Absolutley true. The federal government has never held enough specie to back the currency issued. In the Great Depression, when there was a 'run' on the currency as everyone tried to redeem their notes for precious metals, FRD was forced to take us off the 'gold standard' (really the silver standard; one dollar = 371 grains of silver) as there was no way the fedgov could make good on the promise printed on the currency they issued.
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d:
"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."
All precious metals are quite vunerable to market manipulations and real changes in supply, as I explained above. To think otherwise is to lie to one's self.
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d:
"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."
Good luck.
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d:
"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."
So far, you haven't said anything that hasn't already made clear in this thread.
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d:
"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."
These are the huge flaws in your argument. You assume that the supply of gold won't significantly change. You also assume that if the supply isn't significantly changed, the value of the commodity can't be manipulated. These unsupportable assumptions are a foundation of sand on which to build a currency system.
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V1:
"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."
d:
"This is answered above."
The only problem is that the answer is wrong.
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d:
"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."
This thread is about a gold standard, a gold-backed currency. You are proposing gold as a privately-held currency, an entirely different concept. You should have made this clear at the beginning of your post. While this solves the government problems, it does not in any way address the supply and valuation issues.
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V1:
"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?"
d:
"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."
No, government participation is only part of the problem. Gold is merely a commodity, and gold traders will alway be able to manipulate the value as they do with other privately-held commodities like oil, wheat and pork bellies. Governments will still have large stocks of gold, and they can likewise manupulate the markets by hoarding or dumping their gold reserves by simply controlling the moment they spend the vast amounts of money they spend to provide government services. If they hold back for several months, then spend and pay outstanding balances due all at once, they can drive down the value of gold. They can restrict the supply by massive short-term borrowing. Your premise seems to be that the value of gold can't be manipulated if the government doesn't issue the currency. That is a laughable and naive idea.
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d:
"Can't do it because the Government won't like it? At the moment. But we have a democracy."
We have a herd of sheeple insuring that the fedgov remains in control.
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d:
"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."
LOL !!! That prediciton has been made almost daily since FDR took us off the silver standard. The one constant thing about gold standard advocates is their absolute certainty that economic disaster is virtually always 'right around the corner', although it never seems to arrive. They are convinced only they have the 'real truth', and insist that their baseless predictions are to be blindly accepted as factual. Anyone who questions this is to be burned at the intellectual stake as a heretic (usually by personal attack, being labelled an idiot and/or liberal). If there's one thing that history has shown us, it's that no one can accurately or consistently predict the direction of the economy. You certainly can't.
It sounds like all you're saying is that things wouldn't be perfect under Dave's system. No doubt they wouldn't be. But the real question is whether or not it would be better than the current system. If government can manipulate a gold market, what are they capable of doing to a paper market? As I see it, the only way you can be in favor of a fiat system is if you trust the government to do what's right. Gold-based systems (be they gold-backed currency or private gold money) either reduce or eliminate the government role. You haven't said why that would be a problem.