The Truth We Can't Face -America As A Third Rate Nation

[Bahadur]

WE SHOULD STILL BE ON THE GOLD STANDARD??????

I think the writer needs a lesson in economics.

Maybe we should replace paper money with bartering as well.

Great reposte! Actually the Roman Empire tried (more like, was forced into) barter economics, and the consequence was dramatically... negative.

No nation with a sinking economy and continuing depletion of resources is a free nation. It is a dependent nation.

"Sinking economy"? Does the author realize that the US has the MOST diverse, complex and healthy economy in the world? If the US is "third-word," what's Mexico (fifth-world?)? What about places like Sri Lanka and Indonesia (umpteenth-world)?

No country where the unemployment is rising, costs and prices are rising, and businesses are moving to other countries can long call itself a free nation. It is an interdependent nation at best.

Huh? Costs and prices are generally DECLINING, not rising. Businesses may be moving more "primitive" elements to other countries, but the higher-tech, more-value added elements are being concentrated in the US. Recall that the US RECEIVES a HUGE amount of investment from overseas, which is a ringing endorsement of our stability and soundness.

Any country that abandons its hard precious metal standards (gold and silver) as the United States did in 1934 and 1973, respectively, and operates on funny money cannot sustain either a free economy or a free country.

See the great riposte from another poster above.

The document is a curious and inconsistent mixture of anti-statist, protectionist and a smattering of other ideas, presented in hysterics.

 

[Chris Rhines]

Hm. Someone having had a lesson in economics would understand the manifest advantages of a hard-currency financial system, as well as the disadvantages of the centralized, fiat-money, fractional-reserve system that we suffer under today.

The article contained many flaws, but it's advocacy of hard money was not one of them.

- Chris

 

[jrhines]

Why did I see that coming?.... ;-)

 

[Kaylee]

At the risk of thread veer, I'm gonna have to come down with Chris on this one. A commodity standard has its problems certainly, but I tend to think they're small compared to those inherent in a fiat currency, whatever the safeguards the current system has.

I mean really... in order to hold value over time, any medium of exchange must be based in scarcity. Who do you trust most to maintain that scarcity -- government agencies, private banks, or God?

That said, after the initial crash, we've held pretty stable. So far, so good.


-K

 

[Bahadur]

Except gold ain't so "scarce" any longer. Though its price has risen a bit in the short-term in the last couple of years, its "intrinsic" worth is declining quickly as metallurgical haibts change.

Many national and private banks world-wide are unloading gold, albeit at a controlled pace, so as not to cause a negative price shock.

If you are in doubt, look at what happened to silver, which used to be "precious" and fairly high-priced. No longer...

What do you suggest we base "hard currency" on, diamond?

 

[Chris Rhines]

Except gold ain't so "scarce" any longer.

What, there's been a new source of gold discovered that nobody knew about before?

Though its price has risen a bit in the short-term in the last couple of years, its "intrinsic" worth is declining quickly as metallurgical haibts change.

This is untrue, and reveals a problematic misunderstanding of market economics. Gold has no "intrinsic" value; neither does anything else. The value of any commidity is what the buyer and seller agree that it is worth. The nice thing about gold is that this value has tracked inflation and consumer goods prices literally since prehistory (a few dips and spikes aside.) Today, you could cash an ounce of gold for around $370USD, go to the store, and buy a nice suit and shoes. Back in ancient Rome, you could take an ounce of gold in coin to the Forum and buy a nice toga and sandals of similar quality level. At just about any point in history, X amount of gold would buy the same amount of consumer goods. Very few other commidities have that kind of price stability.

Though its price has risen a bit in the short-term in the last couple of years, its "intrinsic" worth is declining quickly as metallurgical haibts change.

I suggest (like with everything else) that we let the market decide. Abolish the central bank and allow any private bank or other interested party to mint their own currency, backed by whatever commidity they desire. Market pressure will cause the weak curriencies to go under. Myself, I suspect that gold will end up on top, for a couple reasons.

- Gold is still a highly accepted medium of exchange. Familarity is important.

- The worldwide supply of gold is as close to fixed as it is possible to get. The amount of gold mined and refined annually is a very small fraction of the worldwide supply.

But I could be wrong. Maybe silver, or oil, or uranium, or something else entirely will become the accepted currency backing. Who's to say?

- Chris

 

[Sean Smith]

You've really done very little to prove that the gold standard would have any practical advantage over the current system. In the last, say, 20 years, the value of gold has fluctuated at least as much as our silly fiat money.



If you use grand averages, or connect the two end points of, say, 1968 and 2000, sure, gold looks stable. Look month-over-month (let alone day-over-day) and you see that its alleged "stability" has proven a chimera.

The long view of stability is nice (Romans liked gold, too! Wow! ), but you have to buy lunch TODAY.

 

[Chris Rhines]

Sean, first of all you managed to pick the twenty-year period containing some of the largest fluctuations in the gold price in history. Second, the month-to-month view is not nearly as important as the long-term view, just like investing in the stock market. Third, your data is from a period well after the U.S. went off the gold standard. Check out the price of gold prior to 1933, when we were on the gold standard. Then tell me gold is not a stable commodity.

The primary advantage of a hard-money currency is that it prevents the central government or central bank from manipulating the money supply. This strips the government of a great deal of its social and economic engineering power. A worthy goal.

- Chris

 

[JohnBT]

I don't think a lot of the youngsters out there understand that there really hasn't been a "crash", just a return to the normal economic reality that existed prior to the mindless economic 'bubble' that was the 1990s. A similar thing happened prior to the Great Depression - folks bid stocks up to silly heights. Do a search on the Dutch tulip foolishness of whatever century it was for another example of economic stupidity.

Speaking of a bad economy, when I bought my home in 1980 I had a 30-year mortgage at 12.75%. I felt pretty good about it because the rates were headed to about 19%. A few years after that I refinanced at 9%, then again later at 7% and finally paid it off a few years ago when the balance got too low to provide a deduction. Cycles come and go.

With apologies to Jerry Jeff Walker...

I'd rather be a fencepost in America, than the King of anywhere else.

John

 

[Tamara]

jrhines,

Lemme guess; the similarity in the last names ain't just a coincidence?

 

[Kaylee]

pardon John, when I said "crash" I was referring to the collapse of the dollar's value after it was unpegged from gold in the 70's, not this current market silliness.

And yes... the time period from 1972-present or so is hardly the time period to use to measure the stability of a just de-monetized commodity. IF gold continues to exist as a simple commodity, no more, and its use a store of value is utterly forgotten -- then you'll be able to draw meaningful conclusions from its market swings in the next fifty years or so.

Again.. I'm not saying it's perfect, I don't think the state-mandated "standard" was anything approaching perfect (I'd much sooner see values in ounces and grams, not dollars and pounds), and I'm certainly not one of the "it'll go through the roof any day now" ghost-dancing gold bugs... but as a long term, stable store of value... nothing beats a hard currency. And gold works as well as any there.

(And roman coins were typically the bronze as and the silver denarius (ten as) ... but they liked gold to. )

And finally....

The primary advantage of a hard-money currency is that it prevents the central government or central bank from manipulating the money supply. This strips the government of a great deal of its social and economic engineering power. A worthy goal.

Amen. I don't believe the Great Society plus VietNam would have even been possible without going off the gold standard (such as it was at the time)... the cost would have laid the treasury bare.... but we got out of that by letting the dollar's value collapse to the point those debts we incurred were relatively smaller.

As a side note, there has been precisely ONE leader of a western nation in the last couple hundred years I can find that actually kept his nation on a metallic standard during times of aggresive warmaking. Anyone care to take a guess who it was?

-K

 

[Sean Smith]

Sean, first of all you managed to pick the twenty-year period containing some of the largest fluctuations in the gold price in history.

Which demonstrates that premises that might have made sense 1,000 years ago might not make sense now.

Second, the month-to-month view is not nearly as important as the long-term view, just like investing in the stock market.

Tell that to somebody whose gold, or stocks, are worth 1/2 what they were the year before.

Your whole concept of the gold standard causing currency stability is counter-factual. From 1991-2001, the highest annual inflation rate was just over 4%.

Year Inflation Rate
1991 4.22
1992 3.01
1993 2.98
1994 2.60
1995 2.76
1996 2.96
1997 2.35
1998 1.51
1999 2.21
2000 3.38
2001 2.86

From 1920 to 1930, during those lovely gold standard years of currency stability, it was anywyere from almost +16% to almost NEGATIVE 11%!

Year Inflation Rate
1920 15.94
1921 -10.83
1922 -6.54
1923 2.00
1924 0.00
1925 2.94
1926 0.48
1927 -1.42
1928 -1.44
1929 0.00
1930 -2.44

I think you need a new definition of "stability."

 

[Chipper]

Chris Rhines and Kaylee are correct. The daily batting averages of gold ARE related to inflation amongst other things. We have inflation in the US simply because our "money" is 100% fiat. It has NO intrinsic value. It is printed at will. It's creation is literally an act of ledgerdemain.

Inflation under a fiat system is NOT a function of any real or perceived increase in value. Quite the opposite. Inflation is solely a function of running the printing press. As more "dollars" are printed, it lessens the value of those already in existence. With dollars being worth less than last year, last month or yesterday, it takes more of them to purchase the same amount of goods.

In truth, prices are very equivalent with what they were in 1910. In fact the actual price of many goods have fallen. This is not due to tinkering with money and taxation and regulations and all the other ways in which governments impose their will on economies. This has been a function of greater scales of production, new technologies which yield greater efficiencies and other things that have actually reduced the cost of producing certain goods.

Gold today is actually a reflection of the true value of a dollar. Gold is rising today because the value of the dollar is falling. In world markets, the Euro which was introduced at a value level equivalent to the dollar, dropped in value as it was circulated throughout Europe. As it replaced the many currencies it became stabilized and remained at a value just under the dollar. Today that situation has changed. The Euro is now more valuable than the dollar. This is just one more indicator that the value of the dollar has fallen.

All fiat money is a confidence game. There is NO intrinsic value in fiat money. It's value is based on what the central bank declares it to be. Markets respond with confidence at some level in that valuation of the central bank.

The upshot of all of this is that ultimately the system will fail. It simply a con game. There exists under a fiat system NO solid basis of valuation. As the veil is pulled back people eventually see that they have been deceived and made victims of theft. There is much truth to the claim that the rich keep getting richer and the poor keep getting poorer. The "middle class" is shrinking in size as well. This is due mostly to them falling in income and wealth levels. They keep working harder and longer and continue to fall behind. They may get more dollars in their paycheck or in interest and dividends but with the dollars being worth less today than they were yesterday they continue to fall behind and that, through no fault of their own.

A return to "hard money" may or may not be the best answer but it is definitely a step in the right direction.

As to fiat money being a tool and benefit to governments, the central banks and other people of means, that subject will require another thread or better yet an entire book, multi-volume of course.

Chipper

 

[Kaylee]

Chipper... thankfully, the current fiat system isn't as simple as ol' "roll the presses" Weimar Germany. The presses could be running full steam printing out Franklins by the truckload.... but it's not "real" money until it leaves the bank as "registered" cash. There's more steps in there than are really worth going over here, but suffice it to say -- there's a lot of human effort put into regulating the money supply on a lot of different levels to prevent runaway inflation again. (In fact, the ECB has it as a primary constitutional goal to regulate inflation, as does the Fed since Greenspan I believe).

BUT... it's all human regulated.

And that, Sean, is what we're complaining about. Human regulators are fallible. Human regulators can change with the regime. Human regulators can be pressured to do the bidding of the State, and States are very rarely blessed with more economic sense than your average two year old.

So far so good, yes.... we got less than 40 years of a total worldwide fiat system under our belt, compared with several thousand years of one form or another of metallic currency. The only major shakeups in the latter come from huge discoveries of metal deposits... heck, the only inflation in the metallic era that even comes CLOSE to Weimar was 16th century Spain, when they started shipping in half a continent's worth of pre-hoarded gold.

Yes, a backed currency is a messier month-to-month system. Granted. But as a general rule of life, in any issue you care to name:

Freedom is Messy.
It's also the Surest option long-term.

People will shoot each other... but it's still a safer society than one where the State has all the guns and can exterminate whole populations.

People will be swindled in the stock market.... but it beats the inefficiencies of State controlled industry by a mile.

And so, in this arena.... prices will flucutate short term as population and metal supplies are uncovered or hoarded. But for long term price stability.... it beats State controlled currency.

There simply is not the risk of over "printing" or lack of faith in the currency. It is politically independent money. Gold coins carry value no matter who's face is on 'em. Try buying a hamburger with USSR banknotes. Then try it with a Czarist gold piece. Tell me the difference.

back.


-K

 

[Vladimir Berkov]

Chris Rhines and Kaylee are correct. The daily batting averages of gold ARE related to inflation amongst other things. We have inflation in the US simply because our "money" is 100% fiat. It has NO intrinsic value. It is printed at will. It's creation is literally an act of ledgerdemain.

We have always had inflation in the US, long before we went off the gold standard. Also, you seem to forget that the gold standard too had no intrinsic value. The very concept of money is something which has little value outside its usefulness as a medium of exchange. What value does gold have beyond its industrial and commercial uses? Only its scarcity gives it the high value it has.

Inflation under a fiat system is NOT a function of any real or perceived increase in value. Quite the opposite. Inflation is solely a function of running the printing press. As more "dollars" are printed, it lessens the value of those already in existence. With dollars being worth less than last year, last month or yesterday, it takes more of them to purchase the same amount of goods.

Inflation is not really caused by the printing of money per ce. Inflation necessitates the printing of money, if no measures can be taken to curb it.

In truth, prices are very equivalent with what they were in 1910. In fact the actual price of many goods have fallen. This is not due to tinkering with money and taxation and regulations and all the other ways in which governments impose their will on economies. This has been a function of greater scales of production, new technologies which yield greater efficiencies and other things that have actually reduced the cost of producing certain goods.

What do you mean by "prices?"

All fiat money is a confidence game. There is NO intrinsic value in fiat money. It's value is based on what the central bank declares it to be. Markets respond with confidence at some level in that valuation of the central bank.

You are forgetting that the very concept of the gold standard was so the central banks of the major powers could set the price of gold in relation to currency. It was entirely an arbitrary system, and a "confidence game" as you put it. You had to count on all the major powers playing by the rules, which in the end they did not.

The upshot of all of this is that ultimately the system will fail. It simply a con game. There exists under a fiat system NO solid basis of valuation.

Are you forgetting that the gold standard failed?

A return to "hard money" may or may not be the best answer but it is definitely a step in the right direction.

How do you plan to impliment this? The classical gold standard was the result of agreement between the major powers regarding its operation. America simply cannot go back to the gold standard without all its major trading partners going back to it as well. And we have far more trading partners now than we did during the classical gold standard period, all of which have no intention whatsoever of going to a gold standard.

As to fiat money being a tool and benefit to governments, the central banks and other people of means, that subject will require another thread or better yet an entire book, multi-volume of course.

I guess you forget (or never knew) that the gold standard itself was created by the major governments and needed to be implimented through the central banks. In fact, a gold standard can't be used otherwise. The only difference between the gold standard and the current monetary system is that they are both set up by governments but with different purposes.

 

[Vladimir Berkov]

And so, in this arena.... prices will flucutate as population and metal supplies are uncovered or hoarded. But for long term price stability.... it beats state controlled currency.

As Keynes said, "In the long term we are all dead."

The gold standard worked very well at controlling inflation and providing long-term price stability. But, as with anything in economics, there are trade-offs.

You had far greater short-term variability, and not just at isolated times when the gold supply changed (although that also led to great variability.)

You also had higher employment during the classical gold standard period than currently.

Finally, there is an immense cost involved in maintaining a gold standard system. Milton Friedman estimated the cost in 1960 to be more than 2.5% of GNP.

In short, the gold standard is simply impossible to recreate. A great deal of the essential conditions for its use disappeared with the Great War, and many of the byproducts are going to be politically unpopular. For example, the populists will say the gold system would increase your real wages. But of course, many more people would be making no wages as they would be unemployed.

 

[Byron Quick]

Looking at the fluctuating price in gold in terms of dollars is very misleading. In fact, a strong claim could be made that such a comparison is completely useless. Instead, compare the purchasing power of an ounce of gold across time. In those terms, gold has been remarkably stable. There are fluctuations, of course, but they are nowhere near as volatile as the price of gold in dollars.

 

[Vladimir Berkov]

When the classical gold standard was in use, it wouldn't matter. The amount of currency was fixed to equal an amount of gold. There was indeed much short term fluctuation, both in dollars/pounds/francs and of course the gold that they and the international trade was based on.

There is no perfect monetary system. Each system has atvantages and disatvantages. The atvantage of the gold standard is low inflation in the long run. The disatvantages are short term variability, higher unemployment, less flexibility during sharp spikes in the business cycle, etc. Not to mention the fact that it requires international cooperation and "playing fair."

Pretending that going back to the gold standard will allow us to have low inflation, great economic growth, and low unemployment is absurd.

The gold system (even if we could restore it, which we really can't) isn't free of problems, it just has different problems. The big decision is which drawbacks are more serious.

 

[Kaylee]

What value does gold have beyond its industrial and commercial uses? Only its scarcity gives it the high value it has.

Well yeah Vlad, that's kinda the idea.

Inflation is not really caused by the printing of money per ce. Inflation necessitates the printing of money, if no measures can be taken to curb it.

The inflationary cycle is fueled by the printing of money "necessitated" by self same inflation. Self-feeding cycle. The trigger event is another issue entirely, though I'd argue again that it's a much more likely, and more severe, problem on a fiat system.

You are forgetting that the very concept of the gold standard was so the central banks of the major powers could set the price of gold in relation to currency. It was entirely an arbitrary system...

(and similar, to wit..)

I guess you forget (or never knew) that the gold standard itself was created by the major governments and needed to be implimented through the central banks. In fact, a gold standard can't be used otherwise.

Here we run into semantic difficulty because "gold standard" has been used to describe different systems, sharing only the common element of being to some degree or another metal backed. I take it you refer specifically to the gold standard as it existed in the late 19th/early 20 century... in which case your arguments are correct, if deceptively incomplete.

A commodity/precious metal based currency existed LONG before central banks -- or banks at all -- were even conceived of. Neither central banks not even governments at all are required for an effective metallic currency to exist.. all that is required is a generally trusted guarantor of the weight and purity (and reserve backing, if some semblance of modern finance is to be preserved).

It doesn't matter if a coin says "1/4 oz .999 fine, QEII" or "1/4 oz, .999 fine, L. Spooner Bank Ltd.". So long as everyone believes the issuer, it doesn't matter whether a head of state, a central bank, or private minting company issued the metal.

I'll be the first to admit that States have abused metallic "standards" by debasement for millenia, always with the same results. Our own going off the gold standard completely in the 70's I would describe as a difference in degree, not in kind, from Imperial Rome or Midieval France introducing base metal coins with the same face value as the older silver and gold coins.

In truth, the weakness is not in the precious metal based currency -- it lies in the ability of the State to define its proprietary currency in terms of the metal. Hence, FDR's ordering citizens to turn in their gold at $16/oz, then revaluing gold some years later at $35/oz -- a boon to the treasury, a scam to the people. If the State reserves this power, then I will agree with you that any metallic standard is a meaningless shadowplay of itself.

This problem is alleviated not by removing metal-base from the currency denominations, but by removing currency denominations from the metal base. An ounce will always be an ounce. A gram will always be a gram. THERE is the stability.

 

[Kaylee]

Oh yeah...

The gold system (even if we could restore it, which we really can't) isn't free of problems, it just has different problems. The big decision is which drawbacks are more serious.

There I'll agree with you completely. (Well, except for the impossibility of restoring a hard currency.. that I'd not be surprised to see in another generation or so).

But to the "which drawbacks are more serious" point -- granted, enthusiastically. Futher, I'll admit that my arguments for hard currency are as philisophically based as they are pragmatic. Simply, I don't trust people in funny hats to keep the best interests of the people in mind, period. Not when it comes to the use of deadly force, and not when it comes to the currency of a people.

Thus, "free money for a free people."



(and by the way... it was Napoleon. )

 

[Vladimir Berkov]

The reason why we can't really go back to the classical gold standard is because we won't be able to get all our major foreign trading partners to go along with it.

The classical gold standard only worked because for a time, our major trading partners generally played by the rules. And even then, nations like France cheated often. The system completely broke down in WW1 because of European nations openly disregarding the rules.

We could go back to a gold standard tomorrow, and it wouldn't do any good or even function properly unless we could get nations like China to also go on a gold standard. That just isn't going to happen.

 

[Kaylee]

Vlad --

Can I presume then that we've left the issue of whether the gold standard can be a workable, stable system as settled, and now we're only dealing with the issue of whether or not it can be implemented successfully again?


If so, the argument here is simple, again if one is willing to take a long term view. In fact, it's already happening, albeit WAY below the radar right now, and still in the realm of cranks, nutcases, and visionaries. (you can make up your own mind which of the three I am )

http://www.e-gold.com/

They, or someone like them, will be responsible for the reintroduction of hard currency. I'm not saying it will be the universal "official" currency of nation-states... I AM saying it (or something like it) will be a tool of major transactions both domestic and international, a unit of account, and a store of reserves. I do believe it will be listed on the currency exhange boards right alongside the Dollar, the Euro, and the Tael in another 50-100 years... possibly much sooner. I would not be surprised at all to see it as the pre-emininent unit of global trade within the century, occupying the role the dollar holds now.

The why again is simple.

Really, I see it as a "build it and they will come" scenario. People put their reserves in whatever form they feel will best hold value while still providing adequate liquidity. Sometimes that's cash, sometimes land, sometimes metal, lately mostly (unfortunately to my mind) stocks. If the option is there, it WILL be used. Time and the marketplace will take it from there.

An electronically administered, privately run, 100% backed account gives you all of the advantages of a hard currency with few of the disadvantages (seignorage, governmental "revaluing," and the bulk and insecurity of storage and transport).

Yes, I'm aware of greater volatility and price swings with metals at present. I also believe that as more of the metal reenters the private sector from government storehouses, and political and trade winds shift from nation to nation over the next several decades, that volatility gap will narrow substansially.

Again.. it took the better part of a century for metallic standards to be corrupted to the point they were discontinued. They won't return overnight either. But they will, in some form, return.

Finally, I see one thing that more than anything else will serve as a turning point for some kind of hard currency. More than anything government can or will do...

when eBay starts accepting e-gold as a transaction currency, the ball will start rolling hard. It will be nigh on inevitable at that point... though again, the transition will be slow. With a possible spike in the 2016-2045 retirement crunch, depending on which way the winds blow when that happens.

Have a nice day.

-K

 

[Vladimir Berkov]

The gold standard can be a workable system, that is not in doubt. Whether that system can ever exist again is very much in doubt, if for the international reasons I stated if nothing else.

A gold system requires international cooperation and good faith. I don't see that happening.

Plus, it is probably not politically feasable because of the increase in unemployment.

Lastly, a gold system needs as much government regulation and intervention as a non-gold system. If you think gold is going to get rid of government involvement in financial matters, you are dead wrong.

 

[Kaylee]

The gold standard can be a workable system, that is not in doubt.

Thank you.

Whether that system can ever exist again is very much in doubt, if for the international reasons I stated if nothing else.

As it existed in the early 20th century, you're probably right... And our governments the world over have become addicted to making their own money. That doesn't mean hard currency will never or can never return -- I just gave the most likely route of its re-emergence.

Again -- hard currency does not necessarily mean nationally set gold standard.

Plus, it is probably not politically feasable because of the increase in unemployment.

You know, I've ignored this Keynsian buggaboo for a while, and I think it's time to address it.

The only way for a fiat system to increase employment is by creating resources that otherwise wouldn't exist... "printing" new money, basically.

Since no NEW resources are truly created here, the effect is merely to push the debt for cost of the employment down the line.

When done consciously through a business line of credit -- which makes unavailable for other uses the invested capital, therefore keeping the real money supply constant -- this is understandable and often desirable.

When done half-blind, via creating new "resources" out of thin air, it is a recipie for disaster, typically in the form of inflation.

As I recall, the Keynsian line said it was impossible for high inflation and high unemployment to exist at once.... until it happened in the 70's.

You've mentioned Keynes' line about "in the long run, we're all dead." Well that might be true... but eventually, the bill comes due. Again, as we saw in the 70's.

Either we pay it when we spend it, or we let our grandkids deal with the ensuing crash. I would hope the former would be seen as the only ethical option, but sadly the TANSTAAFL principle hasn't hit most folks yet.

Lastly, a gold system needs as much government regulation and intervention as a non-gold system. If you think gold is going to get rid of government involvement in financial matters, you are dead wrong.

Oh, governments will always try to involve themselves in financial matters, along with every other facet of private life.. that's part of their very nature.

BUT to say "a gold system needs as much government regulation and intervention as a non-gold system" is factually incorrect.

ALL that is required, as I have already stated, is a generally trusted guarantor of weight, purity, and reserves. IT DOESN'T MATTER if that guarantor is Emporer Napleon, the Federal Reserve, or My Dog Boo. All that matters is that it's generally trusted and verifiable.

As to whether money supply can never be wrested independent from a national bank... well, they said the same thing about nationalized industries. And in fact, our own National Bank was chartered and then pulled back down at least a couple times before the Fed came along.

A gold system requires international cooperation and good faith. I don't see that happening.

No, a gold system -- or ANY currency, backed or otherwise, requires only the mutual trust of its participants. If the owner of a Chinese restaurant wants to send 30 ounces back home to be used by members of the family, it only matters if they can find some means of spending that resource. Doesn't matter if China or the US "officially recognize" it or not... only that they not kill or jail folks for doing it.

And even then, making the use of a particular currency a punishable offense has hardly stopped it from being done... look at the use of US Dollars in the old USSR for instance.

fun debate!

-K

 

[Vladimir Berkov]

As it existed in the early 20th century, you're probably right... And our governments the world over have become addicted to making their own money. That doesn't mean hard currency will never or can never return -- I just gave the most likely route of its re-emergence.

I am talking about the period between the US Civil War and 1914. That is referred to as the "classical" gold period.

Again -- hard currency does not necessarily mean nationally set gold standard.

In practice, it does.

You know, I've ignored this Keynsian buggaboo for a while, and I think it's time to address it.

I am not talking about macroeconomic models, I am talking about hard facts. Unemployment was simply higher during the gold standard period, even when other economic factors are taken into account, than it is during the current post- 1946 period.

The only way for a fiat system to increase employment is by creating resources that otherwise wouldn't exist... "printing" new money, basically.

You are ignoring the other many tools which the government can use, focusing in on purely monetary policy is misleading.

As I recall, the Keynsian line said it was impossible for high inflation and high unemployment to exist at once.... until it happened in the 70's.

The Keynesian optimists were indeed proved wrong, in other ways prior to the 70's. However to dismiss Keynes out of hand is to dismiss most of modern macroeconomic theory, much of which has proven quite useful.

Oh, governments will always try to involve themselves in financial matters, along with every other facet of private life.. that's part of their very nature.

BUT to say "a gold system needs as much government regulation and intervention as a non-gold system" is factually incorrect.

No, it is factually correct. A gold standard requires government intervention, both in terms of the selling of government securities, adjustment in terms of foreign trade, and good faith of participating nations.

ALL that is required, as I have already stated, is a generally trusted guarantor of weight, purity, and reserves. IT DOESN'T MATTER if that guarantor is Emporer Napleon, the Federal Reserve, or My Dog Boo. All that matters is that it's generally trusted and verifiable.

And in the United States, the only entity which could fulfill such a requirement is....The United States Government.

As to whether money supply can never be wrested independent from a national bank... well, they said the same thing about nationalized industries. And in fact, our own National Bank was chartered and then pulled back down at least a couple times before the Fed came along.

A gold standard requires a national bank, or at the very least, a very close group of central banks to operate properly.

No, a gold system -- or ANY currency, backed or otherwise, requires only the mutual trust of its participants. If the owner of a Chinese restaurant wants to send 30 ounces back home to be used by members of the family, it only matters if they can find some means of spending that resource. Doesn't matter if China or the US "officially recognize" it or not... only that they not kill or jail folks for doing it.

I am talking about trade, not simple sending of currency. Without other trading partners also being on a gold standard, international trade simply cannot occur properly.