Comments (11)

• Mike Sproul

  The trouble with gold coins is that they wear out, especially as people discover that they can grind a little gold from each coin, and pass it off to unsuspecting traders. One solution to wear is to store the gold coins in a vault, while only paper claims to those gold coins circulate. One problem with that is that valuable gold is stuck in a vault, unavailable for people to use for jewelry, etc. This problem, in turn, can be solved if we allow banks to hold other assets besides gold. For example, the bank that used to hold 100 ounces of gold could instead hold only 10 ounces of gold, plus land deeds with a market value equal to 90 ounces of gold. The certificates can still be denominated in gold, but the bank and its customers would have to agree that the amount of gold that each certificate can claim will rise and fall with the price of land. Otherwise, a fall in the price of land would result in a run on the bank, with customers demanding gold, instead of the less valuable land. But an easier way to prevent bank runs is to suspend physical convertibiity of paper certificates into gold, while maintaining financial convertibility--that is, when there is downward pressure on the paper certificates, the bank should stand ready to buy back its certificates with land, bonds, or whatever. When there is upward pressure on the value of the certificates, the bank should stand ready to issue more of them, again in exchange for land, bonds, or whatever.

  With those modifications, the gold standard would overcome the problems just mentioned--wear, waste of gold, and especially bank runs.

  Oh wait. I've just described the way the fed issues paper dollars.

  Published: August 27, 2008 12:53 PM

• Jimmy

  Bank runs are not a problem. They are actually essential to ensure that banks are not cheating their customers by loaning out more value than they possess. This desire to give people a gold certificate that is not backed by a valuable resource is what destroys nations.

  Mike, as far as being concerned about people that shave metal off the edges of coins. Have you every heard of a scale?

  Another important question to ask is why do we need banks? Security systems, safes, and personal accounting software have evolved to the point where everyone can be their own bank for as little as $2K to $10K. It is shocking that individuals will shell out $20K for a new car, but not have the foresight to invest in a good safe.

  Many commercial banks offer very litte interest, report transactions to the government, and are require by the "Patriot Act" to "know their customer" i.e. every customer should be treated like a potential crimal.

  Published: August 27, 2008 2:00 PM

• Bruce Koerber

  I will be there in spirit. Hopefully someday I will have enough wealth to attend these great events regularly.

  Like usual this Mises Institute sponsored event sounds like incredible fun. My best wishes to all the ones fortunate enough to attend.

  Published: August 27, 2008 8:29 PM

• Danny

  Mike,

  You mean land deeds packaged into MBS's insured by Fannie Mae which are also AAA rated? That's how our system works?

  You continue to troll around these boards, making the same points that everyone here has heard about your 'real bills doctrine'. You miss the fundamental point, the government's control of the system.

  It might even be possible that a system like yours would arise in a free market, where bills are backed by land deeds, some gold, or some other commodity. But the government dictated system is a non-starter here, in case you haven't noticed. The current crisis has been caused by the monetary mismanagement of the Fed, and as a result, those who hold and spend their wealth in dollars, and plan their business based on a predictable future economic environment can't accurately assess what might happen.

  If you actually decide to add something new to the argument instead of constantly repeating the drivel that everyone here has already read, I am sure people here would be more than willing to debate with you.

  Published: August 27, 2008 10:08 PM

• Peter

  It might even be possible that a system like yours would arise in a free market, where bills are backed by land deeds, some gold, or some other commodity.

  But they wouldn't (=couldn't) be interchangeable at par. (Bills backed by acres of land would have to be denominated in acres of land, not ounces of gold, as Mike so badly wants us to believe)

  Published: August 27, 2008 11:03 PM

• fundamentalist

  I saw Ron Paul on CNN this morning and he did a great job of proving that there is no significant differences between the Republican and Democrat parties.

  Published: August 28, 2008 7:57 AM

• Vedran

  Mike Sproul,

  One of the original safeguards for gold shaving is still present on coins today. Notice the ridges on the edge of quarters. Back in the day people would shave a little of the edges and you could easily get away with it. But the ridges stopped that pretty well. So well in fact that it is a standard long after it's usefulness.

  Published: August 28, 2008 11:38 AM

• Mike Sproul

  Vedran:

  Milling of the edge of a coin only makes it obvious when the edge has been shaved. (They used to call it 'clipping'.) Clipping the face, or better yet, 'sweating' the coin by dipping it in acid, gets around this. The Carthaginians handled the problem by wrapping coins in a sealed leather pouch, and the Chinese used sealed paper pouches. These methods fell into disuse with the advent of banks.

  Published: August 28, 2008 1:28 PM

• Greg

  Mike,

  About 2 thirds of the way through your post it occurred to me that this sound's a little complicated. Generally, the yellow flag goes up when I hear of a system where something is done to correct a potential problem with it and then something else is done to correct a potential problem with the first solution.

  When I am in a conversation or debate with someone about something like healthcare for instance, and I present a private way to manage it, the objection usually is 'but corporations are corrupt'. I've started to say, 'ok, given that there is corruption in corporations and there's corruption in the government, doesn't it make sense to look at the proposal that actually works best?'

  So, given that some will cheat, the system where gold is used as currency far outweighs the drag put on it by cheaters.

  I think that the difference between a first world society and a third world society isn't that the people are any smarter it's simply that the system is so much more efficient. I don't spend 2 or 3 hours out of my day fetching water. Your proposal to currency is incredibly inefficient. With gold as currency we would have to watch for cheaters. But with a bank holding some land and some gold, we would need someone to watch whether they are keeping the right amount of land against their gold reserve. So, which is more efficient? Lets just all use real money.

  Published: August 28, 2008 5:20 PM

• Mike Sproul

  Greg:

  The problems and solutions I mentioned came right out of history books.

  Whether a gold standard is more efficient than another is for the market to decide. Given that gold standards have been tried many times over many generations, history seems to be telling us that efficiency is not on the side of the gold standard.

  I'm always amazed when professed libertarians advocate a gold standard, or any standard at all. It's fine for libertarians to oppose government monopolization of money, but why tell people what kind of money to use? And if people decide to use inconvertible paper dollars, they should be free to make that choice.

  Published: August 28, 2008 7:12 PM

• jj

  Sproles:
  If given that choice, would YOU want paper or would you want silver and gold?
  

  Published: September 15, 2008 1:31 PM