.
Which is much the same as everyone agreeing that a “dollar” is worth something, and rather than tying that worth to a literal weight of metal, it’s tied to the strength of the issuing economy relative to other governments’ currencies (i.e. fiat).
I feel like I have to ask a basic question of the OP: can you describe the difference between monetary policy and fiscal policy? Because it sure seems to me that you think they are the same thing.
There are plenty of good reasons to reject money based on gold or silver, but “lack of intrinsic worth” is a very weak objection. I won’t try to make a detailed prediction about the post-apocalyptic world, or what will be used as money or transportable wealth there, but after the smart-phones and their batteries have all worn out, gold and silver will probably come back into their own. (Start another thread to discuss details of the Gun-and-Ammunition era, et cetera.)
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But this thread isn’t about the difference between central-bank money and metallic money. It’s about the difference between central-bank money and fiat money. To understand that difference, you first must understand the difference between monetary base() (e.g. gold) and negotiable promissory notes (e.g. banknotes). When I bring my $100 of gold to my banker and exchange it for a $100 banknote (printed while I watch) money has doubled — the bank has $100 in gold and I have a $100 banknote. Nothing magical has happened; when I then run up a $100 tab at Jill’s Stripclub, if I can talk her into accepting my own handwritten promissory note, now we have $300 of “money” total! ( The term “monetary base” is used in a certain way in F.R.B. accounting. Here I adopt a looser, more abstract notion.)
The money used in U.S., Europe, U.K., Japan, etc. is sometimes described as fiat money but this is very misleading. Central-bank money isn’t quite the same. When Kennedy printed those “United States Notes” (fiat money) instead of “Silver Certificates” and spent them on jet fighters he was spending fiat money. (The fact that he laundered the banknotes through the banking system and paid Lockheed by check instead of bags of banknotes is irrelevant.) But that’s not the way central-bank money works. I think OP’s confusion stems from a lack of understanding of the difference between fiat money and central-bank money.
I’m sure Hellestal and other Doper economists can address this with more eloquence and correcter terminology than I; and please do so! But let me try.
First of all, note that the Federal Reserve System came into existence while the U.S. was on a gold standard. Neither it nor previous U.S. “central banks” are or were involved in the creation of fiat money. Instead they do just what private commercial banks do — they expand the money supply by issuing promissory notes to pay monetary base.
Every dollar of money created by an audited bank is backed by a dollar of assets the bank holds. When that’s not true, the auditors shut the bank down. Similarly, every dollar created by the Federal Reserve System is backed by a dollar of assets the FRB holds. This is not the same as “fiat money.” JFK could print those United States Notes and use them to buy jet fighters, but the Federal Reserve Notes created by the F.R.B. are only used to buy financial assets which the F.R.B. retains in its vaults This is not “fiat money;” it is “central-bank money” — promissory notes created in auditable, balanced bank ledger transactions. If every Federal Reserve Note() were presented to the F.R.B. for payment, it could, in principle, redeem every penny by selling the assets it keeps in its vaults. ( - I don’t mean to make a distinction between the actual FRB banknotes and electronic money sitting in FRB computers — treat them as the same.)
So what is the monetary base, if it’s not gold, and it isn’t, in my abstract formulation, the F.R.B. banknotes themselves? Well, there is some gold, left over from the gold standard days; the U.S. government holds almost a Trillion dollars worth (at today’s market price) of gold bullion in its vaults, though most of this is owned by the U.S. Treasury or by foreign central banks.) But mostly the monetary base is a circular fantasy! It can’t happen but if we imagine that people somehow demanded their F.R. banknotes be redeemed, the F.R.B. could sell the assets in its vaults (mostly Treasury bills) and pay with the proceeds … in F.R. banknotes! Circular? Yes! Ponzi scheme? No; the bank would be paying with legal tender backed by U.S. promises to pay its central bank.
Some people will read the preceding and come away seeing only “circular … Ponzi scheme,” but they miss the point. Money created by a central bank consists of auditable promissory notes which are only created in response to events on a balanced bank ledger. This is the opposite of fiat money. And, despite the doom-drivel on YouTube, the United States Dollar remains the most respected currency in the world.
@ OP — I don’t think I’m condescending now. Do you see why your plan to abandon the central bank system and then to print $18 trillion of fiat money to pay off the national debt may not be a sound plan?
[1] My understanding is that every greenback ever issued by the United States of America was eventually redeemable at par value. Am I wrong?
[2] A precise date for the invention of “fractional reserve banking” is lost in the haze of antiquity. *** Banking did take a big jump in popularity during the 17th century, precisely when the world economy took a big jump in economic and political freedoms, industrialization, commerce, and prosperity.*** Coincidence?
[3] Did you notice the S at the end of “PanicS” and the lack of one at the end of “Depression”? Does this tell you anything? BTW, do you remember if the U.S. were still on a gold standard when the Great Depression hit? From the 1930’s until 2007 there were no panics on a scale of 1873, 1907, etc. Does this tell you anything about the relationship between gold standard and bank panics?
[4] No. They tell us that you’re confused about the distinction between the mistakes of the unenlightened gold-standard FRB of 1930, and the learnings from those mistakes.
[5] My understanding is that the FDIC is a profit-making enterprise for the U.S. taxpayer. Do you have a cite that says differently?
Ammo and canned food. 
Or how about hog bellies or wheat?
The value of gold and silver is based upon market forces.
No nation has gold based currency. There’s not enuf gold to do this.
Nor has fiat currency anything at all to do with debt.
We had plenty of debt when we were on a gold base.
https://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt.htm
Considering your peculiar definitions of other words like “money” can you provide a cite I can evaluate?
No. Increases in prosperity due to free market capitalism led to more banks. How does that address any of my claims? If you want to claim that prosperity was increased due to FRB, go ahead. The work of Diedre McCloskey suggests it was changes in rhetoric that caused the prosperity. I agree with that, not your implication.
Question 1)Yes it tells me they passed FDIC after the onset of the first depression.
Question 2) It tells me there is a crude correlation that is better explained after deeper thinking. It also reminds me that a more relevant observation is the one of several panics pre FDIC, and one panic post FDIC.
Yes Bernanke told Friedman he learned. Then you and he were blindsided by Panic!
I still haven’t got my check, damn you USPS!
This is why the Federal Reserve Bank works: they have the ability to combat inflation. They can smooth out the bumps in the road, something that a fixed money supply cannot address in any way at all.
We also suffered from Smallpox, before we got smart enough to have inoculation. Now you’re saying, “Smallpox! Bad! We must stop inoculating our children!” The inoculation is the prevention, not the ailment!
No. Under the classical gold standard pre-Fed, there was less inflation than the gold standard Fed period, the British dominated Gold-exchange standard period, the Bretton-Woods period, and the post Bretton-Woods period.
I do not seek, like the OP, to allow Congress to print greenbacks willy-nilly.
The work of both Christina Romer and George Selgin suggests that the bumps were not smoothed any better under the Fed than after when adjusting for certain economic conditions like the agricultural dominance of the pre-Fed period. Of course, all things being equal, an agricultural economy should be more turbulent than an industrial economy. Other economists are comparing apples and widgets.
just stop.
For as much good info you try to dish out, you throw this kind of crap in to dismiss anyone who asks a question.
All I asked was if I had the concept of the Kennedy issued note, and if that was an interest-free currency.
Cite?
http://blogs.wsj.com/economics/2015/12/14/a-brief-history-of-u-s-inflation-since-1775/
There were periods of stagflation and even huge deflation. The economy was anything but stable.
Isn’t the Federal Reserve just a psychological illusion? The Fed is a bank that has assets, and their shareholders assume the risk.
People believe they have some magical power to control inflation. They control it, alright, but they don’t combat it. They have continually increased the money supply. Based on the simple premise of supply and demand, how does this work in your mind?
I am not advocating a gold standard, but I can understand why people want one. There is an actual asset that backs the money in your pocket. Whether or not there is a “practical” value for gold, for some reason (yeah, shiny and rare… I get it) cultures the world over accept it as a valid currency. So it has that going for it.
If the US “defaults” on its debt, and the Saudis, Chinese etc. who have investments get stiffed, what, aside from war, can they actually do to collect?
What did the US do when Castro took all assets from investors in Cuba? Did Castro pay everyone who owned investments, or did he just take them, and say “too bad for you.”?
My apologies as I did not word my post in a clear manner. I meant of Congress making the FED type money decisions on a month by month basis.
I’m not advocating a “willy-nilly”, unlimited printing press.
What I was trying to understand was what would happen if the treasury took the Fed out of the loop, and what would happen if that occurred.
The government would need to set up another central bank, if the Fed was taken out of the loop.
Did you understand my post on the difference between fiat money and central-bank money? Which are you advocating?
Have you understood that the FRB is, in practical terms, purely an arm of the U.S. government (albeit with a hands-off status for conducting its Congress-mandated policies), and that the commercial banks which are “shareholders” in FRB have no control over it, nor any real financial interest other than the fixed dividends?