Comments (32)

• William

  The gold standard is dead. There is no way for this out of control government to pay its millions of employees and contract millions more without printing more and more currency. And in the event the consumers get a wild hair and decide to use a truely hard currency the government will just pass a law like in the 1930s and them come in and confiscate it. Sorry but that is the truth.

  Published: March 28, 2006 8:05 PM

• averros

  Unless, of course, someone figures out a way to make a hard currency the government cannot take away by force.

  Published: March 28, 2006 9:37 PM

• quincunx

  We can just store the gold on Mars. NASA will never get to actually retrieve it.

  Published: March 28, 2006 10:01 PM

• Graeme Bird

  No the Gold Standard is not dead. If at first we insist on 100% backing for all currencies, end legal tender laws and banking regulations then we put all currencies on an equal footing.

  From there on in various other currencies will enter in competition with fiat. The minute the Feds over-print under that scenario then the fiat currency value will dive and the competing metallic currencies will grab market share.

  The key is 100% backing and a level playing field.

  Published: March 29, 2006 5:21 AM

• Horatio

  I don't believe the gold standard would return even if government got its greedy nose out of the monetary system. Gold would be just one of many commodities that back the new money.

  Published: March 29, 2006 6:42 AM

• David C

  
  Gold is not dead. When the US dollar collapses, and brings down the Euro and Yen with it, there is going to be only one currency with enough credibility to survive. Gold (and silver). It is delusional to think the dollar can recover from it's current account deficit. Also, once gold is seated as a world currency, it will be very hard to unseat it. No country in the world is going to want another Brenton Woods, unless it is there currency that is the one that is solely used.

  Published: March 29, 2006 9:29 AM

• David White

  It was none other than Alan Greenspan who told Congress bluntly in 1999 that "Gold still represents the ultimate form of payment in the world. Fiat money, in extremis, is accepted by nobody. Gold is always accepted."

  And as the 1999 Nobel Laureate in Economics, Robert Mundell, said in his acceptance speech: “The absence of gold as an intrinsic part of our monetary system today makes our century, the one that has just passed, unique in several thousand years.�

  Given the "fundamentals," is it clear that in extremis is all but upon us. So woe unto those who haven't stocked up on the yellow metal when TSHTF.

  Published: March 29, 2006 10:36 AM

• Graeme Bird

  Yeah I suspect you're right Horatio. With 100% backing we need a lot of metal or very valuable metal to take up the current money supply.

  Digitization helps overcome some of the objections to various types of money. One suspects that we might have four metals (Gold, silver, Palladium and Platinum) crowding in on the scene. But we could also have other commodities with digitisation.

  You might have hybrid loans. With Gold for the principal and silver for the interest or vice versa.

  I don't think its predictable in advance. But the main thing is to make these banks 100% backed and otherwise deregulate. That would have to be the first project to put a lot of weight behind.

  Published: March 29, 2006 11:02 AM

• Paul Marks

  People who say "let us forget about nongovernment money, let us just concentrate on government spending and regualtions instead" miss the point that the government is no more willing to cut its spending or roll back its regulations than it is to restore non government money (the "gold standard" - I dislike the word "standard" in this context, the metal is the money, bit of paper are at best certificates of ownership).

  If we want to be "politically realistic" (i.e. make friends with the government) we would do nothing worth doing on any issue. We just play games trying to find "market methods to achieve public policy objectives" (and other such).

  Also there is the little matter of the boom-bust cycle.

  If we do not ENDLESSLY make the case (as loud and clear as we can) that the boom bust cycle is caused by credit money expansion, then the next bust will be blamed on "capitalism" and used as an excuse for even more statism than already exists.

  This is what happened with the Great Depression. The majority of the voters had no idea that the slump had been caused by government favoured fractional reserve banking (at the time, under the Federal Reserve system, but before 1913 the government backed credit-money expansion in other ways such as the National Banking Act).

  So yes indeed the government got away with stealing people's gold.

  Do not call it a "law" however. The Constitution of the United States is not written by (government appointed)the Supreme Court and no where gives the Federal government the power to steal people's gold (or any other material).

  On the contrarty Article One, Section 8 only gives the power to "coin money" (not print it, no going back to the worthless "Continental" paper money), and Article One, Section 10 clearly states that only gold or silver coin may be legal tender in any State.

  "But the people do not understand economics" and "the people do not care about liberty".

  Well, as long as that is the case, we will not get anywhere (anywhere good at least). It is a Republic "if you can keep it" ("you" are the public - not a few government appointed people in robes, who if they act decently [as the "Four Horsemen" sometimes tried to do] will be defeated in time if the public do not understand and agree with their judgements).

  I say again that if as long as it is true that the public "do not understand economics" and "do not care about liberty" it does not matter if we are talking about the Gold Standard, or about Medicare or Medicaid, or anything else.

  Either free market people are about trying to get the public to understand economics and to care about liberty or we are a waste of skin.

  Published: March 29, 2006 11:38 AM

• Paul Marks

  On the technical point.

  Do not go in for index currencies (as Hayek sometimes wanted), such indexes are both technically problematic and an opening to all sorts of abuse.

  It is not true that there "is not enough gold for modern economic needs" - for example a tiny bit of gold could be protected from day to day damage by being encased in a plastic coin (as long as there were ways to check against fraud).

  Prices would adjust to the relative scarcity of gold (in relation to other things) in any case.

  As long as prices and wages were ALLOWED to adjust (unlike President Hoover's antics after 1929) there would not be a great problem.

  It is quite true that money does not have to be gold. Silver (and no doubt other commodities) could do the job, indeed they could even compete (with people choosing to write contracts in the money of their mutural choice - rather than having those contracts unconsitutionally violated as they were by the F.D.R. Administration in 1933).

  However, one must be careful that no one tries to fix (by the threat of violence) the exchange rate of, say, gold and silver (such fixing is fatal to the use of one or other [depending on the situation] material as money).

  And one must also be careful of any claim that there "is not enough" of a certain commoditity to act as money.

  It may indeed be so that another material would be more suitable (for various reasons), but too often claims that there is "not enough" of something leads us back to arguments for credit-money expansion and the (false and damaging)dream of investment being financed by other means than real savings (i.e. human being choosing not to consume, but to invest their money instead).

  Any effort to "produce lower interest rates" or "expand investment and production" (without people having to consume less to finance this investment) leads us to boom-bust.

  Published: March 29, 2006 11:53 AM

• billwald

  If the U.S. was to go to a 100$ gold money system:

  1. Estimate the price of gold in '06 dollars.

  2. Estimate the per capata amount of money that would be in circulation.

  3. Estimate the distribution of gold ownership in the USofA.

  4. Predict the availability of credit particularly credit cards.

  5. Predict the financial fate of the half of all credit card holders who carry an average $8,000 balance.

  6. Predict the relative sizes of the the new poverty class, the middle class, and the rich class.

  7. Predict the decrease of economic activity and the balance of trade.

  Published: March 29, 2006 12:23 PM

• Yancey Ward

  A return to gold will almost certainly require collapse of the current government.

  However, gold is certainly not dead today since you can settle almost any transaction in gold, if one wishes.

  Published: March 29, 2006 1:20 PM

• David White

  I think it would be more correct to say that the collapse of the global banking cartel -- i.e., of fractional reserve banking and government fiat currencies -- will collapse the welfare socialism and warfare nationalism that could not otherwise exist, with gold and other precious metals signaling a "flight to quality" that will put governments in their place once and for all.

  Published: March 29, 2006 2:16 PM

• Graeme Bird

  I would want the government to keep its currency pure fiat.

  No collapse is required. Nor do we need to go through billwalds predictions under this scenario.

  If the Feds have to go to 100% fiat and all the legal tender and banking laws are deep-sixed then the Feds would have to conduct exemplary monetary policy to maintain market share. And they will fail.

  As the new currencies come in there will be inflation. Since the fiat currency is there and the new currencies are arriving to add to that purchasing power. But the inflation will be expressed in the fiat currency alone since it is unbacked. So the only thing the government could do to maintain its market share and stop the falling in value of its currency would be to run surpluses and retire a great deal of cash.

  If they do this that's fine. Since they will need to take the knife to Federal spending to get this done. Or face an angry tax revolt.

  And if they don't do this the metallic currencies will start taking over.

  So there is not that much that we have to get done to produce a benevolent circle.

  We must put our efforts behind the Feds having to increase the banks RAR every time they need to reign in demand. By their own lights. By their own standards they have no excuse not to do this since the higher is the ratio of cash to fiduciary money the greater is the central banks ability to hit its targets.

  So no more using cuts in the discount rate or selling securities. Our goal ought to be to force them to increase the individual banks reserve requirements as the ONLY method of restraining demand and monetary growth each time they feel the need to do this and until the on-call committments backing is 100% and fractional reserve banking is finished.

  As I said they have no excuse not to do this. So once we are at 100% fiat banking the fight will be to deregulate and get rid of legal tender.

  Then we are in the benevolent circle.

  Published: March 29, 2006 7:31 PM

• Keith

  All we have to do is get Congress to stop spending more money that they collect in taxes, stop pandering to special interests with "favors", and get everybody to take responsibility for their own individual lives. After that, the gold standard will be easy.

  I think we might be confusing ecomonics and politics.

  Published: March 30, 2006 6:49 AM

• Paul Marks

  To billwald - or rather 1.2.3.4.5.6.7.

  It is not a matter of "estimating" these things. The price of gold is up to the buyers and sellers of gold (ditto any other material whether people choose to use it for money or not).

  As for the government.

  First get all the Dollars in circulation and in store. Then divide the total by the amount of gold the government actually has.

  The result (a rather tiny amount of gold) would be the value of the Dollar if the government returned to the gold "standard" (or rather just stopped playing fiat money games).

  Nothing to do with the current price of gold.

  One of the major problems with the "gold standard" was that governments liked to pretend that their notes were worth more gold than they actually had.

  It is not my fault that governments tend to be run by crooks. There is no sacred law that says they have to try and rig prices and exchange rates.

  As for the credit card companies and fractional reserve banks - YOU SHOULD NOT "LEND" MONEY YOU DO NOT HAVE.

  Borrowing (whether for consumption or investment) must be financed by real savings (i.e. by other people choosing not to consume all their incomes).

  Any effort to finance borrowing (whether consumer or commmercial, or government) in any other way leads to boom-bust.

  Nothing to do with the gold standard.

  Fractional reserve games lead to trouble whether there is a gold standard or not.

  Published: March 30, 2006 9:41 AM

• batman

  When fractional reserve is mentioned here do you mean private banks loaning out deposits or is it refering to the central bank?

  Published: March 30, 2006 9:48 AM

• billwald

  "The price of gold is up to the buyers and sellers of gold."

  I agree and estimate $5,000/oz minimum, enough for a doper to kill a person for the gold in his teeth. There will be very little money in circulation and the economy will revert to half living in poverty as it was before WW1.

  When we were on a gold standard the typical worker didn't have any gold. Beats me why Libertarians think a change in the system will propel them to the top of the food chain. Human nature doesn't work that way. Either a person has the ability to rise to the top no matter the system or he doesn't.

  Published: March 30, 2006 10:03 AM

• Graeme Bird

  Batman......

  "When fractional reserve is mentioned here do you mean private banks loaning out deposits or is it refering to the central bank?"

  We mean private banks making on-call committments that they cannot (without government assistance) fulfill.

  Billwald.....

  That's all silly since you've blithely ignored what I said. Show how that would be the case with the transition scenario I outlined.

  Published: March 30, 2006 12:51 PM

• rob

  "Either a person has the ability to rise to the top no matter the system or he doesn't."

  Does this apply in North Korea?

  Published: March 30, 2006 4:11 PM

• Paul Edwards

  "Beats me why Libertarians think a change in the system will propel them to the top of the food chain."

  Bill... LOL.

  Good point.

  Published: March 30, 2006 5:50 PM

• Graeme Bird

  "Beats me why Libertarians think a change in the system will propel them to the top of the food chain."

  My goodness where did you pull this out of. Hanging around tax-eaters may distort ones view of human motivaion. That's me taking a punt. Why not tell us where you took this bizzare set of assumptions from?

  Published: March 30, 2006 6:56 PM

• Paul Marks

  billwald seems to think that living standards depend on the amount of money.

  O.K. let us declare blades of grass the currency -those people with a lot of grass (the legal sort) would be millionaries over night - and therefore (according to billwald) very rich.

  A Dollar that the government promised to pay a tiny amount of gold for (as the government only has a tiny amount of gold in comparison to the number of Dollars it has produced) would not be worth (in goods and services) any more than it is now.

  Now do you understand?

  As for people having more goods and services than people did before World War I because there are more Dollars (which is basically billwald's position)

  Well the rules of this site declare I have to be polite.

  So I will simply inform billwald that he is mistaken.

  Indeed the increase in the amount of money has (if anything) made people worse off (in terms of good and services) than they otherwise would have been. Techological improvement and the building up of capital goods (not bits of paper) is the reason that people are better off than they were before World War One - and the reason that people were vastly better off in 1914 than they had been in 1814.

  Sir you can not print prosperity.

  As for fractional reserve banks:

  O.K. let a man set up a bank and openly say "I will issue ten notes promising an ouce of silver, (or whatever) for every ouce of silver that I have got".

  I wonder how far such a man would get. But I certainly would not pass a law against such a man.

  Normally the deception and the complexity (and the government backing in various forms) is the basis of this sort of shell game. With bankers claiming to "just put the nation's savings to work" (when, in reality, a lot of their "deposits" are a book keeping game and have nothing to do with real savings)

  On the general economic point I will repeat myself (although I should not have to).

  Borrowing must be from real savings (i.e. people choosing not to consume all their incomes).

  Trying to finance borrowing (whether comsumer borrowing, or commercial borrowing, or government borrowing) by a shell game is the road to boom-bust.

  Why do people keep falling for cries for "lower interest rates" and other get-rich-quick schemes.

  Why does there have to bust, after bust?

  When will people just wise up and understand that there is no "monetary" road to properity.

  Well I suppose that depends on politicians (and other interested parties) choosing to stop telling lies.

  Published: March 31, 2006 10:55 AM

• averros

  billward -
  

  
  "Beats me why Libertarians think a change in the system will propel them to the top of the food chain."
  

  
  There's one thing you do not understand about libertarians - that they do not want to be on top of the "food chain". In fact, they do not want to be a part of your pecking order, and want none of your skull-bashing and tribal warfare.
  

  Published: March 31, 2006 5:54 PM

• Paul Edwards

  “…let a man set up a bank and openly say "I will issue ten notes promising an ouce of silver, (or whatever) for every ouce of silver that I have got".

  “…I certainly would not pass a law against such a man.�

  Paul Marks,

  You would not need to pass a law against him if by this you mean pass new legislation against such an old and well established crime. It is not relevant if he openly declares he is going to do such a thing or not. The moment he actually does it he is necessarily committing fraud or he is colluding with his clients to do so, and this is against natural law, just as it is against natural law to issue any false claim against non-existent goods. In a free market, there would be no law to pass, only a crime to prosecute, judge and render a penalty for.

  I think libertarians and Austrians really do need to get their minds around why creating warehouse receipts in excess of money held (openly or not) is not only bad economics but absolutely unethical and fraudulent. The idea that openly declaring one's intent to perform this crime makes it makes it alright is nothing more than a statist lie that we have grown up believing.

  The free market is defined as being free from coercion AND fraud. If we are willing to accept a little of either, we are in no position to be picky about where to draw the line.

  Published: March 31, 2006 6:28 PM

• billwald

  What is the point of liberty if it doesn't improve living conditions?

  If the purpose of studying/arguing "economics" isn't improving living conditions then what is the purpose?

  Published: March 31, 2006 6:48 PM

• billwald

  Yes, I think those who can fight their way to the top of the food chain in North Korea would also OK in the USofA.

  Published: March 31, 2006 6:51 PM

• Paul Edwards

  "If the purpose of studying/arguing "economics" isn't improving living conditions then what is the purpose?"

  A purpose could be as you state, because the application of austrian and libertarian principles will indeed improve our material wealth.

  However, other reasons for this study is to simply get a better grip on the principles of justice and truth. For some, this is its own reward.

  Published: March 31, 2006 8:21 PM

• steve

  "the economy will revert to half living in poverty as it was before WW1".

  Billwald,

  Where do you get such an assertion?

  Don't you know the difference between money (notes) and wealth? The 2 are not the same. Wealth comes from enterprise, not the printing press.

  Are you saying that we are twice as wealthier now as before WW1 due to printing notes? If so, I suppose you also believe that we should print even more money so we can all become wealthier!
  Yes, let us end poverty by dropping newly printed money out of helicopters.

  Published: March 31, 2006 9:10 PM

• Graeme Bird

  billwald is imagining a monetary collapse. But if the transition is handled well we can get it done without even a recession.

  Published: March 31, 2006 10:16 PM

• David White

  Graeme Bird,

  This I gotta hear.

  Published: April 1, 2006 7:42 AM

• Graeme Bird

  What's that you are after David?

  A smooth transition?

  See above.

  Published: April 1, 2006 8:37 AM