Posted on 01/04/2013 6:59:58 AM PST by SeekAndFind
The most perfect monetary system humans have yet created was the world gold standard system of the late 19th century, roughly 1870-1914. We don’t have to hypothesize too much about what a new world gold standard system could look like. We can just look at what has already been done.
Contrary to popular belief, people generally did not conduct commerce with gold coins. Yes, gold coins existed, but people mostly used paper banknotes and bank transfers, just as they do today. In 1910, gold coins comprised $591 million out of total currency (base money) of $3,149 million in the United States, or 18.7%. These gold coins were probably not used actively, and served more as a savings device, in a coffee can for example.
Silver coins were also used, but by then they had become token coins, just like our token coins today. By 1910, most countries in the world officially had “monometallic” monetary systems, with gold alone as the standard of currency value. This eliminated many of the difficulties of bimetallic systems, which had caused minor but chronic problems in the earlier 19th century.
Also contrary to popular belief, there was no “100% bullion reserve” system, in which each banknote was “backed” by an equivalent amount of gold bullion in a vault. In the United States in 1910, gold bullion reserve coverage was 42% of banknotes in circulation.
For other countries, we can refer to Monetary Policy Under the International Gold Standard: 1880-1914, by Arthur Bloomfield. It was published in 1959. Bloomfield provides references to major central bank balance sheets around the world. He summarizes various “reserve ratios,” but includes not only gold bullion but also foreign exchange reserves (i.e., bonds denominated in foreign gold-linked currencies).
(Excerpt) Read more at forbes.com ...
I don't believe it will be very easy.
Living on printed borrowed money leads to a temporary higher standard of living that is just about to impossible to voluntarily give up. I see pain in austerity. -tom
During the panic of 1893 in America, unemployment rose from 3% to over 18%, and remained in double digits for six years. The panic of 1873 was even worse. Both were brought on by manipulating the gold supply.
So what? Our current currency is subject to manipulation purely on the whim of politicians, which seems less difficult and more likely than manipulation of the gold supply.
Wow. You dismiss two recessions which dwarf “The Great Recession” with a “so what?” By the way, the manipulation by the federal reserve at least represents the policies of the United States of America. The manipulation of the gold market could be done by the Saudis, the Chinese, or anyone else who decides they hate the United States. The 1873 recession destroyed the greatest empire to ever exist, the British Empire, which ruled over lands which now make up the majority of the population of the Earth. For two decades, the British economy collapsed, and by the time it regained its foothold, the French, Russians, Ottomans and Germans were vying for global supremacy.
That’s so what.
“The 1873 recession destroyed the greatest empire to ever exist”
Didn’t even hit their peak until 65 years later.
Really?
They had lost Ireland (1922), Egypt (1922), Iraq (1930), and South Africa (1932). Their dominance over China (1832) was greatly reduced after the Boxer Rebellion (1900). And South Asia was already collapsing.
The Empire was India or nothing. It wasn’t until India went in ‘47 that the decline was irreversable.
Remember, they lost the US in the 18th century and proceeded to dominate the 19th as well. The British Empire wasn’t weak. And certainly they didn’t fear the Ottomans at any point in time. The Porte hit their peak long before the Empire did.
I don’t know enough about the origins of the 1890s depression, but even if it was the second biggest in our history it remains that the boom-bust cycles have higher pitch and greater frequency since 1913. What’s important to know about the gay nineties, also, is that the problem was monetary, and always is.
Gold can be manipated, but not without a cost. There is a cost to fiat manipulation, of course, though less apparent. The thing about gold, though, is that, unlike whatever the government has decided to declare legal tender this week, you have to go get it. That doesn’t mean you can’t inflate and manipulate on top of it, with bank notes, securities, insurance, and whatever else money men fan dream up. But at least it all has to trace back to something.
What people forget is that when we had no central bank it’s not as if there was a free market on money. There were legally minimal fractional reserves, state-chartered banks, elastic laws for banks honoring contracts, various ingeniuos inflationary schemes dreamt up by corporate/ government collusion, government guarantees, and good old fashioned greed, theft, and hysteria.
The thing isn’t gold so much as the free market price system. The best commodity on which to base money and credit which best greases the wheels of commerce is gold, among others, for various reasons. But what’s more important is that government not stick its nose in the money supply, that banking and finance be treated like other ventures, and that inflation be outed by the cold light of day.
“Wow. You dismiss two recessions which dwarf “The Great Recession” with a “so what?””
Yes, because there will always be recessions, no matter what we decide to do. So we shouldn’t let the fear of a speculative recession happening cause us to continue on a course which we know with certainty will lead to calamity.
“By the way, the manipulation by the federal reserve at least represents the policies of the United States of America. The manipulation of the gold market could be done by the Saudis, the Chinese, or anyone else who decides they hate the United States.”
The Fed doesn’t represent our interests. It’s not in my interest, or the interest of most people I know to have a constantly devaluing currency which makes spending our money as soon as we get it the most sensible option. I suppose it’s good for businesses that rely on wanton consumer spending, but for most of us, it’s not a good deal.
As for foreign countries, if we go back to a gold standard, most countries on the world will follow us, either by rebasing their own currencies, or simply because the gold-backed dollar will be their new reserve currency. So, manipulating gold will damage their own economies as much as it damages ours. I’m willing to bet that most will not take the risk, and if some renegades do, well that’s why we have an army and nuclear weapons to protect our interests.
“The 1873 recession destroyed the greatest empire to ever exist, the British Empire, which ruled over lands which now make up the majority of the population of the Earth. For two decades, the British economy collapsed, and by the time it regained its foothold, the French, Russians, Ottomans and Germans were vying for global supremacy.”
Sad for the British, but we’re not an empire, and they shouldn’t have been one in the first place. I don’t shed any tears for the fallen follies of mankind.
>> even if it was the second biggest in our history it remains that the boom-bust cycles have higher pitch and greater frequency since 1913. <<
That simply is incredibly, ridiculously, phenomenally wrong. The Great Recession of 2007-2012 is by far the largest since 1939, and it’s a tiny hiccough. THere were recessions from 1865-1867, 1869-1870, 1873-1879, 1882-1885, 1887-1888, 1890-1891, 1893, 1896, 1899-1900, 1902-1904, 1907, 1910-1911 and 1913-1914.
Contrarily, in the last thirty years, there were recessions only in 1991, 2001, and 2007-2009.
Three in 30 years is a lot less than fourteen in 40 years.
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