Skip to comments.Let It Be Known That No Financial Crisis Was Ever Caused by Stable Money
Posted on 10/16/2012 5:29:24 AM PDT by SeekAndFind
There arent many blanket statements you can make about economics. Usually, it depends. But, theres one thing I can say with a fairly high degree of confidence:
No economic crisis was ever caused by stable money.
For some reason, the gold standard system has gained a reputation for causing crises. This is mostly from the Keynesian camp: they need floating currencies to play their funny money games. The purpose of funny money is to solve some kind of problem whose fundamental cause is typically not monetary at all. For example, we are now in a process of trying to solve a bank insolvency crisis, an unemployment problem, and a fiscal deficit problem, with a monetary solution.
The purpose of a gold standard system is to produce stable money. Nobody has found a better way to do so. For the most part, it works. So, how does this gold-based stable money cause a crisis? It doesnt.
Of course, many crises happened during the gold standard era, before floating currencies appeared in 1971. In the two centuries before 1971, people got into financial trouble for all kinds of reasons. Banks lent money to people that couldnt pay it back. Businesses invested in ideas that turned out to be not so hot. Governments borrowed and spent more than they should have. Destructive domestic tax increases were imposed. Countries got into tariff wars with each other. There were even a few World Wars, Civil Wars, communist revolutions, and so forth.
None of them were caused by money that was too stable.
Quite a few monetary crises and problems emerged too, mostly due to an unstable currency, or the threat that a currency could become unstable.
(Excerpt) Read more at forbes.com ...
Do we have enough gold to actually implement a gold standard?
Sure. Gold might be $10,000 an ounce, though.
You shouldn’t need enough gold to back every single banknote in circulation. The purpose of it is to instill confidence in the currency and fiscal discipline in government spending policies, with enough gold coinage held in reserve to supply reasonable demand.
“Socialism Is Legal Plunder” - Bastiat 1801-1850
“Watch money. Money is the barometer of a societys virtue. When you see that trading is done, not by consent, but by compulsionwhen you see that in order to produce, you need to obtain permission from men who produce nothingwhen you see that money is flowing to those who deal, not in goods, but in favorswhen you see that men get richer by graft and by pull than by work, and your laws dont protect you against them, but protect them against youwhen you see corruption being rewarded and honesty becoming a self-sacrificeyou may know that your society is doomed.” - Ayn Rand
I posted your quotes on my facebook. I hope you do not mind. I have a number of liberals on my facebook after my unsuccessful run for Sheriff this summer. I enjoy making them squirm since I get so many foolish posts from them. Keep them up.
Why should the size of the economy be limited by the amount of some shiny yellow metal we can dig out of the ground?
How much gold do you imagine we need? All it means it that dollar=X amount of gold. 10 pounds would be “enough”.
A gold standard does not limit the size of an economy, only the amount the curency can be inflated. The economy doesnt grow because we continually inflate the currency calling it a larger number of dollars to denote the same buying power.
Not even close. At current prices the government holds enough to run operations for a month or two, and they had to steal every bitl of that back in Grandad’s day. It’s a huge pile to be sure, though equal in value to just one major company on the stock exchange - say, Apple Inc.
Oh yes... you’re right about a loose monetary policy, and I’m not defending that. What I’m saying is that when the economy does grow the money supply has to grow with it in order to prevent things like runaway interest rates. At that point either more gold needs to be dug from the ground or the value of gold must fluctuate which... isn’t all that different from what we have now.
I know the gold standard sounds good and I’ve bee there myself. I’ve been a fan of Rand for a long time and subscribe wholeheartedly to most of her objectivist world view. I don’t buy into the need for a gold standard anymore though. Gold is just as artificial a currency as are paper dollars.
It’s also not terribly practical. I don’t know the math offhand, but the initial price would have to be some orders of magnitude higher than it is now, because there isn’t even close to enough gold to back every dollar at the current price. The initial gold-backed price might be somewhere over $100,000/oz or more. We could issue new dollars, but the same conversion problem still sits. When an ounce of gold is a few years salary it becomes awfully difficult to manage those tiny quantities. And don’t forget— somehow we’d have to first get ALL the “old” gold out of circulation before adopting a gold standard.
Messy, and in the end it hasn’t really changed anything. More demand for fewer dollars raises the price of money. Instead of inflation there’d be not a thin dime of credit. Interest rates would be confiscatory such that the economy starts to choke and sputter and die back until it fits within the money supply once again.
Thanks for giving these quotes a wider audience, midcop402. Thanks for your service.