Fiat currency is superior to a gold standard.
Submitted by Bonhomme Richard on Sat, 03/28/2009 - 16:34"The more I look into it, the more convinced I am that fiat currency is superior to a gold standard.
In short, the gold standard is the idea that money/currency should be backed by gold, so that people who exchange money are, in fact, exchanging ownership of an amount of gold. This supposedly gives people confidence in that their money retains its value and is linked to a real, physical "thing" that can be measured and given worth.
Fiat currency, on the other hand, is money with no backing at all. Fiat currency is created through the fractional banking system as both the central bank and commercial banks create it as it passes through deposits and loans.
There is a lot of talk around the internet at the moment about the horrors of fiat currency and the importance of putting money back onto a gold standard. The Ron Paul political movement was not the creator of this movement, but did certainly help it along the way.
Let me just simplify some of the concerns I have about returning to the gold standard.
1. A Gold standard was in place before 1929 and continued through the great depression. If anyone thinks that returning currency to the gold standard will somehow solve the current economic crisis ignores that simple fact. It was not the gold standard that caused the great depression, but it was not the gold standard that helped the world's economies recover from the depression. Similarly, the current economic crisis is not a result of fiat currency and the fractional banking system.
2. Gold is only valuable because people attribute value to it. Gold is not somehow valuable in and of itself, like some sort of philosophical ideal. No. Gold is only valuable because human beings want it. Money, like gold, is something that people can value. Money created within a fractional banking system - ie not backed by gold - can and does retain its value. Japan, for example, has a fractional banking system, and they have experienced deflation over many years (deflation is when money rises in value against goods and services).
3. Like all goods and services, gold's value is determined by the marketplace. If currency were backed by gold, what would happen if there was an oversupply of gold? With more supply comes lower prices, which means that money backed by gold can easily devalue (and cause inflation) if gold supplies increase. Restricting gold mining is an option, but a gold standard would turn gold mining companies into the world's central banks. These companies are not mining gold in order to keep the world economy stable, they are mining gold because it makes them rich. If a gold mining company strikes a very rich gold seam and begins to flood the market with gold then it would, of course, result in a currency devaluation.
4. A fiat currency is controlled by a central bank. The supply of money can be easily regulated through monetary tools like interest rates, bonds and reserve requirements. Inflation is, of course, an issue in any economy but it is not sourced in a regulated fractional banking system. Even though central banks have the potential power to create an infinite amount of money, they do not because money's value needs to be retained in order for it to be used effectively. Put simply, hyperinflation and hyperdeflation are contrary to a central bank's purpose.
5. While it is true that a fractional banking system could create an infinite amount of money, the reality is that money is used by humans, who pick and choose when to buy or save or invest or borrow. This slows down money creation. It is therefore entirely possible (and proven in Japan's case) that a fractional banking system can maintain price stability." -- by One Salient Oversight
Voluntary vs. Force
Before we debate on what the best form of money is, let's establish one thing.
Do you advocate that a certain monetary system be forced on the rest of us?
Or do you believe in voluntary interactions?
All laws which give the Federal Reserve its monopoly on money must be repealed. All legal tender laws must be repealed.
The solution is to legalize competing currencies. After this is done, then we can debate about which form of money is better through the free market.
Fiat currency and fractional banking not the cause?
So...the federal reserve banks that can lend money they do not have, i.e., fractional reserve lending, does nothing? Making someone pay back interest on a "thing" the lender never had to begin with--plus the price of the "thing"--does not lead to any problems? What are you saying here?? That is utter nonsense. Honestly, what's the point of reading the rest of your "points" when the premise of your thesis ("fiat currency superior to gold") lacks rudimentary understanding coupled with acquiesence in the face of fraud, i.e., fractional reserve lending????????
Nonsense.
Perhaps in theory only.
Fiat currency allows massive booms and busts.
Ron Paul 2012
www.josiahgarber.com/blog
www.heirloomgardenpro.com
www.mennonitesforronpaul.com
and to finish the statement...
you said "Fiat currency is superior to a gold standard."
What you neglected to include at the end of that statement is that a fiat currency is superior to a gold standard for those who create the fiat notes.
It's true, a fiat currency IS superior to a gold standard. It makes easy manipulation of the value of the currency possible, it makes inflation/deflation cycles possible, it makes it easy to steal money from the masses without them ever knowing it. Imagine how difficult and expensive it'd be for the government to have to deploy troops every time they wanted to steal more money from their citizens without a fiat. Geesh!
So yeah, fiat currencies are superior to commodity based ones. For the creator of the fiat that is.
Promoting Price Stability
promoting price stability is not the point, it's like creating jobs when what you want to do is create productivity.
In the end, we're doomed to cycles of inflation and price stability, no matter what the government does (if you read "the great wave" you will understand this). But deliberately inflating the currency is just about the worst thing you can do.
So How's that Fiat Currency working out for you?
Milton Friedman?
I suggest you spend a couple of hours listening to or reading Rothbard's
What Has Government Done to Our Money and The Case for the 100% Gold Standard.
I did the other day while driving home and it made me even more convinced that only via a return to private market-driven money can civilization flourish. Manipulation and maintenance of a 'fiat' standard is untenable and at explicit odds with human liberty.
They are available via www.mises.org and well worth whatever currency you decide to pay with.
To your first point, the gold standard that existed at the time had already ended with the Fed issuing credit notes (FRN's) which circulated alongside the gold dollar. Gold did not cause the Great Depression, but rather helped mitigate the effects of the liquidation of the excessive debt created in the wake of the FED's issuance of all those 'extra dollars.'
Your 2nd point is simply describing how the market arrived at choosing gold as the money commodity.
Point 3 betrays a lack of understanding of the law of supply and demand. Gold mining is not a terribly profitable venture. Only in times when gold is severely under-valued because of Gresham's Law and the breakdown of the fiat currency can scads of money be made by investing in mining companies. Otherwise it's a very capital-intensive, high risk, endeavor whose activity is set by the demand for the product just like anything else.
Point 4 is utter nonsense.
Point 5 again betrays a lack of understanding. Creating money ad hoc punishes producers in favor of non-producers. It is theft and therefore immoral. The choice to save or spend is taken from them as the act of saving in the face of inflation is against their best interest (the money loses value while saved and not spent) and therefore irrational.
Your concerns are primarily the most basic of reservations and betray a lack of understanding about what is the role of money and how it functions.
So, again, I reiterate, read Rothbard to alleviate your misconceptions about what happened during the last deflationary depression, quite different from today's situation.
Ta,
Blog: The Present in Plain Text
Listen to The Myo-Tonics on YouTube
Permit competing currencies
Permit competing currencies as a transition. The market will bear out an eventual conversion to gold & silver money over inflationary fiat paper in the end.
That is precisely Ron Paul's
That is precisely Ron Paul's 'transitional' solution.
I urge people here to scan the archives of Jim Sinclair's excellent website www.jsmineset.com for an insight as to where this is all headed. Russia's talk of adding gold to the IMF Basket by which to weight their SDR's is a step in the right direction.
Mr. Sinclair is convinced that a 5% gold cover clause (tied to M2, likely, though I'd prefer having it tied to the Austrian True Money Supply or the Adj. Monetary Base) is what will take shape at the end of this nonsense. Not as good as 100%, but it is a step in the right direction and far better than the current system.
By legalizing the use of gold and silver as circulating money based on their exchange rate with the prevailing reserve 'currency' that will instill a major degree of discipline on the financial system. Again, Ron Paul comes out looking like the thoughtful and intelligent man that he is. It's such an elegant step towards monetary freedom.
Ta,
Blog: The Present in Plain Text
Listen to The Myo-Tonics on YouTube
I agree with you about Rothbard's book...
"What Has Government Done to Our Money and The Case for the 100% Gold Standard."
I read it too and it is really eye-opening.
I must admit that I'm not sure how going back to the gold standard overnight would work. It would cause financial earthquakes for a while, but in the end it would be worth it.
I'm not smart enough to really understand some of this stuff but there certainly would be MAJOR upheaval in a quick return to the standard due to restructuring the prices/new gold backed currency relationship. Rothbard even admits that.
I think we would have to slowly change back to it.
And of course the beautiful thing about a commodity backed monetary system is that is keeps the money supply "honest."
Only by mining new gold could you increase the money supply.
But remember...Gold has OTHER USES in society such as jewelery, dentistry, art, plating, and numerous other industrial uses.
I guess another thing to consider is that in a gold standard there is no reason that other precious metals can't be used as money as well. Examples are silver, palladium, platinum etc.
Any metal that people consider to have value is honest money. And private mints should be free to coin money from any precious metals they wish.
So only a free market in the commodities backing money would determine the value of those commodities.
A fraudulant mint would eventually get a reputation and go out of business. While reputable ones would flourish.
This would make banking honest again and take the immoral profit-making ability away from central banks who are in business FOR ONE THING...TO PROFIT FROM CONTROLLING THE MONEY SUPPLY.
Then they ultimately control the people who are enslaved to that un-natural manipulation of the money supply.
This whole issue is BY FAR the most important thing we could possibly discuss here, because it drives economic engines and is a cause of wars and other human sufferings and bondage.
HERE'S THE POINT---
Yes, if money was privately minted, there would be some fraud perpetated from some mints. That's just human nature. But that is a crime and could be pursued in the courts of law. BUT...The system we have now defrauds EVERYONE and we have NO RECOURSE against it.
And very importantly---Only the FIRST recipients benefit from the new money the central bank creates out of thin air--backed by NOTHING. And those new recipients are banks.
That's right---the very ones who create the financial meltdowns through inflation, debt, and fraud get the new money they get from politicians.
The rest of us get the money after it is all in circulation and has lost much of its value.
The CRIME OF THE CENTURY...Continuously committed.
"We have allowed our nation to be over-taxed, over-regulated, and overrun by bureaucrats. The founders would be ashamed of us for what we are putting up with."
-Ron Paul
I say we move to the
I say we move to the uranium standard.
..................
"The main thing that I learned about conspiracy theory is that conspiracy theorists actually believe in a conspiracy because that is more comforting. The truth of the world is that it is chaotic..." —Alan Moore
..................
"The main thing that I learned about conspiracy theory is that conspiracy theorists actually believe in a conspiracy because that is more comforting. The truth of the world is that it is chaotic..." —Alan Moore
Funny...
Maybe you're on to something.
"We have allowed our nation to be over-taxed, over-regulated, and overrun by bureaucrats. The founders would be ashamed of us for what we are putting up with."
-Ron Paul
currency= TRADE
HEY !!! Now you people have some GOOD dialoge going on ...Work it out, your on the right tracks at least.
you-no
What would it take to prove that Gold is a superior form,,,
,,,of money?
Ron Paul decided to get into politics when Nixon severed the last tie between the U.S. dollar and Gold.
Why?
Because he knew that the new unbacked paper dollars { 1971 } with no ties to Gold would cheat the users of dollars by slowly losing value.
He constantly argues that inflation, as in higher dollar prices, along with taxes, robs the earners and savers of their wealth.
I agree!
Just to prove his point, how many reading would accept Zambabwe paper money in exchange for anything?
The answer is, worldwide almost nobody.
Now here is a short U-tube from Zambabwe:
http://www.youtube.com/watch?v=s3LdNxV0yPM
The film shows that with no government interference people have chosen Gold as their accepted money.
Now I have asked how many people worldwide would accept Zambabwe paper money, and you already know the answer.
So the new question is, how many people reading would accept the "New"
money being discovered/produced from Zimbabwe in the video, for goods and services......proving to me that Gold is superior to fiat!
By the way these are not coins being traded in the film.
beesting
Gold Standard IS a FIAT Currency!!!!
Fiat means by Decree..the Gold Standard was the Standard of which Government Demanded of Banking by decree!!!
So the "Gold Standard' is but one type of FIAT Currency. The True issue is monopoly Status of Currency, or mandatory legal tender, instead of respect for the contract. All Fiat currencies are subject to one basic fact..it is used as a tool for government manipulation of the money supply..pure and simple. The difference between a "Gold Standard" and a "debt Standard" when refering to FIAT money..is the "Gold Standard" limits the amount of money that can be created by the Government through inflation...while the "Debt Standard" is limitless....Both are Fiat Currencies..by Government Decree
While technically you are
While technically you are correct, at any point when the government uses legal coercion to enforce a monetary system it is fiat and yet a pure gold monetary system is not by government decree but naturally arises from the market itself. In fact, I am bold enough to state that the use of gold as a medium of exchange predated governments.
http://www.1776solution.blogspot.com
“There is danger from all men. The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty.”-Adams
http://militantjeffersonian.com
"Men do not willingly read unpalatable truths of themselves. The People like those best who fool them most, by pandering to their vices and flattering their foibles" Raphael Semmes
I agree 100%
...but the Gold preference in the markets happens through voluntary exchange..is not the same as a "Gold Standard" by Government decree or FIAT..By Government gun.
Again, I say let the market decided...and like you and I most likely will prefer gold (i prefer silver actually), but will be free to decide, what medium I save and exchange in.
you don't get it
the decree part is not that they decree this or that to be the standard.
they are literally decreeing "this" has value. or "that" has value.
they can't use gold by decree, because they can't wave a magic wand and decree more into existence with the wave of a hand.
english language is so touchy. some people get really gripped by a single word.
and it screws up their whole train of thought. right brain thinkers typically get hung up on those traps.
left brain, (big picture), thinkers don't. if we need to, we'll discard the word in question or an entire paragraph if the true meaning is in danger of being lost.
decree?
pick a different word if you're hung up on that.
the government can make more money by simply deciding to make more money.
that is fiat currency.
gold is not fiat.
Gold money is not by Fiat or decree
Demanding a Gold Standard is..I know some people get hung up on words. And others miss the words altogether.
"The United States, though formally on a bimetallic (gold and silver) standard, switched to gold de facto in 1834 and de jure in 1900 when Congress passed the Gold Standard Act. In 1834," http://www.econlib.org/library/Enc/GoldStandard.html
Fiat money is money declared by a government to be legal tender.[1] The term derives from the Latin fiat, meaning "let it be done". http://en.wikipedia.org/wiki/Fiat_currency
Of course, but that doesn't
Of course, but that doesn't mean that a government run gold standard is worse than a government run paper dollar.
Ventura 2012
Of course, but that doesn't
Of course, but that doesn't mean that a government run gold standard is worse than a government run paper dollar.
Ventura 2012
I have been thinking about ....
"When am I going to see another article from you?"
WAHOR!!
http://www.dailypaul.com/node/48994
WAHOR!!
http://www.dailypaul.com/node/48994
Rhino....when I finally find
Rhino....when I finally find the time to actually set down and write another...I've been busy making preparations in the backwoods and just got internet service, but soon I will once again set my thoughts to words. Thanks for asking!
http://www.1776solution.blogspot.com
“There is danger from all men. The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty.”-Adams
http://militantjeffersonian.com
"Men do not willingly read unpalatable truths of themselves. The People like those best who fool them most, by pandering to their vices and flattering their foibles" Raphael Semmes
I look forward to it.
WAHOR!!
http://www.dailypaul.com/node/48994
WAHOR!!
http://www.dailypaul.com/node/48994
The point of returning to a
The point of returning to a gold standard doesn't have a lot to do, in my opinion, with solving the current economic crisis.
Gold standards help prevent governments from manipulating the money supply, from manipulating rates, from eroding the value of our savings. Fiat money might as well just be monopoly money, as essentially the value is simply based on belief and not true real value.
The value of a dollar, the purchasing power, has been reduced by probably 95% or more in nearly the past century.
To give you an example, my aunt's neighbor told her that she had saved so much money during her youth that she was guaranteed a retirement of luxury and traveling. This woman is in her 80s. The money that she saved enables her to barely scrape by. That's because our government stole her money, by destroying the value in it with their inflation.
You mention manipulation in gold, but consider the following chart: http://www.kitco.com/ind/Turk/images/feb252008_1.gif Look how stable gold is for such an incredibly long time, but the loss of purchasing power of the dollar is nearly off the charts.
With fiat money, you could bury your money 100 feet in the ground in an impenetrable bunker/vault and the government can still take it from you, by taking its value.
Gold protects us all from that kind of abuse.
...
Exactly! Bonhomme Richard does not listen to Ron Paul.
Although preventing inflation through fiat currency also does prevent boom and bust business cycles, like the recession we are in, as people are not lead into malinvestment with the easy (inflated) money and the government cannot excessively spend the country into debt.
Bonhomme Richard, does not listen to Ron Paul. He's not here to help.
Ron Paul's Convention Speech
Ron Paul's Convention Speech
sempiternal, Ron Paul is cool
I'm just questioning the Gold Standard.
"For having lived long, I have experienced many instances of being obliged, by better information or fuller consideration, to change opinions, even on important subjects, which I once thought right but found to be otherwise." -- Benjamin Franklin
I just don't understand why people want the market to determine
the value of their money. Money is just a measurement of what you can buy. The value of money should be fixed. It makes no sense for it to float by market forces. The stuff it buys is the market adjusting to economic conditions but the money should be fixed. If money and stuff it buys have variable values how the hell do you determine the value of anything? If gold is our money (no fiat system at all) then it should have a fixed value. The original fixed value was $20 per ounce and stayed that way for over 100 years. Money was stable. There was no market value varying the value of your money. The only variable was how much stuff you could buy with your money which changed with market forces.
I want stable money! It is the only thing that works.
_________________
Want Ron Paul? Register Republican Now
everything has a "fixed"
everything has a "fixed" value if it is used as a baseline from which everything else is calculated.
you can "fix" the value of anything you want, but everything else is still going to fluctuate. makes the whole point of "fixing" kinda pointless... unless you want to "fix" the price of everything?
You really need to do some thinking...
I don't know where to begin, your post is VERY confused. For starters, the market ALREADY determines the value of ALL kinds of money, it's called "I can set the price to whatever I want". The question is not about that, it's about whether money is MORAL and HONEST or whether it is DICTATED and MANIPULATED.
Think about what you are
Think about what you are saying for a moment. If you have a flexible market and an inflexible money, what do you have? You have a contradiction that will always lead to economic distortion and eventual dislocation. To allow the value of money to be “fixed” by the government is to always allow an open door to government to intervene and therefore control not only the market, but the money as well. Money is not simply a measure of what you can buy, it is much, much more than that. Money is a medium, not only of exchange, but also of market movements. If you have the value of money fixed, which by the way, is a virtual impossibility, then you are placing a contrivance within the market and the market will always react to such contrivances in a disruptive manner. Value is not based on money, but on preferences within the market, money simply expedites those preferences in terms of trade. The problem in the past with all “gold standards” is that the “value” or “price” of the money was fixed by the government; what was the outcome of such “price fixing”? History is pretty clear on that subject. Perhaps the best example of a gold monetary system that really worked was when, after the American Revolution, the government simply allowed any gold and silver coin to circulate within the country. The people choose to accept such coinage without coercion or restraint and the economy thrived except during those times when the government decided to intervene with some form of punitive taxation or intervention.
Actually, when gold was fixed to $20.00 per ounce, the monetary system was not that stable over the period you are speaking about and the reason for that instability was due to several factors, one of which is that fact that the redemption value of the paper receipt money was fixed. The greatest stability is when the market and the money are allowed to operate within the same economic principles of supply and demand within the market itself. When those principles are artificially controlled or forced then instability occurs. If the relative demands, and therefore prices change while the price value of the money does not there is a distortion that occurs since money plays a vital role in all economic movement. There is, in a sense, an artificial brick wall placed within the free market when the value of money is fixed and the imbalances between a free-flow market and a fixed monetary unit will naturally appear. Therefore, it should be apparent that the concept of a fixed unitary price level is a fallacious one and perhaps even more fallacious is the idea that an attempt to actually control the value of money by fixing the price of money can be an effective tool in providing or maintaining stability.
Now, while it may appear to be counterintuitive, the fact is that in a truly free market economy the price of goods tend to be achieve a uniform stability, so the price or the purchasing power of money will also tend to achieve a uniform stability in response. While there was a degree of such uniform stability under the fixed gold standard, it never actually achieved an equilibrium within the market economy since the fixed price was always in contradiction to the supply and demand of the market. The market is not static and to introduce a static, instead of a free market gold monetary system into the economy will only serve to create distortions and eventually dislocations within the economy. In fact, if allowed to follow market forces there is a substantial tendency for the purchasing power of the currencies around the world to synchronize in terms of pricing so you have purchasing-power-parity within exchange rates without the need for governments to fix the actual price of the money itself. When governments involve themselves in the price of money then there will naturally arise political influences which will distort such price parity and exchange rates, each government seeking to protect their own economic and monetary interests.
It should be noted that a misnomer has naturally arisen when we say "gold standard", which by implication, states that gold has something to do with monetary arrangements as presented and therefore controlled by governments when they "fix" the price of gold money in terms of exchange, this is not strictly the case or, for that matter strictly true. The fact is that a true "gold standard" has absolutely nothing to do with either the government or the ability of the government to "fix" the price of gold as a monetary value, but gold money has always emerged from the free interplay within naturally occurring market forces. Free market gold money is the foundation of the free market as it is governed by human action. Gold money is marketplace money in its truest form and profoundly affects the economic health of a country when it is allowed to function without intervention or price fixing.
Indeed, with such a system of a fixed gold monetary unit, similar to the fiat system, there will eventually appear permanent shifts in wealth and income as those who are politically connected are allowed to maintain increased control over the money supply and the value of that money.
http://www.1776solution.blogspot.com
“There is danger from all men. The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty.”-Adams
http://militantjeffersonian.com
"Men do not willingly read unpalatable truths of themselves. The People like those best who fool them most, by pandering to their vices and flattering their foibles" Raphael Semmes