[QUOTE=DrDeth]
Heinlein was- at least for a while- a great SF writer. This doesn’t make him an expert on anything other than spinning a good tale- and that clearly includes economics.
Somehow we seem to look upon experts in entertaining as experts IRL, but it ain’t nessesarily so.
[/QUOTE]
He was also a reasonably competant Mechanical & Aeronautical Engineer.
[QUOTE=Common Tater]
Still, gold has been the currency par excellance for thousands of years - because it is impossible to counterfeit …
[/QUOTE]
If someone handed me a fake dollar bill and a fake gold nugget, I’d have a much better chance at working out that the dollar bill isn’t real.
[QUOTE=gredbioz]
If someone handed me a fake dollar bill and a fake gold nugget, I’d have a much better chance at working out that the dollar bill isn’t real.
[/QUOTE]
It would be phenomenally easy to learn how to tell the gold isn’t real. It’s unlike any other substance.
A master counterfeiter could certainly fool you with a phony banknote, but gold really can’t be faked.
[QUOTE=Bosda Di’Chi of Tricor]
He was also a reasonably competant Mechanical & Aeronautical Engineer.
[/QUOTE]
Perhaps, but we can’t say that for certain. He graduated from the Naval Academy with a degree in Mechanical Engineering, but except for some work for the Navy on the attachment of Plexiglas airplane canopies (where he met his last wife, Virginia), there’s no record of him ever working as a design engineer or analyst. He had a pretty firm grasp on engineering principles (his comprehension of modern physics, on the other hand, could be fairly shaky) but that doesn’t necessarily make him a great engineer in practice.
Stranger
[QUOTE=RickJay]
It would be phenomenally easy to learn how to tell the gold isn’t real. It’s unlike any other substance.
A master counterfeiter could certainly fool you with a phony banknote, but gold really can’t be faked.
[/QUOTE]
Really? Then why is Archimedes so famous? 
You’re wrong on a couple of issues here.
On a minor issue, you don’t turn coins into cash. Coins already are cash. You can turn coins into paper currency (which is also cash) if you wish.
On a more significant issue, this is not by any possible stretch of the imagination a a tax, stealth or otherwise. The definition of tax is not “money I get annoyed at paying”. Paying a bank to exchange your coins into paper money is not a tax, anymore than paying an ATM fee or using a pay phone or renting a DVD is - these are service charges. Private businesses do not charge taxes.
On the OP itself, the problem with specie is that imposes a strict limit on the size of the economy. Money itself becomes a rare commodity. This limits inflation but it limits real growth as well.
It’s like when you’re playing Monopoly where there are only so many houses and hotels in the box. There will be times when you want to buy a house and you’ve got the property and the money but you can’t because all the other players have already bought up the supply of houses - you’re losing a legitimate investment opportunity because of an unrelated scarcity. Using fiat currency is the equivalent of letting players use buttons to stand in for houses and hotels.
[QUOTE=BrainGlutton]
Gold doesn’t pay interest if you keep it in a strongbox. If you deposit it with a bank, or otherwise lend it out at interest, then you no longer have gold, you have transmuted it into credit, which is what is earning the interest. It has nothing to do with the legality of gold money.
[/QUOTE]
You can’t deposit gold in a bank account today, at least not here in the US. Switzerland or Dubai might be another matter. Banks then paid interest on gold, when it was considered “lawful money”, before it was confiscated and considered “unlawful money” in the 1930’s.
[QUOTE=BrainGlutton]
But government can control interest rates even under a gold standard. The Federal Reserve System was founded in 1913; the U.S. didn’t go off the gold standard until 1971, as discussed above.
[/QUOTE]
Nixon only severed what vestigial link there was left between the dollar and gold, allowing it to float against other currencies, and permanently closing the “gold window”. He had little choice. While theoretically central banks could redeem each of their dollars for 1/35th oz of gold, this was considered rather unsporting at such a late date.
US citizens of course, had been prohibited from owning gold in any meaningful quantity for forty years, and gold clauses reneged upon, and prohibited. By the late 1950’s the flow from Treasury was considered to be a threat, and massive social program spending and war with the communists in Vietnam in the 60’s put many countries ill at ease with the stability of the dollar. France in particular was adamant about redeeming dollars for gold. Figures. The Federal Reserve Notes were never redeemable for gold, and in any case for an organization that ostensibly exists to ensure the stability of the money, they haven’t fared very well. Someone mentioned that ambivalence with respect to the FED is a “right wing” venue, which is silly, or ought to be. I think it’s fully accurate to say the “gold standard” died under Roosevelt, though Nixon of course gets the blame.
[QUOTE=bhal]
The real problem as I see it is that if you or I attempted to pay for dinner with the pennies we’d likely find the restaurant would not accept it.
[/QUOTE]
I’d imagine that would be true anytime you try to buy something with 10,000 of something else, no matter the denomination.
[QUOTE=Fern Forest]
I’d imagine that would be true anytime you try to buy something with 10,000 of something else, no matter the denomination.
[/QUOTE]
That’s because a seller is free to determine what they deem is acceptable for payment, not the buyer, not necessarily because of the bulk or inconvenience. “Legal Tender” laws generally preclude small change for purchases greater than nominal amounts. Debts, however (like taxes) are another matter. I’ve always found legal tender to be an interesting concept, since afaik, no government ever had to force the people to use precious metals as money. “Here is a piece of paper, with a picture of a dead guy on it.”
[QUOTE=DrDeth]
Ohcrapno. Frist, note that the USA was on a Gold Standard until 1933.
[/QUOTE]
Hang on - widespread persistent inflation. Do you understand that a double-digit number with a negative number in front of it indicates massive deflation, not inflation? That series shows little other than that the price level is volatile. Having prices rise by 26% in 1277 means nothing if it was preceded by a price fall of 16% and followed by one of 12%. Graph those numbers and explain to me how they show a long-term trend of rising prices.
The UK numbers I linked to earlier show inflation has never been negative since 1934 - which is a fairly dramatic change from earlier times, when prices never rose for more than 8 years before falling. The US has had about two years of falling prices since the second world war.
As an experiment, going to the inflation calculator here and entering 1776-1910 gives an annualised inflation rate of 0.06 for the US and 0.26 for the UK. 1911-1985 gives rates of 3.23 and 4.86 respectively, despite including the Great Depression.
[QUOTE=Common Tater]
You can’t deposit gold in a bank account today, at least not here in the US. Switzerland or Dubai might be another matter. Banks then paid interest on gold, when it was considered “lawful money”, before it was confiscated and considered “unlawful money” in the 1930’s.
[/QUOTE]
No, they didn’t. Cite? Although it is true that for a brief period owning bullion was illegal in the USA, it isn’t so now. Banks pay you interest on deposited funds as they can lend out said funds at a higher rate. They can’t do that with a gold bar. In fact- you pay banks to keep bullion, it’s never been the other way around. Now, sure if you allow the bank to liquidate the bullion you deposit, then sure, they can pay you interest. But then you don’t own the bullion anymore.
RickJay- gold has been counterfieted throughout history and dudes have been folled by such crap as iron pyrite many times. And, you can alloy gold with a base metal and not tell it has been so adulterated withouts tests. Thus, although with a few chemicals, a scale, a few other thinsg and some raining- one can assay gold, it isn’t “phenomenally easy”.
slaphead ah, so now you change the definition to “*widespread persistent * inflation” . It’s always been widespread persistent inflation, the difference is that in recent years they have been able to stabilize the economy so that we have a little bit of inflation every year, rather than -12% one year followed by +16% next year- which is still a net +4%. There was widespread persistent inflation" throughout most of the Roman Empire for example. Gold doesn’t do anything really to stop inflation as my cite showed.
[QUOTE=DrDeth]
Not true. I buy things all the time with pennies, never had one refused yet. In fact, just today my lunch was $8.03 and I paid with a ten dollar bill and 3 pennies and the cashier didn;t even blink an eye, comment on the 3 cents or complain. In fact, I have never had a problem with paying with pennies. Now, I do image that if I was silly enough to hoard the pennies until they got to a significant amount, then perhaps a retailer might have problems with accepting a load of metal that would gum up their drawer, etc, but why would I want to dump my problem on a retailer?
[/QUOTE]
You’re correct of course. I was, though, referring to the latter scenario to illustrate both why one encounters a fee to exchange a large volume of coinage and to subtly suggest that the time for pennies in our economy is at an end.
[QUOTE=Lumpy]
So why the heck has it been so difficult to keep a $1 coin in circulation in the US? (As an aside, I think the new Presidential Dollar Coins may finally do the trick; the idea just feels right!)
[/QUOTE]
Time and time again we see there is no real need for $1 coins. Bills are simply more convenient. Only if the Fed chooses to phase out $1 bills would $1 coins ever be used regularly. The real reason the Fed is pulling this $1 coin stunt is that coin collecting, like stamp collecting, is a nice and easy government scam. Manufacturing coins and then encouraging collection of them is essentially a revenue generating product venture. Sorry to be getting political, but I don’t think that’s what our federal government is supposed to be doing with our tax dollars.
[QUOTE=DrDeth]
No, they didn’t. Cite?
[/QUOTE]
Considering the roughly 3000 year history of gold money, the burden of proof falls on you to prove that interest payments on monetary deposits are somehow a recent, late 20th century phenomenon, it’s just absurd.
[QUOTE=DrDeth]
Although it is true that for a brief period owning bullion was illegal in the USA, it isn’t so now.
[/QUOTE]
The “brief period” was over forty years! That’s why it’s misleading when people claim “gold doesn’t pay any interest”; it’s obviously not inherent to gold, but of government. I think you’re confused between “funds” i.e. modern federal reserve notes, and gold money as used for most of human history.
[QUOTE=DrDeth]
slaphead ah, so now you change the definition to “*widespread persistent * inflation”.
[/QUOTE]
No, amusingly enough I actually copied and pasted the text from my original post and then highlighted the relevant word for those who struggle with reading comprehension. If you don’t believe me, check page one of the thread.
If you can provide cites of other instances where inflation of 4-5 percentage points per year or more persisted for several decades, I’d be interested to see them. A quick google seems to show that roman ‘inflation’ was really more about currency debasement than changes in prices as such.
Yes, gold has little to do with inflation or its absence - what makes you think I believe otherwise?
[QUOTE=Common Tater]
Considering the roughly 3000 year history of gold money, the burden of proof falls on you to prove that interest payments on monetary deposits are somehow a recent, late 20th century phenomenon, it’s just absurd.
The “brief period” was over forty years! That’s why it’s misleading when people claim “gold doesn’t pay any interest”; it’s obviously not inherent to gold, but of government. I think you’re confused between “funds” i.e. modern federal reserve notes, and gold money as used for most of human history.
[/QUOTE]
Bullion, as Bullion and not cash, is not a “monetary deposit”. If you want to store your bullion in a bank, they are going to charge you for that service. If you have a “monetary deposit”, then the only reason why a bank pays you interest is because they lend it out at higher interest. They can’t do that with a bar of gold as a unit. Certainly they can do so with cash backed by gold, but not a specific bar of gold. In other words, if you want to be able to waltz into a bank and get your bullion back, they will charge you storage- not pay you interest. If you don’t beleive me, try emailing a Swiss bank.
Here are some cites:
“You pay for storing and insuring your gold. The fee is $4 per month for up to $40,000 of gold. Thereafter it is 0.12% per year.”
http://www.galmarley.com/framesets/fs_keep_it_safe_faqs.htm
"*Property and Liability
Money can’t easily belong to a saver and his bank at the same time, so in well established law money deposited in a bank becomes the bank’s property and its liability. Simultaneously it stops being the saver’s property and becomes his asset, so if a bank fails the saver must stand in line with the other creditors and maybe accept a few cents on the dollar …
But there is a different way to put money in the bank such that it remains the private property of the saver.
Western law generally recognises the fundamental difference between a deposit in a bank (banking law) and a safekeeping relationship (custody law). With a custody arrangement the saver expects safety, and no other benefit, such as the free payment services associated with current accounts, or interest associated with deposit accounts. Instead the bank is paid a fee for looking after the property, and may not put it to its own use.
The technical legal difference is that when you open a current or deposit account you transfer your property to the bank and expect them to utilise your property for your benefit. Under a custody arrangement private property is not transferred to the working capital of the bank, and may not be used by the bank. It is there only to be kept safe, and it will be returned in its entirety to the owner, even if the bank fails.
Even cash can be placed in a bank so as not to become that bank’s liability (for example in a safe deposit box). So in fact it is not the form of the money handed to the bank that defines whether or not it is the bank’s liability but the terms under which it was placed there. Anything tangible - bank notes, diamonds, teddy bears - can be put in a bank vault or a deposit box in a way which avoids it becoming the bank’s liability, and this is exactly the same for gold.
The Gold Account
But the flip side is that depositing gold into an account is legally like depositing money into an account. It stops being private property and becomes the bank’s liability and the investor’s asset. It is important that gold investors fully understand the consequences as there is a critical difference in how they are treated as account holders if the future becomes difficult - as many gold investors expect it to.
The two types of treatment - custody and account - have very similar sounding names in the gold industry. They are called ‘allocated’ and ‘unallocated’ storage.
Allocated gold
Allocated gold is gold deposited under a safekeeping or custody arrangement. It is held as numbered bars, on labelled shelves, and it is the property of the individual owner. Even though it is held in a vault it is neither the property of the bank nor the liability of the bank. As such it is safe from bank insolvency.
Investors have to pay for the storage of allocated gold. Arranging for the physical security of bullion bars requires strong vaults, wise use of technology, carefully constructed systems for security, and the monitoring and control of human factors. There is no point in arranging for all of this and then not charging for it, and all institutions which offer allocated storage must charge…
Unallocated gold
Unallocated gold (frequently held in accounts referred to as “pool”, or “metal” accounts) is simply the provider’s liability. It forms part of the working capital of the bank and it can be legally used by the bank for profit. The gold investor is therefore exposed to the insolvency of the bank.
But not being a depositor of currency the saver is not ordinarily subject to any degree of depositor protection.
This means the ‘owner’ of unallocated gold in a gold account is more dependent on the financial system’s robustness than even the straightforward depositor of cash, a situation which for many gold buyers would be considered upside-down.
Unallocated gold is always likely to be put to use by the bank in one way or another. Although it is sometimes believed that there is a non-specific pile of gold somewhere in the bank which the customer has a share of this is not reliably true. There need be no physical pile - pooled or otherwise. And even if there is a pile of gold it is legally the bank’s property, not the account holders, and would be sold for the benefit of all classes of creditor (not just the gold holders) in the event of bank insolvency.
So unallocated gold’s free ‘storage’ is a bit of a misnomer because it is quite likely that there will not be anything tangible to store. This should not be surprising, after all banks do not store the money in our bank accounts; they put it to use. With gold accounts they are just doing the same with your bullion, and the bank makes more money out of unallocated gold accounts than out of allocated storage, just as it makes more out of its current accounts than out of safety deposit boxes."*
Got it? Once you hand over your gold and expect interest- you no longer have gold. You have only a piece of paper backed by the bank.
40 years is a brief period, as the USA has been around for 225 years and recorded history goes back for 4000 or so.
[QUOTE=DrDeth]
Bullion, as Bullion and not cash, is not a “monetary deposit”. If you want to store your bullion in a bank, they are going to charge you for that service. If you have a “monetary deposit”, then the only reason why a bank pays you interest is because they lend it out at higher interest. They can’t do that with a bar of gold as a unit.
[/QUOTE]
Of course bullion in 2006 is not a monetary deposit. Nobody has claimed that. You seem confused between bullion today, and the gold coinage, gold bonds, gold notes, gold certificates, gold treasury notes and certificates, and gold clause contracts of yesteryear.
Is it still your contention that interest on deposits (or loans) is a 20th century phenomenon?
[QUOTE=Exapno Mapcase]
Really? Then why is Archimedes so famous?
[/QUOTE]
Actually, you don’t need Archimedes if the gold is in the form of coins (which are a reasonably close approximation to a cylinder – i.e. their volume can be determined geometrically).
[QUOTE=Common Tater]
Of course bullion in 2006 is not a monetary deposit. Nobody has claimed that. You seem confused between bullion today, and the gold coinage, gold bonds, gold notes, gold certificates, gold treasury notes and certificates, and gold clause contracts of yesteryear.
Is it still your contention that interest on deposits (or loans) is a 20th century phenomenon?
[/QUOTE]
Not at all. I know exactly what I am talking about. If you deposit gold into an account for the purposes of earning interest, you do not now, nor ever have had- still owned that gold. What you did was convert your bullion into a a paper note from that bank.
Nor did I ever state that “interest on deposits (or loans) is a 20th century phenomenon”. Interest on deposits goes back many hundreds of years. *You * stated “Banks then paid interest on gold, when it was considered “lawful money”” and banks have *never * paid interest on gold, as in bullion. They have always **charged you ** for storage for said bullion. Banks have paid you interest for depositing cash, but it doesn’t matter what form the cash is, since when you deposit it for interest, it is no longer yours and the original form is meaningless. It could be bullion, coin, cowrie shells or paper currency. Did you read my cites?
Steve MB: although one can determine the volume like that, one cannot determine the purity like that, which was the whole point of Archimedes experiment.