Comments (99)

• Mike Cuneo

  Is anyone else actually afraid after seeing that graph where the adjusted monetary base goes from ~800b to over 1.8t?

  Just looking at the small spike around Y2K and factoring in some lag for businesses and consumers to adjust, maybe we are seeing the true effects of that now. Imagine if the next downturn is 10x worse! Obviously it's not directly proportional, and this current downturn could very well be caused by a number of other factors acting in concert, but still it's very scary.

  Published: March 16, 2009 9:03 AM

• Mike Cuneo

  Is anyone else actually afraid after seeing that graph where the adjusted monetary base goes from ~800b to over 1.8t?

  Just looking at the small spike around Y2K and factoring in some lag for businesses and consumers to adjust, maybe we are seeing the true effects of that now. Imagine if the next downturn is 10x worse! Obviously it's not directly proportional, and this current downturn could very well be (and most likely is) caused by a number of other factors acting in concert, but still it's very scary.

  Published: March 16, 2009 9:04 AM

• fundamentalist

  Robert: “It's true that the government can always renege on its pledge to maintain a fixed peg to gold, but at least everybody would know exactly when the government cheated.”

  Well, they knew it when FDR cheated them out of their gold-backed bonds from WWI, but Congress and the Supreme Court called the theft virtuous. Then FDR stole people’s gold by outlawing gold ownership, and the people and the legislators and judges all said the theft was a good thing. Then Nixon removed all pretenses to a gold standard and the whole nation dubbed him a saint for stealing the people’s money. The problem isn’t the monetary standard of the state; it’s the people. When most of the people are socialists, as about 90% of Americans are, then no one can impose a reasonable system on them. As Mises wrote, no state can rule against the will of the majority for long. As long as the majority of people think that theft by the state is a virtue, no monetary system will change things.
  

  Published: March 16, 2009 9:08 AM

• greg

  Take a careful look at the adjusted monetary base graph. Please notice the percentage of years of recession is higher under the gold standard years than the non gold standard.

  The idea of linking a currency to a commodity that has very few uses is completely wrong. Gold is a commodity that you spend huge amount of recources to dig out of the ground, process it and stick it in a vault down in the ground. Then you pay for the security and storage of the commodity.

  But hey, I am not here to convince all those gold bugs to stop believing. There limited numbers and pyschology keeps gold trading between $800 and $1000 an ounce. And my investment model has me buying the GLD at $80, sell at $90, short at $100 and cover at $90.

  Instead of pushing for the gold standard, you should join Ron Paul and push for hemp. Now there is something that has a great investment value!

  Published: March 16, 2009 9:33 AM

• cavalier973

  I think that a lot of people could be persuaded that a free market in money is the way to go; I think, though, that they are unaware of the ideas presented hereat mises.org. I myself was a Friedman devotee, having read "Money Mischief" twice; and was of the opinion that a gold standard was an inflexible relic of the past.

  Discovering mises.org, I wasn't long in changing my views of the matter. Ideas are powerful when they are true, and I think that the efforts here, and at lewrockwell.com, and books like Woods' "Meltdown", will begin seeing a major impact on how people view economic theory. This is especially true for those who consider themselves partisans of the free market, but are really just socialist "lite" because they have been given misinformation about the market by those like Friedman, who advocate government intervention in the economy.

  So now I am doing my best to evangelize those in my "sphere"; friends, family, the posters at Townhall.com, and anyone who will listen to me at work. Perhaps it is a hopeless cause, but if it is don't tell me, I'm having too much fun at present to care.

  Published: March 16, 2009 9:38 AM

• Dan

  greg,

  The idea of linking a currency to a commodity that has very few uses is completely wrong. Gold is a commodity that you spend huge amount of recources to dig out of the ground, process it and stick it in a vault down in the ground. Then you pay for the security and storage of the commodity.

  Isn't that kind of the idea when selecting a medium of exchange? You want something that is portable (high value/mass ratio), durable, and is not something that is consumed. Wouldn't using a consumable commodity severely mess up the money supply? I'm no expert on the matter, but that's the conclusion I come to.

  Gold seems to meet the requirements of a medium of exchange pretty well, although if the market came up with another alternative, that would be perfectly fine.

  Published: March 16, 2009 9:46 AM

• cavalier973

  "The idea of linking a currency to a commodity that has very few uses is completely wrong. Gold is a commodity that you spend huge amount of recources to dig out of the ground, process it and stick it in a vault down in the ground. Then you pay for the security and storage of the commodity."

  I can't speak for everyone else here, but this statement only confirms my belief that a gold standard is the way to go; as it's so hard and expensive to procure, it's that much less likely to be inflated.

  But we need not eliminate the Federal Reserve (right away); allow those who wish to keep using the Federal Reserve notes, but allow at the same time the issuance by private firms a commodity-backed currency that can be used as "legal tender". See to which one people gravitate.

  Published: March 16, 2009 9:46 AM

• cavalier973

  A question: I've been teaching my daughter that money should do three things: Facilitate trade, act as a store of value, and provide a mechanism for determining the relative value of different products and services.

  Is there anything about what I'm teaching her that needs to be revised and/or extended?

  Published: March 16, 2009 9:50 AM

• Deefburger

  It seems whenever the return to gold and silver is discussed, we hear the "Modern Times" argument in one flavor or another. People are fooled into thinking that the workings of society, industry, politics and so forth are "different" today because we live in "Modern Times". It's as though we are all suddenly evolved into some "newer species" or some more altruistic society.

  It prays on people's need to feel superior, somehow, to the flawed, barbaric past. Yet it actually disconnects us from our immediate ancestry, their triumphs and their mistakes, by making us appear to be completely different, because WE are MODERN and live in MODERN TIMES.

  "The old ways don't work because these are modern times...."
  "That idea is older than god! How could it possibly apply in the age of cell phones?"
  "Gold as money? They'd have to replace all the ATMs!"

  Underlying this thinking (or lack there of), is vanity. It's the thinking that because we have advanced in science and technology, population, record breaking achievements and so on, that somehow we have become more than human, greater is some way, than our forebears, and so what did work for them, no longer will work for us, and what didn't work for them, didn't work because they didn't know as much as we know now, and they didn't have the benefit of all of our myriad advances in these Modern Times.

  It's vanity plain and simple, to think ourselves "better" in so many ways that we cannot possibly be making the same old mistakes that our parents or their parents made. But look back in history and you will see the modern times argument at the heart of almost every mistake made! It seems that vanity hasn't changed a bit.
  Funny, I thought we were past that.....

  Published: March 16, 2009 10:14 AM

• greg

  Dan,

  The concept of "medium of exchange" is based on a commodity that most everyone wants. Gold was just that when the idea of money was developed thousands of years ago. People wanted gold to wear, show off and even be buried with it. Vendors selling their goods for gold were confident that they could trade they could easily trade that gold for other products. The demand led it to become a medium of exchange, not the reverse.

  As more people adopted gold as their currency base, the demand for it grew beyond the basic uses of it. Today, without a gold standard and fewer actual uses for gold, the real value has fallen. Now it is traded by a few gold bugs that try to pump up the value through the media and other sources. Because the limited number of players, gold has a hard time getting past the $1000 an ounce level because it takes good buying volume to push past resistence levels.

  The real main point I am trying to make is that it is a total waste of resources to dig something up and process it for the current rate of $500 an ounce just to store it in the ground for the current rate of $15 and ounce. Just leave it were it is and society is richer by $515 an ounce and no one would know the difference.

  Published: March 16, 2009 10:39 AM

• Joe

  "But that is clearly not what Sesit is arguing in his Bloomberg piece. No, he is arguing that the gold standard is a bad idea because it keeps the central bankers from using all the latest, cutting-edge macro models to fine-tune the economy."

  Ah yes, the latest, cutting-edge macro models which really amounts to nothing more than using the age old method of printing more money without limit which is what we see in those charts. The gold standard may not be perfect but I for one feel more comfortable with it in place than I do listening to a bunch of optomistic bull coming from the Fed and the Government.

  Published: March 16, 2009 10:50 AM

• haragan

  Could someone comment on the difference between a multilateral and a unilateral adoption of the gold standard. Is having a gold standard in the US if the Rest of the World doesn't a good idea?
  Also, I'm sure I'm missing the point, but the gold standard sounds somewhat mercantilistic in that countries/governments would want to measure their wealth by the amount of gold they amass rather than by actual consumption.

  Published: March 16, 2009 11:12 AM

• Bob Stafford

  It's the Federal Reserve. It's the government. There is always some hindrance to your perfect fantasy land. These are a manifestation of the contradictions inherent in the functionality of the system within the larger framework of society. These are not the starting point, they are the consequence. All of you NEED TO ANALYZE WHERE THINGS COME FROM, not simply what they are in a certain state. Austrians have nothing to say about the fundamental origins of concepts and institutions, such as value or government. They simply analyze them as they are today.

  For once, I would like to hear a response that validates this gold standard argument, seeing as I consider that most Mises disciples live in a world of make believe. That is not to say many ideas are not theoretically wonderful, however, it would also be wonderful if we all just hugged as well.

  Published: March 16, 2009 11:17 AM

• Bryan

  greg:

  You seem to be basing your entire argument on the assumption that gold's current value is a sham, and that people in general wouldn't see much value in it because it doesn't have uses.

  Notice now that one of the reasons you've stated as to why gold supposedly isn't valuable to people is that it's not used as a means for exchange anymore... Now ask yourself exactly why gold is not used as a medium for exchange. It is because governments all over the world have essentially made it illegal, not because people ever came to the conclusion that they would prefer to use paper without metal backing rather than with.

  Still on the subject of gold's supposed loss of value in the minds of humans, you should learn from your last paragraph. Apparently to whoever is digging up the gold for $500 they know that they can probably sell it for more, thus it has value to people. However, if you want to just wash away this perspective with vague ideas of gold bugs manipulating the gold price through the media and other sources, I will not attempt to convince you otherwise.

  With your last point about how wasteful it is to dig up gold, you seem to be talking for "society" without looking at what society is trying to tell you. As I'm sure you know, society would certainly not be able to flourish the way it has without the invention of money. It just so happens that society has voluntarily chosen gold as the most desirable means of exchange, and even outlawing it as such has not been able to purge the pesky idea of gold as money from people's minds. Society is not richer if you arbitrarily take away something it values by force, which you seem to be alluding toward with gold.

  So what is your solution? More paper dollars made more abundant whenever government deems necessary? I hope you realize that Austrian economists aren't advocates of gold because they are gold bugs. It is because society itself chose gold for obvious reasons as a great medium for exchange. I would like to see money decided by society on the market once again, and maybe you could be vindicated if gold isn't once again found to be most desirable. I somehow doubt people will want to stick with the ever inflated Federal Reserve Note for long, however.

  Published: March 16, 2009 11:21 AM

• Bryan

  Bob Stafford:

  Have you read "Human Action" or "Man, Economy, and State"?

  If you had, I think you would have noticed that the broad variety of individuals making economic decisions and their ever changing valuations of things is a fundamental part of Austrian economics. The static view of economy is useful for analysis of how individuals act in a theoretical way, and both Mises and Rothbard make it clear that we come to real conclusions on the actions of humans based only on this static situation.

  Also, if you've ever read some of the history books/papers by Rothbard you would have noticed that his style differs from most historians precisely because he puts more emphasis on motives and social/economic influences to try to explain what led individuals to act the way they do as a part of historical events.

  I haven't heard many Austrian economists claiming there is some perfect world waiting around any corner for us if we adopt their way of thinking. Just that things could be better than they are, which I don't see anything wrong with believing no matter what you believe.

  Let me just say that after doing some moderate research into Austrian economics, your claim that Austrians do not analyze "where things come" from is completely contrary to their research.

  Published: March 16, 2009 11:42 AM

• Joe

  "For once, I would like to hear a response that validates this gold standard argument, seeing as I consider that most Mises disciples live in a world of make believe."

  Well Bob, if your looking for a response to validate a gold standard you need to look no further than to the Continental Dollar and learn how that currency eventually collapsed. The founding fathers experienced what we are just beginning to today and added the gold and silver clause to the U.S. Constitution so that individual states could no longer issue bills of credit themselves. That was during their day though. Today, if the founding fathers saw what the Fed and Government were doing they would almost definately abolish the Fed and amend that clause to the include the Federal Government.

  Published: March 16, 2009 11:43 AM

• Bryan

  sorry, second paragraph I meant to say that we *cannot* come to real conclusions on the actions of humans based only on this static situation.

  Published: March 16, 2009 11:45 AM

• eric lansing

  "For once, I would like to hear a response that validates this gold standard argument"

  **************

  "What will replace the fiat dollar? It can only be gold because all other currencies are only paper too"

  http://www.longwavegroup.com/pdf/V5_1.pdf

  You completely miss the mark in evaluating what has happened and what will happen. It is not capitalism that has failed - it is socialism that has failed. We will not see the emergence of socialism, we will see the emergence of capitalism.

  Next...

  Published: March 16, 2009 12:13 PM

• Hans Pohle

  A correct picture/chart must be logarithmic!
  Otherwise it is distorted.

  Published: March 16, 2009 12:16 PM

• eric lansing

  "For once, I would like to hear a response that validates this gold standard argument"

  **************

  "What will replace the fiat dollar? It can only be gold because all other currencies are only paper too"

  http://www.longwavegroup.com/pdf/V5_1.pdf

  You completely miss the mark in evaluating what has happened and what will happen. It is not capitalism that has failed - it is socialism that has failed. We will not see the emergence of socialism, we will see the emergence of capitalism.

  Next...

  Published: March 16, 2009 12:19 PM

• N. Joseph Potts

  I agree that a logarithmic vertical scale would be more meaningful. I explain to myself the choice of the less-meaningful linear scale as arising from the desire for maximum impact.

  Then, again, logarithmic scales ARE less accessible to intuition, I admit. Probably some users of this blog aren't quite onto what I (we) am talking about.

  Published: March 16, 2009 12:37 PM

• greg

  Bryan,

  What are the uses for gold? Basically it is jewlery.

  Capital investment is what drives our economy ahead and we encourage this investment to increase productivity. We pull iron ore from the ground to build equipment that increases productivity. We pull gold from the ground to refine and make nothing that increases productivity.

  You could say that the gold standard will increase productivity and you do not have any proof it will. The graph shows fewer periods of recessions after the gold standard was used. Furthermore, productivity has grown more than 1000 times over the last 100 years (History Channel Fact).

  Iron ore taken from the ground to build one shovel has a greater impact on the economy than pulling up one ounce of gold to be stuck in a vault.

  On the subject of the futures prices, gold bugs are not manipulating the price of gold. The point I was making is that there isn't enough of them to manipultate it.

  On the subject of the profit margins for gold. A product that cost $500 to produce should retail for $2000 in order to make a fair profit for all people in the chain. It is clear you have never manufactured a product and got it to market. I have and for a product that cost me $1.55 to make, it has to retail at $10,50 to make the margins for all that handle it.

  Published: March 16, 2009 12:43 PM

• CN

  The value of Gold comes from the fact that its total quantity available is stable and at the same time easy to use/allocate as coins/bars (not to mention jewllery).

  StableTotal Quantity its the service provided by Gold.

  And that is why a fractional reserve system (even based on gold) is a contradiction in terms.

  Published: March 16, 2009 1:11 PM

• Nathan

  I'm not at all convinced that Gold should be a "standard." Under Free Banking, banks can use whatever store of value it would like to. Whether it be gold, silver, mortgages, manure piles, etc. Yes, gold is great because it is rare, expensive to find, and has maintained a constant value over the long haul, but who is to say that technology will not emerge that converts any metal to gold? Just as technology has emerged to "grow" diamonds for 1/10 of the mining cost, technology is available now to convert many elements into gold, although at exorbitant energy cost.

  I see this same one size fits all kind of argument used by pseudo-Libertarian against reserve ratios. Banks should set whatever reserve ratio in whatever currency they like. Higher reserve ratios would garner safety and lower returns. Lower reserve ratios would equal risk and higher average returns.

  Of course, these changes are not realistic in a world with FDIC insurance, and a myriad of other "safety nets", but Libertarians should not forget the true logical conclusion of the ideas of freedom.

  Published: March 16, 2009 1:15 PM

• redshirt

  Virtually all the arguments against a gold standard have already been pounded into the dust. Even trying to claim the costs of mining the stuff for money is wacky. We mine it now and it isn't "official" money. It already pays for itself when mined so what is the point of arguing that it'll cost too much to run a gold based currency?

  Meanwhile, the costs of fiat currency are staggering. The inflationary costs alone null any comparison to commodity standards.

  The notion that there won't be enough is simplistic; if the money is scarce the value of the money will rise against the products available. That is not a bad thing. You can buy more and save more readily and this works for everyone. You have a modest period of adjustment before people have a handle on pricing again.

  In a fiat currency only those with the government (or banker) connections can take advantage of the immediate release of money into the market. The poor and middle class (mostly) get to see the money last when the prices already have started to rise.

  Published: March 16, 2009 1:17 PM

• Jaycephus

  While I agree that Ron Paul would have been the best President of all the coices we had, I don't see how hemp could possibly be a commodity on which we would want to base our money. The free-market could probably double or quadruple production of hemp at any given time it chose, and do so year after year for a couple of decades, IF there was a demand to do so.

  Wouldn't that be a bad thing?

  And with respect to 'wishing' about human desires with regard to gold, how much more 'real wealth' would America have if humans would just stop desiring alcohol, coffee, marijuana, cocaine, energy drinks, tobacco, designer hand-bags, massively-multiplayer-online-role-playing games, cruise-ship vacations, weight-loss books, McMansion eyesores, etc.

  Perhaps the fact that the value of gold can never go to zero is the reason it has become so valuable, and what will the price of gold be in dollars a year from now when foreign markets have begun to recover and the currently-strong dollar is weakening? People obviously begin to value gold more when actions of the government and the Fed raise fears about the long-term health of the paper dollar. Why is that not a perfectly rational choice?

  And why bring up the storage cost of gold? How much is the storage cost of any other equally valuable and compact commodity? Or paper dollars of equal value for that matter?

  Jay

  Published: March 16, 2009 1:22 PM

• Nathan

  Greg, what if the shovel is used to make a garden whose only value is aesthetic? In the end the goal is to make our lives better. If people think their lives are improved by wearing pretty jewelry, eating caviar, and taking trips to other continents it is not our job to tell them their activity is not economically useful. I agree with your argument to an extent, Gold is not the perfect currency, but it does exhibit many desirable characteristics of a good currency.

  Published: March 16, 2009 1:22 PM

• Inquisitor

  Bob, do you make a habit of pulling things out of your ass? This is the second time you just make blatant, inaccurate, ignorant assertions. Why?

  Why do people think they can determine objectively what gold's uses are? Its uses are ultimately whatever it is desired for. Nothing more. If it is jewellery, then so be it. Gold has a wide range of applications due to its properties, so it isn't just jewellery, but even if it were, how does that render it "useless" one wonders? It doesn't, is the blunt answer. So to put it briefly, the argument is worth approximately nothing. It's a failure in applying the subjectivity of value to money. In the end, it's up to the market and its participants which commodity to use... and yes, the government's hands should be shackled, perhaps cut off even.

  
  As an interesting datum, my macroeconomics teacher (a Hayekian) included a chart in one of his lectures going back all the way to the early middle ages on inflation, showing how with few exceptions it was relatively limited until its explosion in the 20th century...

  Published: March 16, 2009 1:37 PM

• FTG

  Greg,
  The real main point I am trying to make is that it is a total waste of resources to dig something up and process it for the current rate of $500 an ounce just to store it in the ground for the current rate of $15 [an] ounce.

  Clearly enough people do not think it is a waste of resources to dig up gold considering that there is demand for holding it out of the ground.

  Take a careful look at the adjusted monetary base graph. Please notice the percentage of years of recession is higher under the gold standard years than the non gold standard.

  Nobody has said that Gold makes an economy recession-proof. People cannot know the future, so there will be mistakes and corrections. What makes recessions worse is not the monetary standard but the ad hoc corrections or restrictions imposed by government, like bailouts, not allowing banks to fail, direct loans through the Fed, take your pick. Gold would simply make it more difficult for government and banks to inflate, since they risk quicker insolvency.

  The idea of linking a currency to a commodity that has very few uses is completely wrong.

  Nobody has said anything about linking a currency to a commodity with "little uses". The contention is that people should be able to FREELY USE a commodity AS currency, as they see fit. That is a big difference. You are still thinking in terms of fiat currency or government issued notes.

  Gold is a commodity that you spend huge amount of resources to dig out of the ground, process it and stick it in a vault down in the ground. Then you pay for the security and storage of the commodity.

  And? The point is to let people CHOOSE what currency they want. You don't like gold because you think it is dumb to take it out of the ground and store it? Don't accept it for trades. It is that simple.

  But hey, I am not here to convince all those gold bugs to stop believing.

  The case of gold comes straight from a reasoned, principled argument: That people should be free to choose whatever people want for their exchanges. The case for gold is then a case for freedom.

  There [sic] limited numbers and ps[y]chology keeps gold trading between $800 and $1000 an ounce.

  Valuation IS a psychological process, always. Value IS subjective. I do not see the point you want to make, unless you think there are things with an objective, "natural" value.

  Capital investment is what drives our economy ahead and we encourage this investment to increase productivity. We pull iron ore from the ground to build equipment that increases productivity. We pull gold from the ground to refine and make nothing that increases productivity.

  I emphasized that last part because it is mere assertion. How do YOU know that digging gold does NOT increase productivity? If there is a market for gold, getting it out of the ground INCREASES productive endeavors, especially in commodity trades, savings and holdings. By the way, gold plated connections are the best for audio, video and data. Gold does have its uses as an industrial metal.

  Published: March 16, 2009 1:55 PM

• jp

  re: logarithmic graphs
  Agreed, logarithmic would be better.

  I think the problem is that the world's most-used data & graphing program - Microsoft Excel - has a really bad logarthmic plotting function.

  Published: March 16, 2009 2:00 PM

• Oil Shock

  The real main point I am trying to make is that it is a total waste of resources to dig something up and process it for the current rate of $500 an ounce just to store it in the ground for the current rate of $15 and ounce. Just leave it were it is and society is richer by $515 an ounce and no one would know the difference.

  Your assumptions are totally wrong. Whether we have a gold standard or not, gold will be dug up and stored, converted into jewelry, electronic parts etc. So that 500 ( assuming that number is true ) will be spent in digging up gold, regardless of a monetary standard. Might as well use that gold for a good use.

  Published: March 16, 2009 2:11 PM

• Nate

  Even if gold was only used as jewelry, it would be more useful and have a higher intrinsic value than paper bills covered and ruined with ink.

  Of course, gold isn't only useful as jewelry but whatever.

  Published: March 16, 2009 2:14 PM

• Bryan

  greg:

  "What are the uses for gold? Basically it is jewlery.

  Capital investment is what drives our economy ahead and we encourage this investment to increase productivity. We pull iron ore from the ground to build equipment that increases productivity. We pull gold from the ground to refine and make nothing that increases productivity."

  I cannot discern what ultimate point you are driving at by comparing gold as money so often to other commodities which are used more for consumption. I believe you might be missing what qualities something needs to have to be money, which gold fits very well and thus is why it was money throughout history and remains valuable even in an age when you say it has no uses other than jewelry.

  I'm going to assume you prefer use of, say, dollars as money without commodity backing. I have to say that a paper dollar backed only by laws would indeed work great if only the government, banks, or whoever controls it never acted upon the temptation to create more of it for an inflationary profit. The reason why gold or anything else that cannot be created easily is superior is because there is no physical way to undermine the one of the main characteristics which makes good money: its rarity.

  "You could say that the gold standard will increase productivity and you do not have any proof it will. The graph shows fewer periods of recessions after the gold standard was used. Furthermore, productivity has grown more than 1000 times over the last 100 years (History Channel Fact)."

  I will not say that a gold standard will directly increase production, because that's not what money is for. Having sound money is a means to provide the best possible environment for producers and consumers to make accurate economic calculations and facilitate trading that leads to production for the most urgent needs on the market.

  "Iron ore taken from the ground to build one shovel has a greater impact on the economy than pulling up one ounce of gold to be stuck in a vault."

  You are diverting your attention from the real point of talking about monetary policy at all when you invoke your "to be stuck in a vault" attacks. Adding digits to the reserves held by a bank at the Fed and printing Federal Reserve Notes does not actually produce anything either. This is a fundamental part of the unique characteristics that make gold or bank notes money. Your attack appears to be on money itself, not gold.

  "On the subject of the futures prices, gold bugs are not manipulating the price of gold. The point I was making is that there isn't enough of them to manipultate it."
  Ok. Then I see no problem here. If I had a choice of what to use for money I would definitely value something that I know could not be easily manipulated arbitrarily.

  "On the subject of the profit margins for gold. A product that cost $500 to produce should retail for $2000 in order to make a fair profit for all people in the chain. It is clear you have never manufactured a product and got it to market. I have and for a product that cost me $1.55 to make, it has to retail at $10,50 to make the margins for all that handle it."

  I was only using the numbers you provided as an example to expand upon what you were saying. I make no claim that the numbers resemble anything in reality. The point I was making was that you suggested that there are people willing to spend a considerable amount of money to mine gold, and assuming they are in it for profit means that there is a demand high enough in the world to make up for those costs. This obviously means that society, the market, values the gold enough to pay for its expensive production. Otherwise gold production would not happen.

  Published: March 16, 2009 2:18 PM

• JB1122

  "What are the uses for gold? Basically it is jewlery."

  Why is gold used for jewelry as opposed to steel or plastic with shiny coatings? Could it be that it is scarce and it holds value like platinum and silver?

  Published: March 16, 2009 2:19 PM

• Bob Stafford

  Inquisitor,

  Allow me to address your comments.

  The Austrians view Capitalism (technically they do not believe in Capitalism, however for the sake of argument I will continue to term it) as being solely affected by the state. In your view, governments arose to usurp wealth - Olsons roaming bandits - performs no necessary social function and never has. If only the state were gone, markets would work.

  In this conclusive sense, you and the Austrians are arguing the same as Marx - namely that the state interferes and causes problems in the functioning of markets to better some interest. For the Austrians, this is the most fundamental problem. For Marx, this is simply what happens with accumulation.....even Adam Smith says, and I quote; "Whoever imagines...that masters rarely combine, is as ignorant of the world as of the subject". Nevertheless, many of you reveal your true colors in claiming that Böhm-Bawerk has "written a devastating critique on Marx's theories". You are solely interested in the defense of your fantasy world.

  First, Marx enables us to recognize the principles in accordance with which the social process of reducing skilled labor to unskilled labor is effected. It therefore renders the magnitude of value first and foremost theoretically measurable. Böhm-Bawerk's whole "devastating" critique insists that Marx should have furnished the empirical proof of his theory, and contends that the requisite proof would have consisted in demonstrating the relationship between exchange values or prices and quantities of labor. He is confusing theoretical with practical measurability.The utopia view of Böhm-Bawerk is based on the illusion that the theoretical standard of measurement is at the same time an immediately practical standard of measurement, which it clearly was not developed to be. This is the conception in accordance with which the theory of value is regarded, not as a means "for detecting the law of motion of contemporary society," but as a means of securing a price list that shall be as stable and as just as possible. Marx's whole damn thesis is the identification of the illusory aspects of the physical phenomena that confront us.

  All of you on this forum need to actually read Marx, not read Austrians on Marx. The latter is a waste of time to defend something that never existed and never will be. And this includes your precious gold standard.

  There. Satisfied? But don't worry: I am at least open-minded enough to take courses on the Austrian and Monetarist views, even though I disagree with them.

  Published: March 16, 2009 2:24 PM

• Francisco Torres

  Bob Stafford,
  It's the Federal Reserve. It's the government. There is always some hindrance to your perfect fantasy land.

  It has been proven that the Federal Reserve and government interventions create more problems that they try to solve. von Mises showed that central planning cannot work because of the Economic Calculation problem, that is, that central planners cannot make decisions without a price system or with a heavily manipulated price system. You cannot get a worse form of price manipulation than what the Fed does with the Interest Rates.

  Having said that, I cannot see how the pointing out of the problems that certain policies create is a form of excuse.

  These are a manifestation of the contradictions inherent in the functionality of the system within the larger framework of society.

  This is unintelligible to me. What is this supposed to mean?

  These are not the starting point, they are the consequence. All of you NEED TO ANALYZE WHERE THINGS COME FROM, not simply what they are in a certain state.

  The Fed and governments have been analyzed many times and their function in society discussed at great length. Revisiting such discussions every time an analysis of a single policy is done would be repetitious and a waste of time. Asking for it just so you can be satisfied is dishonest.

  Austrians have nothing to say about the fundamental origins of concepts and institutions, such as value or government. They simply analyze them as they are today.

  You are mistaken, totally, especially the discussion of "value", which seems audacious for you to say that it has not been discussed by the Austrians, when the WHOLE SCHOOL of Austrian Economics was founded by the marginalist revolution of Menger and Bohn-Bawerk. You are clearly not showing any knowledge of what you talk about.

  For once, I would like to hear a response that validates this gold standard argument, seeing as I consider that most Mises disciples live in a world of make believe.

  You want a validation on terms YOU like, no? Not really the truth, just something more palatable for you.

  Published: March 16, 2009 2:26 PM

• Bob Stafford

  Francisco,

  Von Mises did not "prove" anything.. Aside from his discarding of all societies prior in which social reproduction was NOT reliant on a market mechanism to distribute goods, he failed to recognize the importance of the interface between producers and those who use the products being produced. He is abstracting from the fact that it is not prices that determine what people want, but people that determine what people want. This abstraction, when reduced, is essentially what democratic planning of production is about. So, in order to solve this dilemma, the Austrians had to: 1. Mark socialism as being a form of control in which people had no decision in the production process - essentially the complete opposite of what Marx was arguing; and 2. Attack democracy, because if people could voice their thoughts through democratic methods, IF THEY COULD PROVIDE INFORMATION, then there would be no reason why democratic planning of production would not be able to supersede the function of pricing.

  Published: March 16, 2009 2:39 PM

• CN

  In Free Banking, good money would drive out bad money, which means that 100% reserves notes (like the GLD ETF) and deposits would drive out fractional reserves notes and deposits.

  Just think in arbitrage terms. If both (fractional and 100%) would trade at same par value...

  ... the market would make loans in fractional reserve banks and make deposits in 100% reserve banks till the fractional reserve notes and deposits would trade at discount.

  In the end, no sane mind would deposit physical coins and bars at fractional reserve banks.

  Published: March 16, 2009 2:39 PM

• Oil Shock

  Gold shows many of the useful properties of both copper and silver, the reason why it is not used for those purposes is because it is because the other metals are more cost effective. In fact, gold is a better conductor of electricity than copper.

  Published: March 16, 2009 2:41 PM

• Oil Shock

  There. Satisfied? But don't worry: I am at least open-minded enough to take courses on the Austrian and Monetarist views, even though I disagree with them.

  I grew up in a province called Kerala in India. It is the first place on the planet to install a communist government through elections. When India got independence from Britain, Kerala had a literacy rate somewhere between 40 and 50% versus about 8% for the whole of India. Since communist came to power, Kerala had chronic unemployment levels over 20-25%. Labor unions strikes happen on a weekly basis. They do these things called "Bandh" and "Hartal", which means people will be attacked with stones that cricket bats if they dare to step out of their homes and go to work. They destroy "public" property like buildings, government run buses, trains etc.

  I have seen people packed like sardines travel in crowded government buses, which drain tax payers money every second. they have like 20 employees for every bus.

  So I have seen your version of utopia in my life: Democratic marxism.

  There are millions of Kerala people living and working in the middle east, because they are not allowed the freedom to work or start a business in Kerala. If not for that fact, many people in Kerala would be dying from malnutrition and hunger. These expatriate keralites send money back to Kerala and that is the only thing that keeps some kind of an economy going back there.

  Published: March 16, 2009 2:53 PM

• Lucas

  God, those graphs make me sick. Can you imagine what they are going to look like five years from now?!

  Published: March 16, 2009 2:54 PM

• Bob Stafford

  Oil Shock,

  Marxism was not meant to be synonymous with state control, but giving that control to people who actually produce things for modern society. If anything, what transpired in your country was a testament to how to further take away control from the workers. I do not advocate any type of centralized control system. What I do advocate is giving workers more security in order for them to be able to think about things other than survival.

  Published: March 16, 2009 3:00 PM

• Jophn Diether

  The only times the Gold Standard caused any problems for banks (run on deposits) was when a ship full of Gold sank, and when foreign Country invaded another Country, just to steal all their Gold.

  Published: March 16, 2009 3:03 PM

• Francisco Torres

  Bob Stafford,
  Von Mises did not "prove" anything. Aside from his discarding of all societies prior in which social reproduction [sic] was NOT reliant on a market mechanism to distribute goods, he failed to recognize the importance of the interface between producers and those who use the products being produced.

  Bob, what in the world are you talking about? Societies prior to what? How did Mises failed to recognize the interfaces between producers and consumers? That interface is called The Market, so how can one fail to recognize such a thing?

  He is abstracting [sic] from the fact that it is not prices that determine what people want, but people that determine what people want.

  "Abstracting" means something different than what you wanted to say, I believe. Of course people determine what they want, but producers cannot read minds - which is why producers rely on the price system as a reflection of people's wants (demand) and scarcity of goods.

  This abstraction, when reduced, is essentially what democratic planning of production is about.

  When reduced?

  So, in order to solve this dilemma [Dilemma?], the Austrians had to: 1. Mark socialism as being a form of control in which people had no decision in the production process - essentially the complete opposite of what Marx was arguing;

  Marx did not argue either thing - he argued that the productive means would be owned by the workers. Austrians did not mark socialism as anything. Socialism was already defined as a "democratic" production system.

  and 2. Attack democracy, because if people could voice their thoughts through democratic methods, IF THEY COULD PROVIDE INFORMATION, then there would be no reason why democratic planning of production would not be able to supersede the function of pricing.

  There IS a reason, Bob, why a "democratic planning of production" cannot work: How do people vote on what to produce, especially things that are not yet in the market? How can you vote on how much to produce, if you need to vote on how much raw materials? Let's take pencils: You would need to vote on how much to produce of wood, glue, paint, gum (for the eraser), steel and graphite, and from there vote to produce energy, freight and transportation, and besides that, food for laborers, grease for machines, spare parts, tools, machine tools, plastic wraps, carton boxes (which require wood pulp, glue, water, cleansers, dyes and inks) which all require labor plus freight to put together. People can VOTE on all of these things, and just for pencils? And how MANY pencils will they vote on? One for each family? One for each person? And after deciding on how many, they would have to vote on how much of the OTHER items are needed in order to complete all the pencils. What if the forecast was WRONG? Would all people then vote on adding more pencils into the production line?

  Can people handle ALL that information? I don't think you have ever come to grips of all that entails the production of a measly thing like a pencil, let alone furniture, mattresses, eggs, tires, breakfast cereal, I-beams, vinyl siding, glass plate, plastic cups, refrigerators, et cetera. YOUR idea of a "democratic" production system would only work (if at all) in a very tiny community that produces very little things, because voting for every single production decision would be cumbersome to the point of being a nightmare.

  Published: March 16, 2009 3:05 PM

• Inquisitor

  "If only the state were gone, markets would work."

  Correct.

  "In this conclusive sense, you and the Austrians are arguing the same as Marx"

  No, we're not.

  "Nevertheless, many of you reveal your true colors in claiming that Böhm-Bawerk has "written a devastating critique on Marx's theories". You are solely interested in the defense of your fantasy world."

  Ipse dixit. Prove it.

  "First, Marx enables us to recognize the principles in accordance with which the social process of reducing skilled labor to unskilled labor is effected. It therefore renders the magnitude of value first and foremost theoretically measurable."

  No, not really. Value depends solely on serving consumer ends. Its value can go all the way down to absolutely nothing. Sorry.

  "Böhm-Bawerk's whole "devastating" critique insists that Marx should have furnished the empirical proof of his theory,"

  Why bother? It's worthless anyway.

  "and contends that the requisite proof would have consisted in demonstrating the relationship between exchange values or prices and quantities of labor. He is confusing theoretical with practical measurability."

  I.e. forcing Marx to concretise the abstract bullshit he is putting forth. Too bad it isn't even "theoretically" measurable.

  "This is the conception in accordance with which the theory of value is regarded, not as a means "for detecting the law of motion of contemporary society," but as a means of securing a price list that shall be as stable and as just as possible. Marx's whole damn thesis is the identification of the illusory aspects of the physical phenomena that confront us.

  All of you on this forum need to actually read Marx, not read Austrians on Marx. The latter is a waste of time to defend something that never existed and never will be. And this includes your precious gold standard."

  Oh my, more weak assertions. So are you trying to say Marx hasn't even got a serious theory of value to put forth? Shocking.

  "There. Satisfied?"

  No.

  Published: March 16, 2009 3:31 PM

• Inquisitor

  "Von Mises did not "prove" anything.."

  Says Bob.

  "Aside from his discarding of all societies prior in which social reproduction was NOT reliant on a market mechanism to distribute goods,"

  Says Bob.

  "he failed to recognize the importance of the interface between producers and those who use the products being produced."

  What would this "interface" be?

  " He is abstracting from the fact that it is not prices that determine what people want, but people that determine what people want."

  OK?

  "This abstraction, when reduced, is essentially what democratic planning of production is about."

  No, that would be pure majoritarianism.

  "So, in order to solve this dilemma, the Austrians had to: 1. Mark socialism as being a form of control in which people had no decision in the production process - essentially the complete opposite of what Marx was arguing; and 2. Attack democracy, because if people could voice their thoughts through democratic methods, IF THEY COULD PROVIDE INFORMATION, then there would be no reason why democratic planning of production would not be able to supersede the function of pricing."

  OH NOES, THEY ATTACK OUR SACRED COW, DEMOCRACY! Are you out of your mind? How exactly does one decide to allocate capital resources to servicing the needs of consumers when there are MYRIADS of possible ways to allocate them? By polls? By "majority" will? Please.

  Published: March 16, 2009 3:34 PM

• Inquisitor

  " He is abstracting from the fact that it is not prices that determine what people want, but people that determine what people want."

  BTW one must ask, how do people "know" what other people want? I think your grasp of Mises is rather weak.

  Published: March 16, 2009 3:40 PM

• John Rolstead

  Thank you Francisco Torres for taking the time to address Bob Stafford. I don't think Bob is as open minded as he claims, are you Bob? I will admit that I have not read Marx. Will you admit that you have not read Von Mises' book Socialism?

  What I think is most important to remember is that when people are given a choice of what system they want, they choose free exchange using a medium that they choose. Freedom is the essential idea. Where in history has any society freely chosen a socialist model?

  Item: More recessions during a period of gold standard. - Let's not forget that during the 1800's, we still had fractional reserve banking. To the extent that the banks expanded the money supply in unison, they were able to expand credit above reserves. This creates the weakness in the banking system, making them insolvent. Credit expansion leads to the malinvestment that cannot be sustained but upon further credit expansion. But further expansion results in hyperinflation, once the public figures out what is happening to prices, they divest themselves of the false wharehouse receipts, the paper money. They buy anything in an attempt to hold onto their assets. Gold is such a commondity. - This is the Austrian theory.

  Published: March 16, 2009 3:44 PM

• Bob Stafford

  The evolution of the Capitalist mode of production spans centuries and has been solidified through both war and peace, failure and success. On the other hand, the Soviet Union broke any institutional continuity. Let me generically clarify what this means - the continuation of institutions, like the institution of Law for example, would be an essential part of any type of Socialist order as it is THE essential part of the Capitalist counterpart. The Capitalist mode of production which we currently enjoy was not a spontaneous event, just as markets do not form spontaneously. The precursors are apparent - the molding of institutions and the fostering of immature mercantilism clearly required some willingness on the part of given authorities. Continuing then, you seem to believe that things are the way they are magically, and forget that the building of the foundations of systems which you now take for granted claimed more lives than any Socialist experiment. It is hard to see how any break in continuity, in ANY system, carrying the goals of progress can instantaneously succeed without major external and internal pressures and problems. What I find quite ironic about your general stance is that no one expects the innate goodness of people to make a Socialist order work other than the people who attempt to shatter the Socialist theories.

  Published: March 16, 2009 3:47 PM

• Bob Stafford

  To John,

  I have read Mises' "Socialism" in its entirety, as well as several works by Schumpeter, Hayek, Bohm, Weeks, Friedman, Marx, Kindleberger, etc.

  BTW, the last post was to Inquisitor, who feels my grasp of Mises is 'weak.'

  Published: March 16, 2009 3:50 PM

• Inquisitor

  And yet more abstract waffle, Marxian waffle ex cathedra no less. BTW, where do we assume that socialism depends on people's inherent goodness? We don't. If it did it'd be even more ridiculous. Would you be so kind as to inform me which preceding system claimed as many lives as the USSR, in so little time, so efficiently, so single-mindedly? Or, are you going to include colonialism under "capitalism" and force the result you wish?

  Published: March 16, 2009 3:51 PM

• Inquisitor

  "BTW, the last post was to Inquisitor, who feels my grasp of Mises is 'weak.'"

  It did nothing to change that view.

  Published: March 16, 2009 3:52 PM

• Bob Stafford

  Inquisitor,

  When I finish my PhD, you are welcome to sit in on my classes anytime you wish.

  So, was Russia and the Former Soviet Republics a place of fully developed Capitalism? Was the whole of Africa or Latin America this place? Was Cuba this place ???? It seems to me that the majority of the above turned to the Soviet model mainly because of the horrid history of interaction with the Western nations they suffered, not because they knew anything of Socialism or even read the Classical Economists. People are not flocking to Cuba because, as every state that tried to "build Socialism", it is backwards because it proceeded backwards. It is in the complete control of one or a group of individual(s), and the workers have LESS say in what transpires than in the United States or Europe. Marx saw that Capitalism grew wealth faster than any system before and believed that only a country where production had reached it's zenith, and where I believe it is indeed possible to make choices more flexibly, could sustain exchange based on democracy and equality, especially for the workers.
  

  Published: March 16, 2009 3:56 PM

• John Rolstead

  Ah, so now we see Bob that you are not afraid to bust a few heads to implement your socialist utopia. When you say, "the building of the foundations of systems which you now take for granted claimed more lives than any Socialist experiment.", you are admitting that socialism is an evil that leads to death, just to lesser degree than your conception of capitalism.

  I totally disagree with your statement that capitalism does not form freely. That is exactly how it works, free exchange, value for value. And yes, Law is required to enforce property rights. Holding democracy above the law leads to theft by the 51%.

  Published: March 16, 2009 4:00 PM

• Inquisitor

  "When I finish my PhD, you are welcome to sit in on my classes anytime you wish."

  Not really. You're a poor instructor.

  "So, was Russia and the Former Soviet Republics a place of fully developed Capitalism?"

  Why do Marxists always try resort to this? Unless one buys into the historical "progression" from economic system to economic system, this is extraneous... and beside the point.

  Published: March 16, 2009 4:03 PM

• Bob Stafford

  Actually, I am not a socialist. I am simply open to the crazy notion that there are areas where markets failures are pervasive. I am also open to the notion that there are areas where markets perform best.

  Socialism is not about taking away rights for the "greater good" of society, though it could be if that is the path taken. Capitalism can be various things as well, like the child laboring 15 hour work days of the past, BEFORE social movements caused concessions. The main principle is to end the dominance of production on exchange and to give the workers a say in the production process. Markets may heighten freedom, law may be used to protect freedom, but Capitalism is the antithesis of freedom.

  Published: March 16, 2009 4:08 PM

• FTG

  Bob Stafford,
  The evolution of the Capitalist mode of production spans centuries and has been solidified through both war and peace, failure and success. On the other hand, the Soviet Union broke any institutional continuity. Let me generically clarify what this means - the continuation of institutions, like the institution of Law for example, would be an essential part of any type of Socialist order as it is THE essential part of the Capitalist counterpart.

  You said above that the essence of Socialism would be Democracy, so why would institutions even play a part? Institutions like law are not democratic.

  The Capitalist mode of production which we currently enjoy was not a spontaneous event, just as markets do not form spontaneously. The precursors are apparent - the molding of institutions and the fostering of immature mercantilism clearly required some willingness on the part of given authorities.

  Bob, you're spewing nonsense - nobody could have been clever enough to create a market, let alone figure out the needed institutions a priory. If you have EVER seen kids trade cards, you can see that markets DO form spontaneously as people meet to trade. Institutions actually formed when people started to own LAND and needed to have it surveyed for trading.

  
  Continuing then, you seem to believe that things are the way they are magically, and forget that the building of the foundations of systems which you now take for granted claimed more lives than any Socialist experiment.

  Austrian economists do not believe things became magically, but do talk about spontaneous order - that is, systems appeared because people got together and traded. The fact that lives have been claimed in the past is a red herring, since there is no evidence or proof that people lost their lives to stop or implement markets. Most struggles come from depredation by nomadic tribes, politics of plunder and border disputes.

  
  What I find quite ironic about your general stance is that no one expects the innate goodness of people to make a Socialist order work other than the people who attempt to shatter the Socialist theories.

  I find your words contradictory - HOW is a Socialist order work WITHOUT inherently good people? Because I can recognize that most people are selfish bastards, and yet people also have rationality, which is why they find that by TRADING they can improve their well being. I cannot conceive of a socialist order with people like that.

  Published: March 16, 2009 4:15 PM

• Bob Stafford

  I am fairly certain that my argument ran counter to what you are saying, if you can identify where you believe I made this correlation I will be glad to clarify what I meant.

  Published: March 16, 2009 4:32 PM

• FTG

  Actually, I am not a socialist. I am simply open to the crazy notion that there are areas where markets failures are pervasive.

  Every time I hear someone say "market failure", I always imagine that same person say something like "evolutionary failure" because evolution did not give us dragons.

  Bob, a lesson in economics: Market Failure is a red herring invented by Neo Classical economists as an ad hoc explanation of why their mathematical models do not reflect reality. For instance, the Perfect Competition model, where a certain good has the same price and every economic actor receives instant, perfect information. Whatever deviates from this extremely simplistic model was called "market failure". This has been used by leftist economists to justify government intervention in the market, in the form of price caps, price floors, anti-gouging laws, anti-trust laws, subsidies.

  The fact is that nobody can have and receive instantaneous, perfect information in the market. People do not react to infinitesimal changes in pricing (as the Perfect Competition model would indicate), nor do sellers make changes that way.

  I am also open to the notion that there are areas where markets perform best.

  I cannot say you do believe that.

  Socialism is not about taking away rights for the "greater good" of society, though it could be if that is the path taken.

  So it can BE, then.

  Capitalism can be various things as well, like the child laboring 15 hour work days of the past, BEFORE social movements caused concessions.

  You're confusing Capitalism with anecdotal labor conditions. Slave camps in the Gulag also had horrendous working hours, the difference being the prisoners were not even being paid for their bother

  The main principle is to end the dominance of production on exchange and to give the workers a say in the production process.

  There is no evident reason why workers would need or want to have a say in the production process. You would have to explain that. Marx, by the way, does not either, he just assumes workers should have the means of production.

  Markets may heighten freedom, law may be used to protect freedom, but Capitalism is the antithesis of freedom.

  Why?

  Published: March 16, 2009 4:34 PM

• fundamentalist

  Bob: “Austrians have nothing to say about the fundamental origins of concepts and institutions, such as value or government. They simply analyze them as they are today.”

  You clearly don’t know anything about Austrian economics. Most of it is about value. As for the origins of government, later Austrians such as Rothbard, Hoppe and others have a great deal to say about it.

  Bob: “…most Mises disciples live in a world of make believe…”

  Instead of making ridiculous assertions that do nothing but demonstrate your ignorance, please provide some evidence that we can discuss.

  Bob: “It therefore renders the magnitude of value first and foremost theoretically measurable.”

  Marx was a classical economist. As such, he took the classical nonsense of intrinsic value and labor theory of value seriously. The subjective value and marginal value revolutions that occurred after Marx proved intrinsic value to be wrong and one of the major flaws of Marxism.

  Bob: “All of you on this forum need to actually read Marx…”

  You would be surprised how many of us have read Marx and still find him to have been an idiot. And which Marx are you talking about, the early or late Marx? Besides, modern Marxists don’t understand Marx anyway. They all disagree about what Marx intended because the guy couldn’t write two words that made sense.

  Bob: “He is abstracting from the fact that it is not prices that determine what people want, but people that determine what people want. This abstraction, when reduced, is essentially what democratic planning of production is about.”

  You clearly haven’t read Mises. People determine what people want, that is true, but prices determine what people can get and guide production. Mises proved that democratic planning of production without free market prices is possible, but it wastes resources until everyone is equally poor and starving. The USSR and Communist China spent decades proving Mises right.

  Bob: “On the other hand, the Soviet Union broke any institutional continuity.”

  Here we go again. The USSR was the darling of Marxists until Stalin’s mass murders were revealed. Same with China. They weren’t really Marxist after all. But the truth is that Marx was deliberately vague about how a socialist state would work. Lenin and Mao thought they were following Marx as closely as possible. They intended to follow Marx. If they got it wrong, which they didn’t, it was Marx’s fault, not theirs. The USSR and Communist China before Deng’s reforms are the best examples of Marxism the world has to offer, otherwise, Marxism has not example.
  Bob: “I have read Mises' "Socialism" in its entirety, as well as several works by Schumpeter, Hayek, Bohm, Weeks, Friedman, Marx, Kindleberger, etc”

  Then explain why your understanding of Mises is so wrong?

  Greg: “Capital investment is what drives our economy ahead and we encourage this investment to increase productivity.”

  Exactly! And what is the greatest hinderance to capital investment? Inflation and the business cycle. A real gold standard would eliminate inflation and virtually get rid of the business cycle.
  

  Published: March 16, 2009 4:34 PM

• fundamentalist

  Bob: “Austrians have nothing to say about the fundamental origins of concepts and institutions, such as value or government. They simply analyze them as they are today.”

  You clearly don’t know anything about Austrian economics. Most of it is about value. As for the origins of government, later Austrians such as Rothbard, Hoppe and others have a great deal to say about it.

  Bob: “…most Mises disciples live in a world of make believe…”

  Instead of making ridiculous assertions that do nothing but demonstrate your ignorance, please provide some evidence that we can discuss.

  Bob: “It therefore renders the magnitude of value first and foremost theoretically measurable.”

  Marx was a classical economist. As such, he took the classical nonsense of intrinsic value and labor theory of value seriously. The subjective value and marginal value revolutions that occurred after Marx proved intrinsic value to be wrong and one of the major flaws of Marxism.

  Bob: “All of you on this forum need to actually read Marx…”

  You would be surprised how many of us have read Marx and still find him to have been an idiot. And which Marx are you talking about, the early or late Marx? Besides, modern Marxists don’t understand Marx anyway. They all disagree about what Marx intended because the guy couldn’t write two words that made sense.

  Bob: “He is abstracting from the fact that it is not prices that determine what people want, but people that determine what people want. This abstraction, when reduced, is essentially what democratic planning of production is about.”

  You clearly haven’t read Mises. People determine what people want, that is true, but prices determine what people can get and guide production. Mises proved that democratic planning of production without free market prices is possible, but it wastes resources until everyone is equally poor and starving. The USSR and Communist China spent decades proving Mises right.

  Bob: “On the other hand, the Soviet Union broke any institutional continuity.”

  Here we go again. The USSR was the darling of Marxists until Stalin’s mass murders were revealed. Same with China. They weren’t really Marxist after all. But the truth is that Marx was deliberately vague about how a socialist state would work. Lenin and Mao thought they were following Marx as closely as possible. They intended to follow Marx. If they got it wrong, which they didn’t, it was Marx’s fault, not theirs. The USSR and Communist China before Deng’s reforms are the best examples of Marxism the world has to offer, otherwise, Marxism has not example.
  Bob: “I have read Mises' "Socialism" in its entirety, as well as several works by Schumpeter, Hayek, Bohm, Weeks, Friedman, Marx, Kindleberger, etc”

  Then explain why your understanding of Mises is so wrong?

  Greg: “Capital investment is what drives our economy ahead and we encourage this investment to increase productivity.”

  Exactly! And what is the greatest hinderance to capital investment? Inflation and the business cycle. A real gold standard would eliminate inflation and virtually get rid of the business cycle.
  

  Published: March 16, 2009 4:34 PM

• FTG

  BTW, if it's becoming confusing, FTG is the same as Francisco Torres. The G is from my last last name.

  Published: March 16, 2009 4:47 PM

• Nathan

  God, really, what are you people talking about? Who gives two shits about you waxing philosophical on the Soviet Union and Marxism. The post is about Gold. Other discussion should be deleted entirely.

  And for gods sake, stop the

  "quote"

  rebuttal

  "quote"

  rebuttal

  If you would like to quote someone do it in full without misrepresenting their idea and offer a full rebuttal, not some two word trash that's entirely useless.

  Published: March 16, 2009 5:38 PM

• Timothy

  Why not let the market decide?

  At many points, this thread reads like a divisive argument among central planners. But why must one size fit all?

  How about letting those who disdain gold use fiat currency, and let those who disdain fiat currency use gold, or whatever else?

  Then we could abandon rancorous hyperbole and let our bank accounts do the talking. That would be an argument everyone would understand.

  Unless they also advocate the repeal of legal tender laws, it seems to me that proponents of fiat currency don't believe their own arguments.

  Published: March 16, 2009 5:44 PM

• Stefan

  Not to interrupt this fascinating exchange, but as far as extracting gold from the ground goes the processes and technologies that must be developed to facilitate this in the largest scale operations spin-off to other sectors. It isn't just people wading in a river with a trough anymore... it requires much engineering to increase the productivity of the industry (although extremely polluting)

  Published: March 16, 2009 5:54 PM

• Inquisitor

  "If you would like to quote someone do it in full without misrepresenting their idea and offer a full rebuttal, not some two word trash that's entirely useless."

  If you're referring to me, then demonstrate where I misrepresented him. A full rebuttal is only meritted where that being rebutted is adequately fleshed out and concretised to make sense...

  Published: March 16, 2009 5:55 PM

• Nathan

  "If you're referring to me, then demonstrate where I misrepresented him. A full rebuttal is only meritted where that being rebutted is adequately fleshed out and concretised to make sense..."

  Yes, and no I won't demonstrate. ALL your post provide ample demonstration. I don't care about your petty disagreements with those in the thread. Get email addresses and trade retorts all you like. If it's not about currency or gold it doesn't belong here.

  Published: March 16, 2009 6:29 PM

• Gene Berman

  inquisitor, fundamentalist, and the rest of you guys arguing with Bob Stafford:

  Waste of time, boys, on someone who's not worth the energy. Only his very shortest sentences are even coherent, let alone correct. He's what's called a "tar baby." He claims to have read Mises' SOCIALISM. If true, he ought to be able to cite a passage from that work with which he disagrees and point out in just what respect he finds specific error, not merely cite his disagreement.

  Over on another thread on which he'd commented,
  I'd pointed out for him a couple major shortcomings of Marx (first, that he was committed to the "Iron Law" and, therefore, the "immiseration argument" with which you are all familiar, not having absorbed the discovery of subjective valuation and, second, that he was totally unfamiliar with the very prime question of "economic calculation in the socialist commonwealth" as enunciated by Mises in the early '20s). It is a sad commentary on the state of education in general and economic literature in particular to appreciate that this fellow could possibly parlay the kind of compositional skills to which we have been witness into a graduate degree of any sort; of course, that pales by comparison to the prospect that he might actually be in position someday to "instruct the young."

  You are witness, not to the process of decline in modern civilization but to evidence of its advanced state.

  Published: March 16, 2009 6:30 PM

• Inquisitor

  Here's a better idea Nathan: ignore my posts and any others that you take a dislike to.

  Gene, anyone can claim to be doing a PHD. Methinks it's an appeal to his supposed authority.

  Published: March 16, 2009 6:40 PM

• anonymous

  "A fixed dollar/gold exchange rate is 'restrictive'
  in the same way that the Bill of Rights limits the
  discretionary power of the feds."

  Um, do you mean it doesn't work?

  Published: March 16, 2009 8:22 PM

• Niccolo

  Prof. Murphy,

  
  When addressing the rigidity of gold as a standard of money, you might actually want to ADDRESS the rigidity of gold as a standard of money.

  
  This is a rare fault on your part for not actually explaining why gold ISN'T too rigid to keep pace with the rise/fall of demand for money or the rise/fall in the velocity of money.

  
  And your characterization of the anti-gold standard argument is incorrect. It has nothing to do with believing that fiat money makes a country richer, it has everything to do with the fact that fiat money can adequately keep pace with the volatility of demand.

  
  I think your biggest flaw is that you believe there is only this dichotomy for a monetary economy. You seem to believe that only either a gold standard can exist, or a central bank can exist. I think this is mistaken and that a free market for free floating fiat money can and should exist as the best of all alternatives.

  Published: March 16, 2009 9:39 PM

• A.Viirlaid

  Hallelujah to Gene Berman! Stop the madness!

  Good point Mike Cuneo. The spike you speak of is one of the main reasons Robert P. Murphy's essay is so germane. As usual Mr. Murphy has written a gem --- and I don't know him, I am not related to him, and he isn't paying me any money.

  I loved reading Murphy's reaction to Michael Sesit's article, the title of which made me humph (with derision). Then I read the article --- it confirmed my initial reflex.

  "Gold Standard Fans Yearn for Great Depression."

  Right. Prove it. The article starts with an idiotic title and goes downhill from there. There is nothing in the article that supports its header. I know the idea behind a "grabber". But news flash to writer --- the grabber needs to find some support in the body of the article.

  I am fascinated as to why Sesit might think gold standard fans pine so for a Great Depression? I can only speculate because he does not tell me.

  Maybe just so that such fans can thus demonstrate that a Gold Standard is superior to willy-nilly money printing by the FED?

  This is like saying such fans are like Rush Limbaugh who wants Obama's plans to fail because those plans are unconstitutional. Notwithstanding that the whole fractional-reserve bank system and fiat currency and the Federal Reserve System actually ARE unconstitutional. But no one with any empathy for the suffering of fellow humans would wish the effects of such failures on them just to prove some 'academic' point.

  It's like suggesting that such 'fans' want orphans and single mothers to fall through the safety net just to watch them suffer. And just to prove that unconstitutional remedies won't work.

  Obama's plans (and the FED's) won't fail because they're unconstitutional or because gold-standard fans pine for a Great Depression --- they will fail because they cannot work. We cannot succeed with actions that have created the failures in the first place. What is the Obama team's approach? Homeopathic cures as Economic Medicine?

  I don't know which 'fans' Sesit is talking about. OK I will give him that there are the proverbial brokers who might sell their grandmothers for a nickel, but I am glad I don't move in circles where I know of either such 'fans' or such brokers. Maybe Sesit does move in such heartless social circles. In that case, I feel for him.

  I cannot materially add to Murphy's cogent arguments logically picking Sesit's stances apart. Sesit is IMO just making stuff up or repeating what he has read from some other mainstream Gold-paranoid neo-Keynesian economists, maybe like Krugman?

  Why the paranoia? Why not examine the positives against the negatives of any system? Especially when the current Central-Banks-led paradigm seems to be so broken?

  And you are right IMO, Mike Cuneo, to be afraid --- to be very, very afraid of what the FED and other central banks are doing.

  The point is not whether the so-called Gold Standard is superior. You don't even have to call it a Gold Standard. Just refer to it as a Rules-Based Money Supply System. Milton Friedman wanted such a rules-based system. He said he did not trust Central Banks to not be influenced by the politicians. Neither did Friedman trust them with their apparent do-good Social Engineering tendencies.

  Central Banks were supposedly established as arms-length institutions to be 'independent'. Some 'arms-length' --- those arms are shorter than the period at the end of this sentence. Being in bed with the political class is incongruous with running an independent organization.

  It's worse than that. The lessons 'learned' from the Great Depression are incomplete. Some lessons were well learned. Don't let money supply contract. Don't let savers lose their life savings. Don't raise taxes. Don't let prices rise (well that one clearly has been poorly learned given what the FED is up to). Have a safety net for people.

  But what we learned incorrectly was to think that the Great Depression confirmed that we should try to 'stimulate' our economy out of such a predicament. Our dear Ben is confused.

  Dr. Bernanke thinks that somehow in the Great Depression the authorities were 'slow' to 'jump-start' the economy. In fact Ben Bernanke is convinced that the more titanic and expeditious his additions to the money-supply are, the better this medicine will be. We all know what happened to the Titanic.

  Please see the counterarguments to Bernanke's position by IMO a very learned Janet Tavakoli at business.theglobeandmail.com/servlet/story/RTGAM.20090313.wtakingstock0314/BNStory/robColumnsBlogs/home?cid=al_gam_mostrecom

  Some outtakes from Janet Tavakoli's thinking:

  By printing money and throwing it at consumers to encourage more spending, the Fed and the Obama team are feeding the same bad habits that got us into this mess, she said.

  "We have to take the pain of realizing that trying to get people to borrow and spend more as unemployment is rising is a really bad idea. What we really want them to do is to be able to save up for a decent down payment, and somehow reverse the tide of housing prices declining."

  But are they getting it? Ms. Tavakoli doesn't think so. She is sharply critical of many of the people who are now working to find a solution to the financial mess, saying they were too involved with creating the problem and are unable to push for the hard decisions that will stop the credit bubble from reforming.

  "It knocks me back on my heels when I see that some of the people who were the most egregious offenders are raising their hands to help the government," she said, adding: "It's beyond a joke that this is still festering."

  What she advocates is the financial equivalent of kicking a drug habit cold turkey. No more no-down-payment mortgages. No more encouraging consumers to resume borrowing to buy homes and cars and televisions they don't need.

  "One of the things that Warren Buffett has said is that President Obama needs to provide clarity, and within that clarity it should be clear that we're going to promote prudent finance from here on."

  Except, in her opinion, that's pretty much the opposite of what the U.S. government is doing in response to the crisis. Rather than face the grim symptoms of a withdrawal from cheap and easy debt – falling consumer spending and the attendant disaster for car companies and retailers – the Obama administration is busy coming up with more ways to hand out money.

  Ms. Tavakoli pointed out that new no-down-payment mortgages issued under the auspices of government programs are now going into default faster than mortgages from before the credit crunch.

  And as for the next big Fed plan – to funnel as much as $1-trillion (U.S.) into a program aimed at restarting the securitization market to fuel new loans to consumers --- it almost leaves the voluble Ms. Tavakoli speechless. But not for long.

  "The financial meth labs at Wall Street firms – shutting them down would be a really good idea, but then don't create another financial meth lab at the Fed where the Fed becomes the entity that allows people to leverage up."

  Back to our friend Michael R. Sesit who IMO writes such mishmash about gold's investment potential, gold's ability to act as a hedge, gold's use as a monetary system anchor, gold's difficulty of extraction, its use for exchange rate policy, and so on, that I have difficulty seeing where he is taking us. He reminds me of B.S. logic. Befuddle them first, then move in for the kill, or not.

  I could understand if he had written first about gold's use as a hedge. Then deal separately with gold as a money anchor.

  "A return to the gold standard, where countries peg their currencies to a given quantity of the metal and thus to one another, is a bad idea. Gold-based monetary systems are overly rigid and restrictive, possess a deflationary bias and can be volatile."

  This is vapid repetition of Keynesian muddle-thought --- already addressed by Murphy. As R.P.M. writes, since he is not a psychoanalyst, he is unable to explain what motivates the underlying thinking of such anti-gold authors. I can see neither the logic nor the motivation.

  A gold standard tends to have a recessionary bias. When speculators and others attack a country's currency, the burden usually falls on that nation to adjust by contracting its economy and increasing unemployment.

  Not true. There is in reality NEVER any need for a nation to maintain its exchange rate. In fact later in the article, this position is completely contradicted by Sesit when he accepts the fact that Latin American countries and Britain have repeatedly devalued their currencies whenever their values became unrealistic.

  BY THE WAY THAT IS THE WHOLE BEAUTIFUL IDEA.

  When a currency cannot maintain its 'peg' it HAS to revalue or the country will face HUGE repercussions. This was the tragedy of China in the last 15 years. By not having a rules-based system, China never had to revalue. It simply artificially maintained its peg against the American dollar leading to huge maladjustments in trade and investment.

  This has turned out to be catastrophic for everyone but most of all for China (which is only BEGINNING to feel the fallout). A gold-based system would have guaranteed that China would have had to revalue UP and/or the Americans would have had to devalue against China's currency. But no, the 'game' was played right up until the chairs slid off the deck.

  The system places no matching requirement on countries with "strong" currencies to adjust.

  Wrong again, at least in a relative way. Both strong and weak would adjust in a rules-based system. In a gold-based system it does not really matter that the 'strong' country (the one with the export surplus) does not adjust. It is the relative adjustment that is crucial. This will allow a rebalancing before the iceberg is hit. So this point is devoid of meaning.

  Take South Korea. Its currency, the won, has fallen 29 percent against the dollar in the past six months. Such a depreciation wouldn't have been permitted under a gold standard. Korea would have been required to support its currency by raising interest rates to maintain the won's parity with bullion, exacerbating an already virulent recession.

  Says who? This is False. Stupid. Vapid. And dishonest. OK, only in my opinion. Please see earlier point that a country does not lose its sovereignty just because it joins a gold money standard.

  In a parable with relevance to today's economic environment, "attachment to the gold standard played a major part in keeping governments from fighting the Great Depression, and was a major factor turning the recession of 1929-1931 into the Great Depression of 1931-1941," Bradford DeLong, an economist at the University of California, Berkeley, wrote several years ago.

  Commitment to the gold standard prevented the Fed from expanding the money supply in 1930 and 1931, forcing President Herbert Hoover "into destructive attempts at budget-balancing in order to avoid a gold-standard generated run on the dollar," DeLong said.

  Hey, no one mandated to Hoover that he could not devalue. Because it was politically unpalatable for Hoover to do so, does not criminalize the Gold Standard System nor any other rules-based Money System. That was Hoover's choice and folly. No country in the world would have invaded America if Hoover had devalued against gold. Let's remember FDR did devalue against gold. Hoover could have done the same thing. There is such a thing as being "too married" to your purist philosophy.

  China, the U.S., South Africa, Australia, Russia and Peru make up the six biggest gold producers. If their mining operations were interrupted by, say, political upheaval, it could lead to deflation and rising unemployment. In contrast, major improvements in mining technology could ignite inflation.

  This makes me laugh again. Boy this guy should be on SEINFELD. Gold mining could stop. Or aliens could steal half the gold we have. Who cares? The system adjusts.
  Deflation? Don't get me started. Deflation doesn't cause a collapse in Aggregate Demand --- a drop in Aggregate Demand leads to falling prices.
  And if the growth in money supply did "stall" like it has before or if gold supply "grows suddenly" like when Spain conquered the New World, prices adjust. Things don't go off a cliff like they indeed have today, as the FED prints money like it was toilet paper.

  What's more, a gold standard isn't the panacea its advocates claim. A central bank's ability to adhere to it is only as strong as the population's willingness to endure the pain associated with enforcing the system.

  OK, where is the straw man who said it was a panacea? Sure it was better than what we have. And sure we are not going back to it.
  "The pain associated with enforcing the system"? Please read earlier rebuttals. This "pain" is a straw man.

  By the way, who says you need a Central Bank under a rules-based (or gold-based) system? It is not the Central Bank that would have to adhere to anything or even exist.

  The money system adapts by letting prices change as countries revalue their exchange rates against gold. Governments would have to enact policies that tried to be as pro-growth as those they traded with, to avoid revaluing. A revaluation would be what it used to be, a sign of relative failure.

  If a country was more confiscatory against its productive sectors, it would soon run into trouble, be unable to pay it way in the world trade market, and be forced to revalue. Lessons learned maybe for bad policies? But at least no long-run imbalances would be encountered that lead to the fiasco we have today.

  Countries periodically abandoned the gold standard during times of war -- Britain during World War I, for example -- and free-spending Latin American countries were repeatedly forced to exit the system in the late 19th century. The Bretton Woods System collapsed in 1971 when the costs associated with fighting the Vietnam War forced President Richard Nixon to suspend the convertibility of dollars into gold.

  What did I say earlier about writing 2 different things in 2 different sections of the essay? OK, we'll excuse the selective memory.

  Nobody is defending Bretton Woods. A flexible rules-based system does not mean going back to that flawed system. Not all countries can perform at the same economic level.

  I agree that not all parts of the old system were good. They do need modifications. But there is a difference between attacking gold-based, or rules-based, money systems on their own merits and then attacking what was Bretton Woods. They are not the same thing. Our friend at Bloomberg was not clear in his distinctions and to not discriminate on this issue is IMO intellectually disingenuous.

  By the way, there was a choice. Nixon could have easily have devalued against gold and maintained convertibility at a different rate. It was not too much later (if we can now remember for a change?) that the economic system revalued American money against gold automatically, without any political decision being involved. Or have we forgotten the inflation of the late 1970-s also?

  Bretton Woods could have been reformed. The choice made has shown itself finally in the outcome we have now, in our 'modern' world.

  BTW, yours was a great post, Deefburger --- after all, every person alive at any point in time over all of time, can say, 'I live in the modern era' --- unless that person wants to be avant-garde and say, 'Look at me --- I live in the post-modern era'.

  If you don't have faith in central bankers or politicians to ride herd over inflation, why would you trust them to keep a country on a gold standard for more than a short period of time?

  I wouldn't trust them. That's why "staying on a gold standard" is in the Constitution. Too bad no one reads it anymore. And too bad the American Federal Justice System failed the country when it did not enforce the Constitution against fractional-reserve banking, fiat currency, and the Federal Reserve System. But I have a feeling that revisiting these issues lies not too far off in the future.

  One last point on this whole topic. We can understand how badly the whole world has gone off the tracks, culturally, ethically, monetarily, economically, by simply reading the 'wisdom' from one of our esteemed Nobel laureates in Economics. Namely, Paul Krugman at http://www.nytimes.com/2009/03/02/opinion/02krugman.html

  In his own words in the op-ed in the New York Times on March 1, 2009:

  If you want to know where the global crisis came from, then, think of it this way: we're looking at the revenge of the glut.

  And the saving glut is still out there. In fact, it's bigger than ever, now that suddenly impoverished consumers have rediscovered the virtues of thrift and the worldwide property boom, which provided an outlet for all those excess savings, has turned into a worldwide bust.

  One way to look at the international situation right now is that we're suffering from a global paradox of thrift: around the world, desired saving exceeds the amount businesses are willing to invest. And the result is a global slump that leaves everyone worse off.

  So that's how we got into this mess. And we're still looking for the way out.

  What a great simple explanation --- jeez, wish I had thought of that. I too could be a Nobel Laureate!

  My response in an unpublished letter follows:

  Dr. Krugman perpetuates the myth of a Saving Glut first promulgated by Dr. Bernanke.

  It is illogical to think that a credit crunch can be created by too much saving. A surplus of saving would only relieve the credit crunch.

  Furthermore, such a Saving Glut cannot simultaneously be the cause of the credit crunch and of the credit bubble.

  The central banks of Asian countries manipulated their currency exchange mechanisms to create a huge backwash of dollars into America. It was this artificially-maintained flow that created the bubble, and if anything, depleted savings in real terms in both eastern and western nations.

  Both Japan and China among other export-oriented nations allowed their central banks to print huge amounts of local currency with which to buy up American dollars from their exporters --- at least those portions of the earnings that their exporters needed to convert for local use.

  Then the same central banks used the American dollars so acquired to buy American Treasury bonds.

  That refutes the conclusion that the oft-maligned poor Asian savers were responsible in any way for our woes.

  Links for my referenced materials are at
  
  minyanville.com/articles/index/a/9293

  globaleconomicanalysis.blogspot.com/2006/12/global-savings-glut-revisited.html

  Published: March 16, 2009 9:41 PM

• Gil

  Back to the original discussion . . .

  ". . . showing how with few exceptions it was relatively limited until its explosion in the 20th century . . ." - Inquisitor

  I presume you're talking of gross inflation there. Heaven forbid the 20th century actually saw an explosion of production of goods & services or that the 400 years prior saw little in changes in their economies.

  Published: March 16, 2009 9:48 PM

• Eric

  I used to be for a gold standard, but now I think that legalizing competing currencies would be a better idea.

  Which is more likely to be abused?

  If we had all sorts of debit cards, bank accounts, etc. all that cater to having gold backing; and all of these were intertwined with dollar denominated accounts, then all we'd need was to eliminate taxes on transfer between dollars and gold and no legal tender laws, I think it would be harder for them to unravel it all.

  Going off of gold is too easy.

  Published: March 16, 2009 10:21 PM

• HM

  Wow. Judging by the volume of comments and personal attacks, it appears this is a touchy subject. Kinda like religion or gun rights...
  I tend to agree with Greg. If you must have a gold standard, just have the geologists and engineers calculate how much gold is in the deposit and adjust your gold reserve numbers accordingly.
  You can save the cost of digging it out of the ground and all the soldiers at Ft. Knox.
  All the money you save can be used instead to bail out AIG or GM. (But not Universal Healthcare. That would be, gasp!, Socialist!!!)
  And the occasional Bre-X would really boost the economy.
  Other ideas? If you need a metal that is dense, rare, has limited use and is something governments would fight over, use plutonium. Plus it has the added benefit that your jewellery will glow in the dark.
  Or, better yet, base your new currency on wastpaper baskets. Stockpile the kind John Thain from Merrill Lynch prefers. Apparently these are each worth the equivalent of about two ounces of gold. And they stack nicely, so it reduces the size of the vault required to store them all. Granted, a little hard to make earrings out of.
  My smart-assed point, in case you missed it, is who cares. Despite how excited some people get about gold (or religion, or guns, or...), most people couldn't care less. In bad times, they just want a job, food on the table, and maybe enough money to buy their kid a GI-Joe (with Kung-Fu grip!) for Christmas. And in good times they want to borrow enough for a big-ass SUV to pull an even bigger-ass boat. They will never understand how digging a hole in the ground in Alaska or Nevada will help them do either.

  Published: March 16, 2009 10:47 PM

• Peter

  I see this same one size fits all kind of argument used by pseudo-Libertarian against reserve ratios. Banks should set whatever reserve ratio in whatever currency they like. Higher reserve ratios would garner safety and lower returns. Lower reserve ratios would equal risk and higher average returns.

  And robbing 7-11s is a low-risk, low-return activity, whereas robbing major banks in a high-risk, high-return activity - Libertarians should support all kinds of robbery.

  Published: March 16, 2009 10:48 PM

• Peter

  In fact, gold is a better conductor of electricity than copper.

  No it isn't. Are you thinking of silver?

  Published: March 16, 2009 11:02 PM

• HM

  Oops. Sorry, I forgot the best one. (Its late, cut me some slack).
  The very best is to use womens lingerie. Have you ever stopped to figure out how much you are paying per ounce for that present for the wife? And its magical - the less it weighs, the more it costs.
  Plus, if your wife ever finds strange lingerie between the sheets, you can always say "its nothing, honey, I was just reviewing our portfolio". Its a win-win.
  

  Published: March 16, 2009 11:04 PM

• Peter

  Take a careful look at the adjusted monetary base graph. Please notice the percentage of years of recession is higher under the gold standard years than the non gold standard.

  Well, duh! What does Austrian monetary theory predict will happen when you have a monetary system involving massive fraud (fractional reserve) and government interference at the same time as a gold standard? Versus a similar system able to print fiat money at will?

  The idea of linking a currency to a commodity that has very few uses is completely wrong.

  You don't know about Mises' regression theorem?

  Published: March 16, 2009 11:19 PM

• Oil Shock

  Marxism was not meant to be synonymous with state control, but giving that control to people who actually produce things for modern society. If anything, what transpired in your country was a testament to how to further take away control from the workers.

  I am sure some of the commies had good intentions. One needs to judge the ideology not by its purported good intentions, instead by the results. Results have been terrible: millions have been slaughtered like pigs.

  Published: March 16, 2009 11:44 PM

• Ned Netterville

  Greg: "What are the uses for gold? Basically it is jewlery."

  No, the primary and most important use of gold, for the welfare of civilization, is as money. If legal tender laws were repealed, and monopoly government money was not dictated, people everywhere would choose gold as the only money they need. Even with its monetary role suppressed, the current price of gold reflects its value as a safer alternative than fiat money for storing one's wealth beyond the short term.

  Interesting fact: during the late 1970s the U.S. Treasury embarked upon a program of monthly sales (auctions) of the nation's gold hoard for the express purpose of ending gold's antiquated role as money. During those months (about 15 and several million ounces as I recall) the price of gold increased rather relentlessly until Treasury realized the stupidity of its plan and quietly abandoned the much ballyhooed sales, although promising there would be additional sales in the future, for which I am are still waiting, like the cat who ate some cheese, with baited breath.

  Published: March 17, 2009 12:47 AM

• David Ch

  'In fact, gold is a better conductor of electricity than copper.

  No it isn't. Are you thinking of silver?'.

  Yes it is. And its marvellously ductile and malleable, outperforming all other metals.

  But the REAL AUstrian point is not that money HAS to be based on gold, but simply that whatever is used as money needs to be a commodity that has a meaningful cost of production ( hence limited supply), and it helps for it to be divisible, and neither perishable nor cumbersome. And if its useful in its own right, that helps too. Gold fits these bills more neatly than other things, hence it's invariably emerged as money throughout history.

  Having a money that entails a significant cost of production is the only way of assuring that it cant be debased at will by any authority. This is the central ( pun intended) fraud in the very existence of fiat money.

  Published: March 17, 2009 6:42 AM

• Mike

  A calculation made last year compared the operating costs of current central bank transfer ticket fiat paper for settlement of payment transactions. In addition to the usual costs of govt taxations, and inflation tax, were added a number of opportunity costs involving the various losses in value due to not having a sound commodity money.

  Among these were the depreciation of debasement, expressed in terms of the loss of increased purchasing power of specie; the loss of interest expense paid on the fiat money supply; an assumed, but not estimated, cost for mal-investment caused by central bank bubble-ism; absence of real earning power on cash balances; interest cost of capital borrowed to replace cash that would otherwise have accrued to revenue in excess of cost; and some others.

  The total amount of these various costs amounted to an annual rate of over 30% on the fiat paper involved.

  Good businesses do not earn this much. Good businesses do not even earn enough to pay the interest on a credit card balance (once the holder has been suckered into a string of balance transfers creating almost automatic "over limit" fines and fee hikes, - practices that used to be not only frowned upon, but considered shady, unethical and most likely associated with illegal "loan shark" operations.

  To leave out the damaging "Pelf effects" of this magnitude in appraising monopoly fiat paper vs. a commodity money such as gold, seems unwise. Electronic gold transaction mechanisms are working fine online and in ATMs. They could thrive in local shop trade and wages, too, if permitted. To reject doing so seems downright unneighborly and unkind.

  
  

  Published: March 17, 2009 6:56 AM

• fundamentalist

  "...gold is a better conductor of electricity than copper..."

  Yes, that is why connectors in high end electronics are gold plated.

  Published: March 17, 2009 8:18 AM

• NP

  the gold standard needs no defending. it speaks for itself with several hundred years of solid history. arguments to the contrary are illogical and silly.

  Published: March 17, 2009 8:23 AM

• Ken

  Is gold an inherently better conductor than alternatives, or merely less prone to oxidation? Whatever I know about electricity is more or less accidental -- I assume that to be a better conductor, gold would offer less resistance than an equal volume (cross-section?) of copper, aluminum, steel, or what have you. Am I in the ballpark?

  Published: March 17, 2009 8:32 AM

• fundamentalist

  The real argument for gold is that its supply is very limited so that its quantity doesn’t change. Fiat money would work as well as gold if the state made a computer the Fed chairman and it raised and lowered interest rates to keep the money supply growing at less than 3% annually, which is the rate some estimate the gold stock would grow. The problem with both the computer Fed chairman and gold is that the state doesn’t like the limitations on spending that both would enforce and will not stop manipulating them for its own benefit. Even during the periods when the world was supposedly on a gold standard, the state manipulated it so that it worked exactly as if no gold standard existed.

  So I repeat, the problem is not the monetary standard, but the thinking of the majority of citizens. If they think state theft of property is a virtue, then no monetary standard, gold or computer, will change anything.
  

  Published: March 17, 2009 8:36 AM

• fundamentalist

  I guess we need an electrical engineer to chime in, but my from limited work in electricity it seems that gold is also a better conductor, but it does corrude less, too. Copper is better than aluminum, but utilities use aluminum for most transmission lines, for weight reasons I would guess. One of the big advances in computer chip making was to use copper instead of aluminum for the electon pathways.

  Published: March 17, 2009 8:40 AM

• A.Viirlaid

  From HM:

  "My smart-assed point, in case you missed it, is who cares. Despite how excited some people get about gold (or religion, or guns, or...), most people couldn't care less.
  "In bad times, they just want a job, food on the table, and maybe enough money to buy their kid a GI-Joe (with Kung-Fu grip!) for Christmas.
  "And in good times they want to borrow enough for a big-ass SUV to pull an even bigger-ass boat.
  "They will never understand how digging a hole in the ground in Alaska or Nevada will help them do either."

  "They want a job."
  "They want to buy a gift for their kid."
  "They want some toys (SUV and boat)."

  It's precisely BECAUSE people cannot now get these things as easily, or maybe not at all, is why we always need a Money System that is stable and is not prone to political interference. It is largely because of the LACK of such a Money System that you should care. It has taken a long time, but that is WHY we are where we are today --- a Broken Money System.

  Sure some people seem to be enamored by gold’s luster, but no one here is suggesting that should be the reason HM needs to care about it.

  And, yes, if we found a way to replicate a Gold Standard "system" (that we could all stick to, all Central Banks included) then that way would be just as powerful and useful.

  The sad fact that so few people will ever comprehend the reasons for both the Great Depression and now, our Great Recession, is what leads to exactly the type of reaction coming from HM.

  It is understandable. If even mises.org cannot explain to people (to smart people, like Paul Krugman) that the current economic malaise was human-created, and could have been prevented, then there is little hope for not periodically going through these horrendous "corrections".

  And if such 'slow' periods only involved giving up the SUV and the boat, it would not matter.

  Once it starts involving our food on the table and roof over our head, and when we lose our livelihood, that is when things become serious.

  But what about world wars and fascism and communism? Revolution and rioting? Those things too all too often have their wellspring in money systems that are manipulated and used for the purposes of small groups who control those systems.

  Napoleon, Hitler, and a lot of really bad history can be traced to money system experimentation of central bankers and wannabe central bankers.

  HM, I understand why you see no connection. But that does not mean the connection between a lack of a rules-based money system and subsequent resulting human misery does not exist.

  THAT is why you and we ALL should care.

  And to Oil Shock:

  "Millions were slaughtered like pigs..."?

  If only that were true!

  Pigs are generally humanely-treated by their masters if only to grow great-tasting pork.

  The prisoner-slaves of totalitarian regimes were killed quickly only if they were 'lucky'. Otherwise, they were worked to death, starved to death, beaten to death, or tortured to death along with their loved ones, with eyes gouged out, teeth and nails pulled out, skin flayed off, burned alive, and so on.

  "Slaughtered like pigs"? If only.

  Published: March 17, 2009 9:43 AM

• HM

  A.Viirlaid:

  I understand. All your arguments about a stable money supply, etc. are all well and good.
  But here's the problem. You can't get Nobel economists to agree. Hell, you can't even get them to agree on whether we are facing deflation or inflation.
  So why would Joe Sixpack care about the gold standard. How does this translate into him putting food on the table (in a crisis) or buying a new truck (in good times) ?
  If you can't get Nobel economists to agree, and you can't get the average Joe to care, the politicians sure as heck aren't going to. They will continue to scurry around making it look like they are doing something constructive. Because that's what gets them re-elected. And sitting in Congress sure beats working for a living.
  The best spokesperson you have is Peter Schiff. But he gets drowned out by the talking heads on TV. Who are way better at putting things in terms people can understand. Stimulus ! Credit ! Bailouts ! equals Jobs ! New SUVs !
  What image does your message convey. Gold Standard ! Savings ! Hard Work ! equals ...

  By the way, silver is the best electrical conductor. Copper is even better than gold. (They are all Group 11 in the periodic table). But gold is used because of its resistance to oxidation. So you don't get a bad connection. Its fine for use in satellites and military applications (where price is no object, and the cost of failure is astronomical). Its also used in high-def tv connections (bought with borrowed money). But this is mostly a marketing gimmick. A plain old (cheap) tin connection will work just as well.
  So you see, you can sell the average person on gold, even when it has little use. Its just a question of marketing and sales...

  Published: March 17, 2009 11:21 AM

• A.Viirlaid

  HM, I agree with you.

  The average person won't care about anything except "fixing things".

  There is not going to be any real "solution" in the short run.

  The problems were LONG in being created.

  They will be VERY long in being cleared up. My guess is 10 years.

  The most we can hope for is that some semblance of clear thinking descends on Washington and the pols and the pros, economists and policy-makers.

  This approach of throwing everything including the kitchen sink at the problems will not work.

  Then maybe people will start to take a fresh look, and say 'Why did we do everything at once, hoping that something would stick when we had no idea of what we were dealing with?'

  Published: March 17, 2009 1:24 PM

• Peter

  In fact, gold is a better conductor of electricity than copper.

  No it isn't. Are you thinking of silver?'.

  Yes it is.

  Really?

  Electrical conductivity (MS/m @25°C):

  Silver 60
  Copper 57.9
  Gold 45

  In what universe is 45 > 57.9?

  Published: March 17, 2009 8:13 PM

• cavalier973

  So how would a privately issued, commodity-backed currency be practically implemented?

  Say that we have the 1st Bank of Ancapia. I deposit 10 ounces of gold in the bank, for which I get a receipt. Once the bank determines what exchange rate to establish for its notes (say, 1 ounce of gold = $1, so I would have $10 in the bank), how does the bank convert the gold into currency?

  Would it be that if I request a withdrawal in notes rather than actual gold, that whatever amount of notes I obtain from the bank, an equivalent amount of gold would be removed from my deposit box and put in a general deposit area? Otherwise, how would the bank know from which accounts it should draw gold bullion to redeem the notes brought to the bank?

  Published: March 17, 2009 10:09 PM

• Mike

  973

  Look at how the on line gold vault electronic payment mechanisms work. That should answer a lot of your questions.

  Published: March 17, 2009 11:37 PM

• fundamentalist

  
  HM: “My smart-assed point, in case you missed it, is who cares...So why would Joe Sixpack care about the gold standard. How does this translate into him putting food on the table (in a crisis) or buying a new truck (in good times)?”

  You’re right. Joe doesn’t care, but that is a sad comment on public education, not on the gold standard. In the 1800’s the average Joe discussed the virtues of gold vs. silver vs. paper money regularly on the street and in newspapers. They understood how the type of money related to jobs and food. In fact, you should read Washington Irving’s “The Crayon Papers” in which he has an essay on the Mississippi Bubble of 1720 and applies it to the US depression of 1819. Irving was a popular writer, not an economist. He wrote for the masses. He thought that average Joe of his day was interested and could understand money. You won’t find a better analysis of issue in any economics text, and you certainly won’t find anything as well written.

  Peter, Thanks for the stats on conductivity. Very interesting. I thought they used gold for connectors because it was a better conductor, but I guess it’s because it corrodes less.
  

  Published: March 18, 2009 8:51 AM

• Gil

  'Tis interesting that pure copper is a better conductor over gold. (I didn't know that until I looked it up. :\) Whist gold ought to be better than copper in terms of durability but I once read that gold is a better conductor than silver at higher temperatures.

  Published: March 18, 2009 9:22 AM

• Gerry Flaychy

  To cavalier973

  For the case that you propose, this bank would not give you a receipt but a promissory note, payable on demand, of 10 ounces of gold, or ten promissory notes of 1 ounce each, or another combination, at your choice, to the order of the bearer. Those promissory notes, or IOUs, are what we call bank notes.

  If those bank notes are well accepted in the region deserved by this bank, you will then be able to make transactions with these bank notes, and people who receives them will be able to do the same thing. Those bank notes will them become a "currency", at least in this region.

  Anyone who receives one of these bank notes can in anytime (business hours) go to this bank and ask for the amount of ounces of gold represented by these bank notes. The bank then can pick whatever number of pieces of 1 on. (or 10 on., or ...) of gold to pay him in totality (if all pieces of gold are of the same quality). With this system, no account at your name is necessary: it is of no use at all.

  Published: March 18, 2009 1:33 PM

• Gene Berman

  Guys:

  Silver's a better conductor than copper but is more subject to corrosion than gold. Contacts in relays, breakers, switches, connectors, etc. can, thus, be copper but where more resistance to corrosion is desired, are likely to be silver or gold. Bear in mind that, in the main, these are plated or vacuum-deposited coatings. The military spec for gold plating of this sort is 30 millionths of an inch, so the metal used is, proportionately, not very expensive. This is the case with silver coatings as well, although there are a few applications where pure silver is used; I've seen silver relay contacts weighing as much as a couple ounces apiece. Silver is also used extensively in producing wire and cable, both pure and as a coating. A gold coating is also preferred for mirrors intended to reflect as much light as possible in the infrared wavelengths(These coatings are only a couple millionths inch in thickness and are applied by a process called "sputtering" or, more usually, by vacuum deposition.)

  Published: March 19, 2009 8:22 AM

• Ned Netterville

  I don't know if anyone explicitly refuted the following statement Bob Stafford made.

  Bob, I didn't want to respond to your comments since others were doing that admirably, but I hate to let this go by without explicit refutation. You said, "Continuing then, you seem to believe that things are the way they are magically, and forget that the building of the foundations of systems which you now take for granted claimed more lives than any Socialist experiment."

  Joe, may I recommend for your reading pleasure the groundbreaking study of the murder of innocent, non-combatant citizens and foreigners by governments during the first 88 years of the 20th century by Professor R.J. Rummel of the University of Hawaii. The book that resulted from his work is, DEATH BY GOVERNMENT (New Brunswick, New Jersey, Transaction Publishers, 1994). His table of "Twentieth-Century Democide," lists four megamurderer regimes. The top three: USSR (1917-1987) 151,491,000; CHINA - PEOPLE'S REPUBLIC) (1949-1987) 61,911,000; GERMANY (NAZI) (1933-1945) 20,949,000. All three of these were socialist experiments. The numbers are many times more deaths than all the victim combatants of all the wars throughout the world during the same period (1900-1988), and many, many times more than all the lives lost to capitalism or capitalist regimes in the entire history of mankind. Socialism may be the deadliest pathogen ever to inflict the human species.

  Published: March 21, 2009 10:48 AM