As I get older, I'm finding myself more curious about this thing called the Gold Standard that the US used to be on, until Nixon(?) suspended it.
I realize there's some pretty polarizing opinions out there about it, but I was wondering if there exists some good resources with which I could educate myself (mainly the feasibility/good/bad about brining it back) without going off into Crackpotlandia.
From Older Offspring after a discussion of coffee:
"If it doesn't come from the Kaffa province of Ethiopia, it's just hot roasted-bean juice."
Below is a list of resources you can use to learn more about the gold standard without going off into crackpotlandia:Originally Posted by Guerrero
This concludes the list. It is comprehensive.
I can’t think about returning to the gold standard without also recollecting this discussion:
https://youtu.be/LS37SNYjg8w
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“[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
― Warren Buffett
That list is even smaller than the leaflet mentioned below.
I once had the same question. Here is something that helped.
https://portfoliocharts.com/2020/08/...value-of-gold/
Cordially,
Duces
Haven't finished reading it yet, but this seems like the kind of even-handed info I wanted. Thanks!
From Older Offspring after a discussion of coffee:
"If it doesn't come from the Kaffa province of Ethiopia, it's just hot roasted-bean juice."
Trying to avoid sailing into the land of tinfoil headgear.
The difference between the gold standard and the current US system is that on the gold standard every dollar can be exchanged for its equivalent value in gold on demand. So if the USA had $100 million in gold, the total supply of dollars circulating could only be $100 million. To get more money, the USA would need more gold. The important thing to note about the gold standard is that it forces a finite limit of dollars in circulation as there should be no more dollars in circulation than the value of gold owned by the US Government. This is theory.
So there are a couple of issues with this in practice. First, no one really knew or knows how much gold the US Government has or had. The check on this issue was most people were happier carrying a $20 bill versus a $20 gold piece, two $10 gold pieces, etc. The bigger issue was fractional reserve banking, which allows banks to hold only a certain percentage of customer deposits and allows a bank to loan the rest. This gets fun with two or more banks. If Bank One has $1 million in deposits and has to hold 10% in reserves, Bank One is free to loan out $900K. If someone deposits that $900K in Bank Two, that bank can loan $810k. So the $1million in cash deposited in one bank becomes $900k plus $810k or $1.71 million. As you add more banks, the original $1 million in cash becomes much more "money" to be spent.
Now imagine that the people who borrowed the $900k from Bank One and $810k from Bank Two want to exchange their dollars for gold. That would require the US Government to turn over $1.71 million in gold. And that is basically what happened. President Nixon had to close the "gold window" and cause the dollar to lose the peg to a certain amount of gold because it made sense to turn US dollar bills into gold, sell the gold overseas, convert the proceeds back to dollars, and get more dollars than it cost to buy the gold from the US Government.
The next logical question is why do governments allow fractional reserve banking. The short and sweet answer is more cash moving faster in the economy causes the economy to grow.
People also say that inflation cannot occur when on the gold standard. That is not true as it happens very easily; the government just adjusts the amount of dollars needed to buy a certain amount of gold. This happened in 1934 when a troy ounce of gold went from $20.67 to $35. And then the US made it illegal to own gold except for jewelry or collectibles. And confiscated gold coins from safe deposit boxes which were replaced with paper money. All before the price of gold went from $20.67 per ounce to $35 per ounce. The result was to allow more dollars to circulate, which is a way to create inflation as there are more dollars chasing the same amount of goods. That increase prices.
This is also the reason for Gresham's Law, which states that bad money drives out good. There is a reason we see almost no dimes, quarters, halves, and dollar coins from 1964 or earlier. Or why no one spends their $20 gold coins to fill up the gas tank. The US replaced the 90% silver coins with first 40% silver and then in 1970 with copper and nickel. The melt value of the coins is worth more than the face value, so people hoard the older coins. It works for base metals as well. Look at the size of the original cent in the late 1790s and the size in 1900. Much less copper. And today the cent is made from zinc coated with a bit of copper.
Last edited by farscott; 06-28-2023 at 05:04 PM.
I'd suggest that you would be better off studying the history of fiat currency. This is a good link for a simplistic explanation.
https://www.investopedia.com/terms/f/fiatmoney.asp
-All views expressed are those of the author and do not reflect those of the author's employer-
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