[shrinkermd]

Mr. Carroll's arguements are not easily disposed of.

[DallasMike]

Very nice article. I was a fan of the gold standard for about 4 days while I was a college student. The arguments for the gold standard make perfect sense -- until you realize that they're built on shaky foundations. Most gold enthusiasts don't know it or won't admit it, but when economies were gold-based, they experienced inflation, deflation, and bank runs just as modern economies do.

[Vigilant1]

Here are some questions I never seem to get answers for from gold standard advocates:

- How could our nation aquire enough gold or other precious metals to back the necessary amount of currency for an economy the size of ours? We sure don't have such reserves now.

- What real benifits will a gold standard bring us? History shows that a gold standard in no way prevents currency manipuation or economic disasters. So where's the benifit?

- Does anyone seriously believe that if there is a 'run' on the currency, i.e. everyone tries to redeem their notes for gold (as they did during the Great Depression), that any government would actually redeem all their notes and allow their gold reserves to be wiped out?

- Does anyone seriously believe that a government can be trusted to issue only the number of currency notes that they can fully back with gold?

- What happens to the currency if a technological advance creates a cheap method for extracting gold? Or if there is a huge gold strike? When gold is devalued, won't the currency's value collapse with it, precipitating a massive economic crisis? After all, gold is a commodity like any other, and we all know that the free market will always eventually triumph over any attempt of any government to fix the price of a commodity, right?

- In the final analysis, even with a gold standard, doesn't the value of the currency still depend on the peoples' faith in the issuing government, just as it is now?

[headsonpikes]

An apology for the crooks!!!

Who woulda thunk it? LOL!

I note especially his concession that All paper money has ended up worthless!!!

More tomorrow. LOL!

Really, this three-card monte dealer is no slicker than the others-- just more long-winded.

[balrog666]

Bump for tomorrow with excellent coffee.

[TAP ONLINE]

Remember a few years ago when Internet , Cable, and tele everything stocks were sky high?? Proponents argued that the business cycle was over. They believed that the value of a stock was not based on something intrinsically real ( such as selling something for money and perhaps even reporting a profit.) The old notions of how an economy worked were archaic. Well doomsayers were belittled. Told they had missed the train. Then quickly they themselves were hit by that very train. Ah, there was a market. Heartless, brutal without mercy. The “Rational Market” proponents forgot that the market is rational in the long run. In the short run whether it is tulips, Mr Ponzi, enron or IDON”TMAKE OR SELL ANYTHING.COM people are vane, selfish, stupid, and greedy and will believe anything if it is sugar coated.. But in the long run the market rules. Real values are recognized.

This article on gold reminds me of all the mindless tripe once written by Marx, Keynesians, and last years stock analysists on how they have circumvented, controlled or ended the market. They are on the ash heap of history and many more will join them. One man’s or many men’s opinion of the market or of a real monetary unit does not make them right. Gold is real, it is desired. It needs no ones approval or backing. You can’t control its supply and that is the rub. Governments seek control. That which can not be controlled is always dangerous. Forgive me for being repetitive, but you need it rammed into your heads.
Yours in Freedom
TAPONLINE

[VinnyTex]

Mr. Carroll's arguements are not easily disposed of.

The Gold (un)Standard "... the disastrous inefficiency which the international gold standard has worked since its restoration five years ago (fulfilling the worst fears and gloomiest prognostications of its opponents) and the economic losses, second only to those of a great war, which it has brought upon the world..."--J. M. Keynes(7)

Sure they are. For starters he's quoting John Maynard Keynes. The worst economist of the 20th century who freely admitted that his theories would work better in Nazi Germany.

[David]

Before addressing the underlying argument, it is necessary to address several basic concepts and definitions.

We have never had a true specie money system for any meaningful period of time. Periods in which we were nominally "on the gold standard" or "gold reserve money system" were really variations of the current fiat money system for the reason that the government could, and did, fix the price at which gold would be used as a basis for exchange; and the reserve ratios held against the circulating paper.

Why not use silver or some other metal--because there is more of it, which increases the risk of commodity price movements that would adversely affect its utility as money.

Well we don't have enough gold to use gold as our only money? Of course we do, this is just another fiction introduced by the bankers who have something to gain from the fiat or fractional or reserve system. And since this is one of the principal arguments, I am going to address it here.

One reason gold is so cheap at the moment is because it is not in regular use as money--one reason the price is increasing is because it is being appropriated for monetary purposes by the market. No one can know what the real market value of gold is in a specie money market system. Demand for gold to use as money will result in a significant increase in the value of gold--it will be used for a much wider range of purposes than locked in a box as a store of value. But say hypothetically, the number is 10,000 (current US fiat dollars) an ounce. So your basic currency unit is 1/10000 of an ounce of gold.

Gold commodity price fluctuations would be a problem? Really. Gold goes from 10000 to 10100 (a huge move)--your currency unit changed 1%--we don't even notice a 3-3.6% fluctuation resulting from price level fluctuations (inflation) in the fiat currency. And in the gold system, flucuations would be increases in the value of your money rather than decreases.

At this point, it is difficult and costly to extract the stuff from the ground. And for the same reason the economy demands more money from the fiat system, there will be increasing demand from the gold money system also--as the economy expands, additional volume of money will be required and the intrinsic value of the gold will go up. There is enough of it above ground that an addition from a new discovery is not going to materially alter the total supply.

" - How could our nation aquire enough gold or other precious metals to back the necessary amount of currency for an economy the size of ours? We sure don't have such reserves now." This is answered above. But you would not use the gold to "back" the currency--the gold is the currency. If you don't want to carry the stuff around in your jeans, you give it to the local bank and get a receipt against which you write checks or whatever.

" - What real benifits will a gold standard bring us? History shows that a gold standard in no way prevents currency manipuation or economic disasters. So where's the benifit?

- Does anyone seriously believe that if there is a 'run' on the currency, i.e. everyone tries to redeem their notes for gold (as they did during the Great Depression), that any government would actually redeem all their notes and allow their gold reserves to be wiped out?

- Does anyone seriously believe that a government can be trusted to issue only the number of currency notes that they can fully back with gold?

- What happens to the currency if a technological advance creates a cheap method for extracting gold? Or if there is a huge gold strike? When gold is devalued, won't the currency's value collapse with it, precipitating a massive economic crisis? After all, gold is a commodity like any other, and we all know that the free market will always eventually triumph over any attempt of any government to fix the price of a commodity, right?"

All this remaining nonesense assumes the government and some government reserve arrangement has a role in the monetary system. It doesn't. Government's participation is the problem. A gold money system should leave government out. You need to have some legal arrangment to be sure that the coin that says it contains 1/10000 of an ounce or 1 ounce or some fraction or multiple really contains what it says it contains but that is the end of the Government's role.

Can't do it because the Government won't like it? At the moment. But we have a democracy. And pretty soon we are going to get a real lesson on how bad the fiat system is at which point when the democracy replaces it, we should have a clear view on what we are going to replace it with.

Because the real issue is wrapped up in your question about why we do this. You, this nonsense author, and the other defenders of the fiat system are about to get a lesson from the marketplace about why this is so important.

[Chewbacca]

If you lived in Argentina today you would know the true value of gold when the bank account is frozen and ATM machines out of paper money and you are down to your last peso. If you look at a chart of the gold price in Argentina pesos, you can see what happens to the value of gold when a currency dies.

Gold is money. Paper fiat notes are currency. Currency can be printed at will. Gold makes the bankers honest and limits the spending of government. Gold prevents government bloat and excess spending and that is why politicians and bankers hate it.

[TopQuark]

If people were stranded in some remote location without food, water, and shelter, a mountain of gold would serve no more purpose than so much sand. It would have no price.

Not exactly: it would have a price, and that price would be zero.

[ghostrider]

You sure stirred up a lot of heffer dust with what, in my humble opinion, is a bull crap article. The fun thing about economics, like politics, is that one can say just about anything and then prove it with a whole lot of nothing that can't be disproven.

On the bottom line, after all the heffer dust settles, an economic argument must pass the sniff test. Your article passes the sniff test about as well as a Ponzi Chain Letter sniffed by a soccor mom. As long as you have enough soccor mom investors, you can get someone to trade their gold dust for your heffer dust. But, eventually even the soccor moms will get bound up on all that crap. When they finally realize that some slick talking con-artist has traded them paper political promises in exchange for their gold, the stampeed will be on.

[The Big Econ]

A currency's backing seems less important in light of alternative mediums of exchange that are aloud to compete. In my view, the Fed would serve our long term economic interests better if it acted as a currency clearinghouse, issuing a common unit of currency according to the value of many competing currencies, whatever their backing. Politically speaking, let us not forget the main reason for central banking: public finance, which, depending on your ideology, translates into national security. Of course, we pay a little insurance premium every day for such security as the currency is gradually diluted. Is it worth it?

[weikel]

Bump. But still the Fed should be abolished let interest rates go back to the free market.

[taxtruth]

This article is a lot of doublespeak garbage.Gold rules!

[Yardstick]

*bump for later*

[Junior]

Modern society could not run without it or some equivalent accounting system.

Now if we can just get those utopian-bastard Star Trek writers to understand this.

[Dementon]

placemarker

[discostu]

Wow I'm finally not alone. The history of money clearly shows that gold backed currency is just as imaginary as anything else. Unfortunately it's a shared halucination that mankind has believed in for thousands of years and some people just don't want to shake it.

Thanks for this, I'll be bookmarking it for quick use in the regular "we love gold" discussions here.

[realpatriot71]

Some interesting points that I had not thought about before. However, the reason I still like gold is that it is substantive. Yes, you run into most of the exact same problem with or without gold, but at least in the end, you know that the note you have can be traded for gold. I guess that somehow makes me feel better.

[Harrison Bergeron]

Almost all the gold is mined in South Africa and Russia. Why would we want to give control of the world's economy to the Third World? And how do I carry it to the supermarket? Would I need little pieces of paper saying that I've got gold deposited somewhere? Now we're back to paper money.

The new arguments for the Gold Standard sound suspiciously like insidious transfer-of-wealth schemes that leave the United States with it's pockets turned inside out.

[inquest]

There's been a lot of talk about inflation on this thread. I have a question for those with more knowledge of economics than I. I understand that the amount of money circulating in the U.S. is somewhere in the vicinity of $400-500 million (maybe a little more - I think my information is old). I also understand that our annual trade deficit is... somewhere in the vicinity of $400-500 million. This would mean that every year the value of our dollar should be cut roughly in half. But that doesn't seem to be happening. Does anyone know how these numbers add up?