Accept dollars in payment of taxes. People can use whatever medium of exchange they want, but hundreds of millions of people need to pay taxes to the US, and the US won’t take Euros or bitcoins or whatever. So long as that remains true, dollars will have value, since the gov’t provides a built in demand for them.
So basically, the US promises to keep accepting dollars in payment of taxes and other debts people owe it, and to remain enough of an entity that enough people will want to do business with it to maintain a substantial demand for those dollars.
Exactly. The U.S. Government needs dollars the same way cars need gas - it can’t run without them. So long as cars exist, gas will have value; and so long as the U.S. government exists, dollars will have value too.
The other major difference is that if you tie your dollar to a physical thing like gold, your money supply is limited to the amount of gold the government owns. That can have a deflationary effect.
If “A” says, "I’d like to buy that acre at the boundary of our property and “B” says, OK, the price is a billion dollars, so “A” says, "What if we agree this pig here is worth a billion dollars and we trade the land for this pig, and “B” says, OK, has the nation’s wealth been increased by a billion dollars?
Not necessarily. It is entirely possible to have a gold-backed currency where the government does not own 100% of the gold required to redeem 100% of the currency. But that does get you back to square one, where you are relying on the faith people have in a currency that not all of them will be demanding redemption for gold at the same time.
In truth, the only thing completely backed by gold is gold, in your hand, that you have mined, smelted, and weighed yourself. Anything else is backed by gold, plus faith that some institution is operating correctly and will maintain credibility in doing so.
Why gold? Why not pigs? This is a sterile argument made by financial dinosaurs who would put things back the way they were just before the Great Depression.
The short answer is that money is not wealth. Wealth is the pie, money is the slices; making more slices does not make the pie bigger. There is also a longer, more complicated answer, but that involves a LOT of reading.
A VAT increments every time you do something to change the value of an item. Thing of a car in an assembly line. Every time a part is bolted on, VAT accrues.
A sales tax, OTOH is a flat percentage on the retail price of an item.
I understand this but I don’t see why it has anything to do with a gold standard. The simple fact that I see is that if a country steadily and predictably increases the money supply, and slowly changes the rate of doing this using good judgment but no standard except general economic considerations, that living standards generally go up as economic opportunity gets a steady but mild and not inflationary stimulus, and, most important, this must be done outside politics, which is why the United States fails at it so often.
You have a big “if” in there and that’s why this fails.
Can the government “steadily and predictably increase the money supply” with a gold standard? Historically, the answer is no. Every time a new source of gold was found, gold’s value dropped. It’s the same as flooding the market with dollars - if you suddenly have more than each one is worth less. But when the need for increasing the money supply hit - during the Depression - the government could do nothing until it went off the gold standard. It is acknowledged by everybody by goldbugs that the countries that went off the gold standard the earliest recovered first.
The notion is certainly sound, though. And it’s exactly the one that the Fed is following right now to great success as the economy moves gently and steadily upward so that it has returned in most ways to where it was before the recession of 2008. Yet that was only possible because the government tossed in a ton of money at the beginning - and should have tossed in far more. It was politics that *prevented *that proper course, not politics that caused it. The stimulus money couldn’t have happened under a gold standard, and it was gold standard thinking that shrank the stimulus to near-useless proportions.
That’s the bigger lesson. It’s not just that the gold standard is a bad idea in a modern economy. It’s the thinking behind an artificial limiter and regulator that can’t respond quickly to rapidly changed conditions that is a bad idea in a modern economy. The gold standard of a symptom of that disease.
If A was actually willing to spend a billion dollars, if he got ahold of it somehow, on the parcel of land, and if B was likewise willing to spend a billion actual dollars on the pig, then the nation’s wealth has in fact increased by nearly two billion dollars. In actual fact, neither of those is likely to be true… but the transaction has still increased the nation’s wealth by some amount. A considered that acre to be worth more than a pig, or he wouldn’t have agreed to the deal, so A’s wealth increased. And B likewise considered that pig to be worth more than the acre, so B’s wealth increased, too. Both parties gained wealth, and neither lost wealth, so the net wealth of the community has gone up.
I was just responding to the OP about printing trillions of dollars. But this analogy can apply to any medium of exchange - in this case gold. Think of slices of pie as something that gets exchanged for something else. Every year the pie (GDP) increases, but the federal reserve does not want the value of a slice to become overly disproportionate to its previous value. So the fed targets inflation at around 2% usually to keep money flowing. Supposedly, the velocity of money is important in a healthy economy - and AFAIK this has been calculated and studied over many years by many individuals with fancy degrees spending lots and time looking at boring data and figures and no porn stars, pirates or other individuals with questionable lineage and dubious moral standards were involved in these decisions. If the pie was gold you could get shocks if lots of pie was found, or if you have the same amount of gold but the GDP increases some of the pieces of pie kind of just sits around and gets stale, and the fed is like we have all these leftovers and there going to waste and complains about slaving over a stove all the time and never being appreciated or cared about.
Watchutalkinbout Willis? wealth has not gone up in regards to using this as an analogy to the increase in GDP. If this community were analogous to a country, there would be no increase in GDP, GDP measures increases in production.
Thing is, a dollar “backed by” gold is just a piece of paper, promising that someone somewhere will exchange the piece of paper for a certain weight of gold.
That piece of paper is worth exactly as much as you believe the promise printed on the paper. And the first thing any government with a gold standard does when there is a financial crisis or a war is to immediately stop redeeming paper money for gold. In fact for years here in the land of the free and the home of the brave it was ILLEGAL TO OWN GOLD. All so that we could preserve the fiction of the gold standard.
If you like gold and don’t trust government fiat currency, you are free to take all your fiat money down to a pawnshop or jeweler or coin shop and exchange it for any amount of precious metals you like, in any form you like. Every time your boss pays you, you can take that paper money and convert it to gold at the market rate and take that gold bullion back home with you and stick it under the mattress.
And then, when you want to buy things, you can take that gold to a coin shop, and exchange it for dollars, and use the dollars to buy things. The worry is that the dollar will not hold it’s value over time, or might catastrophically drop in value, right? So don’t hold dollars as a store of value, instead hold real assets like gold. But a piece of paper that says “I owe you X amount of gold” isn’t gold any more than a $100 bill is gold.