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Gold Standard a Bad Idea?!

This idea that a commodity backed currency is a bad idea because those in power will hoard said commodity in order to dominate the economy lacks all regard for the origins of money and basic understanding of monetary policy in a free society. The Regression Theorem tells us that all currency can be traced back to a specific point in time in which it had previously been valued only as a commodity for industrial use, but at that point begins to be stored and accepted as a medium of exchange. The value of a commodity, in America’s case gold and silver, would go up because it now is used as a store of value for future trade and not just for consumption in its original industrial purpose. Use as a medium of exchange brings a commodity’s value up in the marketplace because it now has diversified its uses and the conditions in the market place add to or diminish its value based on supply and demand just as with any other commodity. Use as a medium of exchange, even though its employment as money is mandated by government, does not make it neutral or impervious to market volatility. If gold and silver were made to be legal tender once again and a group of people attempted to buy and hoard all of it, all that would happen would be a rise in the purchasing power of the American currency. Those that were frugal and kept there gold and silver stashed away would be made more wealthy which would have positive impact on the economy. If necessary people would start to trade with other, less precious metals such as nickel and copper. All of this talk of hoarding precious metals out of sinister intent is contradictory to begin with because it underestimates the amount of gold and silver that is already in the hands of private American citizens and the fact that both are industrial metals whose uses are more than just media of exchange.

“The quantity of money available in the whole economy is always sufficient to secure for everybody all that money does and can do” – Ludwig Von Mises.

The hoarding argument also lacks merit because it amounts to nothing more than a promotion for paper currency. The entire argument behind the use of a paper promise as a medium of exchange centers on the ability to use monetary policy to make the currency stable which is impossible as currency is subject to the same laws of supply and demand as any commodity on the market. The premise that stability is a measure of economic success is contradictory as a whole because economic change is the goal of every participant in an economy. A baseless, fiat currency also goes against all laws of human nature because in order to implement paper money you must first allow a person, or group of people, the power to print it. This enormous amount of power is far too much for any law or regulation to sufficiently protect the population from its eventual abuse. It is a far over-simplified explanation, but I am trying to keep this post short: so far as there is the ability to make something of value out of thin air those that have the ability to do so will find a way to inflate it and give it to their friends. This is why paper currency will always fail; even if monetary policy using a paper dollar works sometime throughout its existence (just as people love to point to the term of Paul Volcker as FED chairman)it is still inevitable that somewhere down the road it will be horribly abused until it finally collapses.

If America is to ever turn herself around, monetary policy will have to be the first place that we start. It is the drive for our entire over-centralization and imperialistic behavior. The monetary policy of the US has taken us into a very deceptive form of monetary dictatorship. Future generations must take the right to a free and legitimate currency as seriously as their right to free speech and their right to keep and bear arms or America will never reestablish and maintain herself as a free society.

When I say "gold standard" I do mean to lift the ban on gold and silver as a currency in combination with allowing competing currencies. Not to just hand control over to the FED of a paper dollar that is loosely tied to gold as was the case from 1913 until 1937 (when FDR stole the people's gold in an effort to continue the grand currency manipulation experiment) and continued until it failed altogether in 1971. In order for any currency to work it must be a commodity currency whose interest rates are determined purely by the market and kept sufficiently away from the hands of any soul that would fancy him/herself capable of out witting the direction that the free market would otherwise take them.

One last thing needs to be clarified, and that is the notion that free markets are subject to wild volitility, as Paul Krugman recently argued in an informal debate with Ron Paul, if left alone without monetary manipulation. His defense centered around the great depression which he claimed was not a result of flawed government policy, but rather was the result of the free market "run-amuck". This, of course, is fallacious as the federal reserve had been created sixteen years prior to the market collapse of 1929 and had egaged in drastic interest rate manipulation for the entire decade leading up to the great depression. The FED had held interest rates below the rate of inflation creating a bubble (just as it did prior to the collapse of 2007) and then after it burst policy was formed which added to the malinvestment where the markets would have forced its liquidation. Though markets do go through times of depression they are much less extreme and are over much quicker than they are under interventionist monetary policy. To argue that markets are more stable with Krugman's idea of good policy in place is as ignorant an assumption as one could make. The early 1920's saw a very depressed economy which was able to naturally correct itself and did so fairly quickly which was of course not the case for the great depression which finally ended after WWII, once the government did as the market would suggest and liquidated its malivestment, cut taxes and cut spending. After that calamity was over the markets continued their natural volitility, but as the FED now had unlimited ability to do as it pleased in attempts to stabalize the market it amassed massive amounts of malinvestment which had to be paid for through the robbery of the American citizen. These policies also did nothing to make volitility less extreme and Americans not only experienced wild economic swings in the last 3/4 century, but we lost nearly all of our currency's purchasing power and indebted our society to the point of bankruptcy. To argue for currency manipulation is no argument.

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lots of peeps on tonight

need a bump for discuss

bump

I'm tired of this ignorance on the Daily Paul...

Those who keep bashing "fractional reserve", when what we really have is "fictional reserve", need a little lesson in the history of banking from Ron Paul's own youtube channel:

http://www.youtube.com/watch?v=JeIljifA8Ls

Laws which force banks to back their currency with anything specific only cause problems, the key is to have competing currencies where banks can respond to demand for currency as needed, and pull it in as demand for currency falls. Of course if the people feel a particular bank is overextending themselves they are free to call them out on the amount of gold or w/e else their currency can be redeemed for.

But to say "fractional reserve" is fraud and should be banned, is just outright ignorant. "Full reserve" means a constricted supply which can not respond to demand. It would be like locking the amount of corn or wheat that could be grown even if there was demand for more, it would cause shortages...

In the 1800s laws forced banks to hold a certain amount of their reserves in government bonds, which caused shortages of currency. Canada had no such laws and their competing banks with competing currencies were free to create currency as was demanded and their banking system was one of the most stable in all of history.

The "ORIGINS" Of Money ? ? ?

Good post thank you !
I think you hit on something very important when you mentioned the origins of money.
You see real money had always been something of value until 1971 when Mr. Nixon declared paper dollars would no longer be redeemed in Gold, defying the Constitutional decree that Gold/Silver were the "ONLY" lawful money to be used in the USA.

Anything of real value "originates" from the earth !

There is still plenty of un mined Gold/Silver/Copper/Platinum/Palladium/Oil/Trees/etc.etc. in/on the earth! Through out history things of value have been "Measured" by the amounts of other things that they can be traded for.

These things that "Originate" in/from the earth will always have value.

Why are there wars?
To gain control/power of land and natural resources, which produce wealth that can be exchanged for different forms of money !

Gold/Silver are Still the BEST forms of money!

beesting

Freedom and Stability

Well it seems you argue for commodity-based currency, but then you admit that the corrupt will always attempt a takeover of said commodity. So... What will be the defense against that aggression? People might use your argument to assert that THAT is precisely why we should NOT use a commodity-based currency.

Also - you said: "Anything of value originates in/from the earth." ... But where do you think HUMAN INTELLECT comes from? Again, I think you're helping the other side. People will say: "Humans used to trade feathers, and shells, and pieces of metal... But humans have evolved and so should the way we transact with each other."

See - you paved the way for that reasonable-sounding argument.

Instead I would say: use commodities, not because they come from the earth, but because the amount of it (the supply side of it) is decided by the Earth, not some CORRUPTIBLE human. Therefore it is more stable, more dependable, more reliable.

Humans - for the most part - have abandoned the idea of Kings... FOR A REASON.

We don't need a human ruling over our lives.
We don't need a human ruling over our currency; that's what central planning IS - It's submitting to the will of a Currency King, or Currency Board of corrupt Directors.

Humans were born FREE.
And our currency should reflect that; it should be FREE of human manipulation.

It's a Freedom and Stability issue, not an "Origins" issue.

(It could also be an issue of Logic: Human-Ruling Currencies (i.e. Fiat money, money that was money simply because a king-like Human said so) have ALWAYS FAILED.

You've Completely Misinterpreted My Post Above,

Mr. Washington.

The Constitution wanted We the People to own our own money, Silver/Gold/ etc. The monetary act of 1792 set the value of things by weight. In the western USA Gold dust and placer Gold was used as money right up to the time Roosevelt outlawed the practice of using Gold as money, 1934. {Why did he outlaw Gold as money? Answer: He and his government couldn't control or tax a person that was digging Gold/Silver money out of their backyard.}

People the world over are still using, your quote," feathers, and shells, and pieces of metal", when they have nothing else to use as money.
I've been lucky enough to have traveled to different countries, and "Barter" is still widely used in every country I was in, including the USA. Go to a swap meet or flea market and see if any of the sellers will accept things other than FRN's.

I agree with the 2nd half of your post, but no where in my post did I say Kings or rulers should control money. As far as HUMAN INTELLECT having any monetary value, why are so many supposedly well educated people out of work now-a-days?
There must be a demand for intellectual individuals, otherwise it's worthless, while Gold seems to keep its universal value worldwide.

beesting

The money supply would be shrinked to much

result in a few elite controlling all the wealth or too easy for that to happen, i think a resourced back economy is the way to and yes including multiple currencies to be used not just paper.

If I'm understanding you, I totally agree...

Gold was typically the final backing, but there should be competing currencies. Those who bash "fractional reserve", also need to understand the difference between true "fractional reserve", and what we have now which is what I like to call "fictional reserve".

If these people who believe in a forced "full reserve" gold standard with laws prohibiting banks' ability to respond to the demand for currency, really were free marketeers they'd believe the money supply should adhere to the same laws of supply and demand as anything else.

We had competing currencies and banks were allowed to create as much currency as they wished to meet demand before state regulations and then after the Civil War, federal regulations which forced banks to keep a certain amount of their reserves in government bonds which restricted the supply, and tied their hands as far as being able to control their balance sheets. This created instability, bank runs, and constricted the supply of money to less than what the demand was, especially during harvest season. Canada didn't have the same regs and their banking system was incredibly stable. It was competing fractional reserve private banks... In the US we had bouts of instability and unnecessary deflation (the bad kind, not the good kind) because of the regs forcing them to back their currency with something specific (in this case government bonds).

Those who keep pushing for "full reserve" gold standard, and not competing currencies need to watch this video clip posted on Ron Paul's youtube channel:

http://www.youtube.com/watch?v=JeIljifA8Ls

I'm tired of seeing this ignorance on the daily paul, makes it hard for me to take the people here seriously whenever someone who TRULY believe in the free market gets bashed for wanting a real free market system with competing currencies where currency would adhere to the laws of supply and demand, but instead want forced "full reserve" gold standard which would be horrible, but in the opposite way of what we have now, which is not fractional reserve, but more like fictional reserve.

Gold standard harmful if still fractional reserve

Yes, the gold standard would be just as harmful as it was leading up to the Great Depression if fractional reserve banking is still allowed, leading up to the bank runs of the 1930's (when there was a gold standard). Heck, the Federal Reserve and the gold standard coexisted in reality (i.e. domestically) for two decades and in theory (international redemption of U.S. dollars) for six decades.

If it were any industry other than banking, the SEC would declare fractional reserve banking as fraudulent under GAAP.

facepalm.jpg

We need free banking/free market banking, not any sort of government forced standard... The problem is not the lack of any sort of government forced standard, and the problem is not fractional reserve banking. What we have now is what I like to call FICTIONAL reserve banking.

Calling fractional reserve "fraud" is beyond silly. In a true free market system if you do not wish to use a bank's currency which was only redeemable for gold then you are perfectly free to use nothing but gold and silver coins, but the vast majority of people will be using competing currencies which are redeemable for hard assets if history is any indicator of how things would work in a truly free market system.

From Ron Paul's own youtube channel:

http://www.youtube.com/watch?v=JeIljifA8Ls

http://www.dailypaul.com/229009/gold-standard-a-bad-idea#com...

the gold standard would not be more harmful

than today's monetary policy of fiat paper currency. A gold standard or a comoditty currency simply cannot exist for long under a reserve system in which interest rates can be manipulated. Which is why the gold standard and the fed could not actually "coexist" for long because the fed had to keep encroaching on the sovereignty of the currency until it was no more.

I absolutely agree

but that's not gold standard. That's "gold exchange standard". Gold exchange standard allows the govt to set rates for gold and in essence still continue using elastic currency with some pseudo-gold backing. In some ways that's probably even worse that what we have today (although it's hard to compare - they are both bad IMHO). That's why a lot of times you'll hear "oh, we had gold standard and that caused the great depression". Nope - that was gold exchange standard , and yes it was one of the causes - they had I think 30% backing rule, so they were printing the money and suddenly hit the wall when they couldn't expand it anymore, resulting in a screeching halt on the economy. (so then they went to debt-based which doesn't have this immediate results but rather you can keep expanding the supply infinitely and pass the debts on to the generations that follow. Clever)

Thank you OP for explanation...now can you help me defend

against the argument of "If we go back to a gold standard, there isn't enough gold to cover all the printed money?" I haven't been able to find a sufficient rebuttal in my limited amount of research, and being new to Austrian Economics, I may not be asking in the correct manner. Thanks!

There's plenty of gold to cover all the printed money

Finding a calculator with enough significant digits to compute the price in dollars is another matter.

"Gold Standard" is a

"Gold Standard" is a misleading term...in ancient times the majority of the population never owned a si.gle gold piece...however many had silver and copper pieces instead...there are many precious metals and any standard should include them all....people who save or are wealthy will end up.with gold and platinum...however for daily transactions people will use silver and copper...it worked before...it will work again.

Competing Currencies, =

= offer /& avail alternate currencies, i.e. gold, $ilver, nickel, copper, etc., = if any of them becomes too precious or scarce people have the choice to use something else (with intrinsic value). This way the people are Not forced to trust any govt or leader, because they are subject to change.
No secrets, no cabal, no cartel, and life will have very little confusion if you have no u$ury. U$ury corrupts govt., religion, law, education, making man impotent, dulls the edge of husbandry, .

The ability to hoard is critical for wealth storage.

It isn't a negative at all. The ability to hoard - actually the ability to preserve purchasing power over time is an absolutely critical part of a wealth store. Which is what gold is.

The actual use of gold as currency is secondary and detrimental to its primary good; the ability to store value through time.

If you want to gain understanding about gold in use, the are two exceptional references. One is the writings of Antal Fekete; the other is the writings and discussion at FOFOA.

Yes it's a terrible idea. I

Yes it's a terrible idea. I don't want a standard, I want gold. Let the market set the value of a unit of weight.

The problem

The problem with the gold standard isn't the gold, its the standard. Any attempt to fix the price will cause problems.

Shire Silver - a better bullion that fits in your wallet.

A thorn in our side

One argument I hear repeated often is that if we had a gold standard there would not be enough money around for a growing population - therefore we always need to print more money.

I have heard this countered as the population increases then the prices of goods would actually fall to suit the amount of money available per person.

Is this correct? I have heard the argument for printing money online and the argument above ended the debate in our favour.

Lord Acton, Lord Chief Justice of England, 1875 - "The issue which has swept down the centuries and which will have to be fought sooner or later is the People v. The Banks."

No standard!

Yes, if you let the price of the money float, then a natural balance will be found by the market. With the supply of money held stable and the supply of food increasing, the price of food in money will go down.

Of course, when using gold as money there was usually a 3% or so growth in the money supply due to new mining.

Shire Silver - a better bullion that fits in your wallet.

Use Rome as a Model

in the ancient days of rome, rome grew to be the wealthiest and most advanced civilization of the time. What killed it was the same thing that is killing us now...their banking system.

Rome simply printed money from the government. That put lots of money into the economy through massive public works projects. It was not until banking laws were put in place which allowed fractional lending....then wealth was transfered to the bankers and their friends, the banks eventually took control of the government, bankers lead the roman nation to war, bankeres promoted theater and manipulated teh government there to make it law that people attend the plays. Through those plays, they manipulated the public perception and eventually it all collapsed. Very similar to where we are at today, the media being the propaganda machanism of our time.

In rome, money became a commodity in and of itself, rather than a tool to facilitate commerce. I say we just leave the financial system planning to Paul, he's very knowledgable and is an honest man who will make all of his dicisions based on the best interests of people, but without a doubt our current system is coming to an end. If Obama or Romney is at the helm, it will be an utter collapse and give way to their bosses to take the US back. It was a fun 250 years of freedom...but it's on it's way out the door.

we need a free market standard!

Everything else will fall into place.

if we're interested in the gold standard

in the way the anti-gold-standard people portray us

then why are we the only people working so hard to save the dollar?

Gold Standard

I think, gold standart is not necessary as a federal law. If you allow competing currencies, market itself will destroy all fiat currencies immediately. In free market the question is simple: "What currency you want to use?". If sound currency is available, people will never choose fiat currency.

Fiat currency would be just fine

if every politician was as honest as Ron Paul. But then there would be no FED, IRS , or entitlement system. Paul said he would sell gold bonds if he was running the Government. This would be a good way to get us back on the gold standard slowly.

As for my own preference I am a silver bug. Silver is the most under valued precious metal on earth.

I would rather have my wealth tied up in silver than any fiat currency, because the fiat currency system is going down. A lot of people on the DP seem to want gold and silver to be declared money right away. I don't see this happening any time soon, because everyone is so tied up in the current currency system we are in now. We all been so brainwashed to put a FRN's value on everything even gold and silver is treated this way.

I am on your side we need a real change in our monetary system, but it will have to be a gradual transition.

Gold standard: because man can not be trusted to control his greed

no it wouldn't, even if there were nothin but Ron Pauls

ron paul himself even said as much, no one knows how much money an economy needs ever.

You haven't read END THE FED

it isn't the currency at fault, it's the crooks running the system. You also need to listen to Ron Paul in his own words. On MSNBC he said he would sell gold bonds if he were running the government. This would be for one thing, getting the currency back on the gold standard. Also in END THE FED book he states: We would be taking a huge step restoring our currency if we take the currency printing press out of FED control, and give it back to the treasury dept.

I agree gold and silver need to be declared as money and not just a commodity, I would love to take my silver to the store and buy groceries. It is the corruption of the banksters that are hurting the true value of gold and silver. Silver should be minimum $200 per oz because it is in such short supply, in true market it would be more like $500.

Even our founding Fathers liked a fiat currency, they gave the colonies colonial script. But after the Revolutionary war they seen it was corruptible because the British printed it also. There needs to be a system in place that is controlled by the free market, but overseen by Congress. If you leave it up to gold and silver only currency then your having trouble with shortages in the currency. This has happened in the past when countries relied on gold and silver only. The Rothschild Family came to be the most powerful family in the world, because they got control over the monetary system that was gold and silver at the time. So which ever system is chosen it can be corrupted if crooks get control.

The best solution would be all citizens should be required to take a class Constitution 101 before they can vote. If everyone understood how our constitution was meant to work, the currency system would be less corruptible. But I know that would never happen.

Gold standard: because man can not be trusted to control his greed

I like Dr. Paul's idea about

I like Dr. Paul's idea about competing currencies. We should have options and the freedom to choose which of the currency options work best for us in terms of retaining value, etc.

...

like to hear from someone that doesnt like gold

I've seen like 3 peeps on the DP talk about gold currency as a bad idea and they listed the idea of hoarding gold as the reason. My econ professor a couple years back gave the same argument so i imagine thats where they get it from.

I'd like to hear from someone that thinks gold is a bad idea