11 ms·

The gold standard was abandoned because it is a terrible idea for civilizations that have technologies like accounting systems and currencies that are difficult

The gold standard was abandoned because it is a terrible idea for civilizations that have technologies like accounting systems and currencies that are difficult to counterfeit. Tying economic expansion to the ability to mine and store one type of element doesn't make any sense. There are countless asteroids out there with quadrillions of dollars of precious metals. Does that mean the first private company to create a currency "backed" by a claim to one of them is worth more than the US economy? No, of course not. The US economy produces food, shelter, water, goods, services, etc etc. It's worth far more than a chunk of atoms. Even if you could magically spirit those atoms into a vault somewhere, what do you do with them at that point? Modern monetary theory is doing just fine, and so are all of the nations issuing fiat currency, selling bonds and notes, building infrastructure, and providing fertile ground for markets to do interesting things. Nostalgia for the gold standard is just way for people to claim the superiority of economic theories that are simply not useful anymore.

dnautics 5y ago
> Modern monetary theory is doing just fine, How's that gap between the rich and the poor going? Look, the US was on the gold standard between 1850 and early 1900s, and not only recovered from a civil war, but ALSO freed all of its slaves AND went from a backwater country to a world superpower, and reduced inequality all at the same time. https://voxeu.org/article/american-growth-and-inequality-1700 https://voxeu.org/article/american-growth-and-inequality-170...
- posix_me_less 5y ago
  The gap is reported to be increasing, but is that actually regarded as a problem by the ruling class? They may actually prefer this, as it gives them greater chunk of power and secures their position. In other words, the gap may be increasing and we don't like it, but this may very well be the intended "how is it going". One case in point: in 1970's, instead of giving employees their share of profits from productivity increases, the system gave them an easy way to get into debt instead (the credit card).
  - dnautics 5y ago
    I'm not in the ruling class, so I would not say "monetary theory (modern or otherwise) is doing just fine". Perhaps nicoffeine is in the ruling class?
- AnimalMuppet 5y ago
  > How's that gap between the rich and the poor going? It's quite high - as high as it was in 1850, when we were on the gold standard. So... what's your point?
- nicoffeine 5y ago
  The US was on the gold/silver standard from 1792-1850. Was that the reason it continued the genocide of millions of indigenous people, took their land, and then imported millions of slaves to farm that land? Maybe there are other possibilities for history other than the currency system during a given time period. I remembered there were a series of financial crises leading up to the Civil War, and sure enough, the first use of fiat currency in the US was to solve a financial crisis caused by the gold/silver standard: 'In 1853, the U.S. reduced the silver weight of coins to keep them in circulation and in 1857 removed legal tender status from foreign coinage. In 1857 the final crisis of the free banking era began as American banks suspended payment in silver, with ripples through the developing international financial system. Due to the inflationary finance measures undertaken to help pay for the U.S. Civil War, the government found it difficult to pay its obligations in gold or silver and suspended payments of obligations not legally specified in specie (gold bonds); this led banks to suspend the conversion of bank liabilities (bank notes and deposits) into specie. In 1862 paper money was made legal tender. It was a fiat money (not convertible on demand at a fixed rate into specie). These notes came to be called "greenbacks".' [1] Technically Continental Dollars were zero interest bearer bonds, but they were also issued to help finance the Revolutionary War[2]. So, your argument for the gold standard is not only logically incoherent, but even if it was, it's completely ignorant of the history of currencies in the United States. [1] https://en.wikipedia.org/wiki/Gold_standard https://en.wikipedia.org/wiki/Gold_standard [2] https://en.wikipedia.org/wiki/Early_American_currency#Continental_currency https://en.wikipedia.org/wiki/Early_American_currency#Contin...
  - dnautics 5y ago
    > So, your argument for the gold standard is not only logically incoherent Wrong. The argument is a refutation of the idea that economic growth cannot happen while on a gold standard, that it will be disastrous. It is an existence statement, not a universality statement.
    - rsj_hn 5y ago
      > The argument is a refutation of the idea that economic growth cannot happen while on a gold standard, This is correct. Rapid economic growth happened on the gold standard. The issue is not about long term economic growth, but volatility. Hard money creates an environment with lots of rapid inflation and deflation and very strong boom/bust cycles. That volatility has costs (human costs of the pain of mass layoffs) but also benefits (weaker companies are more rapidly weeded out). After the Great Depression, it was decided that the costs outweigh the benefits, but it's a legit question that should not be so readily dismissed.
slowhand09 5y ago
I posted this yesterday. Food for thought. In 1964 you could take two silver dimes and purchase ~1 gallon of gas. Gas was ~20 cents per gallon. Dimes were 90% silver. Fast forward to 2021. You could take two silver dimes to a coin dealer, sell them for fiat currency, and purchase 1 gallon of gas. Gas is ~$3.50 per gallon, silver is ~$23 per oz, and 2 silver dimes from 1964 contain ~5grams of silver. But using 2021 dimes, you need 35 dimes to purchase a gallon. Precious metals have kept their value. Fiat currency has lost nearly 90% of its value since moving off the gold standard. The government needs more money, they print it. Based on their promise to pay it back later, with cheaper inflated currency. Paper currency representing a given quantity of gold/silver/etc is a good idea. When you divorce it from that backing value is when governments print money to inflate. We all lose when that happens.
- tastyfreeze 5y ago
  As I have said many times on HN, a gold standard protects the wealth of the people from government excess. That is also why the gold standard was ended by government.
  - rat87 5y ago
    That seems like another way of saying that a gold standard is inflexible and impractical and can't represent the actual economy particularly well
    - tastyfreeze 5y ago
      The inflexibility of a gold standard is a benefit. More gold or an increase in gold value is required to represent greater wealth. The gold can be traded for or mined. However, the gold standard ensures that the dollar you earn today maintains purchasing power for as long as you care to keep it. Your gold backed dollar can't be made worthless in a generation by the excess of politicians seeking money, power, and control. Politicians are people subject to all the same emotions as you or I. Money and power are powerful motivations for corruption. There is access to a lot of both in government. The gold standard was a check on greed at the government level and in turn a restriction on the power government had to manipulate the economy for the benefit of a few.
loki49152 5y ago
Modern monetary theory isn't doing fine and neither are the countries with fiat currencies. They're all in absolute crisis because their economies are built on ever-shifting quicksand. The "gold standard" isn't a theory of economics, it's an observation. Money is a medium of exchange - a mechanism for judging the relative value of unlike goods. That is literally impossible if the thing used as money is non-economic, like fiat currency. The money must be itself a tradeable commodity. Commodities that are useful as money have all the traditional traits you learn in elementary school, and gold is the traditional and current best fit for those traits. Belief in the viability of "monetary policy" and fiat currencies always comes from a belief that no one can really know how economics works, so whatever anyone does right now might not work in the future. Well, obviously that's going to be true of people who refuse to learn what economics as a field actually is.
- nicoffeine 5y ago
  > Modern monetary theory isn't doing fine and neither are the countries with fiat currencies. They're all in absolute crisis because their economies are built on ever-shifting quicksand. Okay. What countries use representative currencies and how are they doing? > The "gold standard" isn't a theory of economics, it's an observation. Money is a medium of exchange - a mechanism for judging the relative value of unlike goods. That is literally impossible if the thing used as money is non-economic, like fiat currency. Are you saying the world economy is literally impossible? > The money must be itself a tradeable commodity. Commodities that are useful as money have all the traditional traits you learn in elementary school, and gold is the traditional and current best fit for those traits. You just said money a medium of exchange. As long as both parties agree to the transaction, and it wasn't a barter, whatever wasn't the good or service was the money. And you don't mean the money must be a trade-able commodity. No one is going to walk around with a set of weights and tubs of water to determine the purity of coins so they can buy or sell a sandwich. You're making the argument that if the currency could be exchanged for lumps of metal at a treasury office that it would somehow be an improvement. > Belief in the viability of "monetary policy" and fiat currencies always comes from a belief that no one can really know how economics works, so whatever anyone does right now might not work in the future. I honestly have no idea what you're saying here. Which economists claim that no one can know how economies work? > Well, obviously that's going to be true of people who refuse to learn what economics as a field actually is. So far the fiat currency system has been a part of the most rapid progression of technology and trade in recorded history. I'm not saying it was the driver behind it, but that has been the dominant currency system in place for the last 70ish years. It absolutely has flaws, and absolutely can be ruined by corruption and poor governance. It also works so well that people who hate fiat currencies still use them every day. I'd bet .225 ounces of 99% pure gold alloy that you bought your lunch with it. I wonder how much money that is.

dnautics 5y ago

> Modern monetary theory is doing just fine, How's that gap between the rich and the poor going? Look, the US was on the gold standard between 1850 and early 1900s, and not only recovered from a civil war, but ALSO freed all of its slaves AND went from a backwater country to a world superpower, and reduced inequality all at the same time. https://voxeu.org/article/american-growth-and-inequality-1700 https://voxeu.org/article/american-growth-and-inequality-170...

posix_me_less 5y ago
The gap is reported to be increasing, but is that actually regarded as a problem by the ruling class? They may actually prefer this, as it gives them greater chunk of power and secures their position. In other words, the gap may be increasing and we don't like it, but this may very well be the intended "how is it going". One case in point: in 1970's, instead of giving employees their share of profits from productivity increases, the system gave them an easy way to get into debt instead (the credit card).
- dnautics 5y ago
  I'm not in the ruling class, so I would not say "monetary theory (modern or otherwise) is doing just fine". Perhaps nicoffeine is in the ruling class?
AnimalMuppet 5y ago
> How's that gap between the rich and the poor going? It's quite high - as high as it was in 1850, when we were on the gold standard. So... what's your point?
nicoffeine 5y ago
The US was on the gold/silver standard from 1792-1850. Was that the reason it continued the genocide of millions of indigenous people, took their land, and then imported millions of slaves to farm that land? Maybe there are other possibilities for history other than the currency system during a given time period. I remembered there were a series of financial crises leading up to the Civil War, and sure enough, the first use of fiat currency in the US was to solve a financial crisis caused by the gold/silver standard: 'In 1853, the U.S. reduced the silver weight of coins to keep them in circulation and in 1857 removed legal tender status from foreign coinage. In 1857 the final crisis of the free banking era began as American banks suspended payment in silver, with ripples through the developing international financial system. Due to the inflationary finance measures undertaken to help pay for the U.S. Civil War, the government found it difficult to pay its obligations in gold or silver and suspended payments of obligations not legally specified in specie (gold bonds); this led banks to suspend the conversion of bank liabilities (bank notes and deposits) into specie. In 1862 paper money was made legal tender. It was a fiat money (not convertible on demand at a fixed rate into specie). These notes came to be called "greenbacks".' [1] Technically Continental Dollars were zero interest bearer bonds, but they were also issued to help finance the Revolutionary War[2]. So, your argument for the gold standard is not only logically incoherent, but even if it was, it's completely ignorant of the history of currencies in the United States. [1] https://en.wikipedia.org/wiki/Gold_standard https://en.wikipedia.org/wiki/Gold_standard [2] https://en.wikipedia.org/wiki/Early_American_currency#Continental_currency https://en.wikipedia.org/wiki/Early_American_currency#Contin...
- dnautics 5y ago
  > So, your argument for the gold standard is not only logically incoherent Wrong. The argument is a refutation of the idea that economic growth cannot happen while on a gold standard, that it will be disastrous. It is an existence statement, not a universality statement.
  - rsj_hn 5y ago
    > The argument is a refutation of the idea that economic growth cannot happen while on a gold standard, This is correct. Rapid economic growth happened on the gold standard. The issue is not about long term economic growth, but volatility. Hard money creates an environment with lots of rapid inflation and deflation and very strong boom/bust cycles. That volatility has costs (human costs of the pain of mass layoffs) but also benefits (weaker companies are more rapidly weeded out). After the Great Depression, it was decided that the costs outweigh the benefits, but it's a legit question that should not be so readily dismissed.

slowhand09 5y ago

I posted this yesterday. Food for thought. In 1964 you could take two silver dimes and purchase ~1 gallon of gas. Gas was ~20 cents per gallon. Dimes were 90% silver. Fast forward to 2021. You could take two silver dimes to a coin dealer, sell them for fiat currency, and purchase 1 gallon of gas. Gas is ~$3.50 per gallon, silver is ~$23 per oz, and 2 silver dimes from 1964 contain ~5grams of silver. But using 2021 dimes, you need 35 dimes to purchase a gallon. Precious metals have kept their value. Fiat currency has lost nearly 90% of its value since moving off the gold standard. The government needs more money, they print it. Based on their promise to pay it back later, with cheaper inflated currency. Paper currency representing a given quantity of gold/silver/etc is a good idea. When you divorce it from that backing value is when governments print money to inflate. We all lose when that happens.

tastyfreeze 5y ago
As I have said many times on HN, a gold standard protects the wealth of the people from government excess. That is also why the gold standard was ended by government.
- rat87 5y ago
  That seems like another way of saying that a gold standard is inflexible and impractical and can't represent the actual economy particularly well
  - tastyfreeze 5y ago
    The inflexibility of a gold standard is a benefit. More gold or an increase in gold value is required to represent greater wealth. The gold can be traded for or mined. However, the gold standard ensures that the dollar you earn today maintains purchasing power for as long as you care to keep it. Your gold backed dollar can't be made worthless in a generation by the excess of politicians seeking money, power, and control. Politicians are people subject to all the same emotions as you or I. Money and power are powerful motivations for corruption. There is access to a lot of both in government. The gold standard was a check on greed at the government level and in turn a restriction on the power government had to manipulate the economy for the benefit of a few.

loki49152 5y ago

Modern monetary theory isn't doing fine and neither are the countries with fiat currencies. They're all in absolute crisis because their economies are built on ever-shifting quicksand. The "gold standard" isn't a theory of economics, it's an observation. Money is a medium of exchange - a mechanism for judging the relative value of unlike goods. That is literally impossible if the thing used as money is non-economic, like fiat currency. The money must be itself a tradeable commodity. Commodities that are useful as money have all the traditional traits you learn in elementary school, and gold is the traditional and current best fit for those traits. Belief in the viability of "monetary policy" and fiat currencies always comes from a belief that no one can really know how economics works, so whatever anyone does right now might not work in the future. Well, obviously that's going to be true of people who refuse to learn what economics as a field actually is.

nicoffeine 5y ago
> Modern monetary theory isn't doing fine and neither are the countries with fiat currencies. They're all in absolute crisis because their economies are built on ever-shifting quicksand. Okay. What countries use representative currencies and how are they doing? > The "gold standard" isn't a theory of economics, it's an observation. Money is a medium of exchange - a mechanism for judging the relative value of unlike goods. That is literally impossible if the thing used as money is non-economic, like fiat currency. Are you saying the world economy is literally impossible? > The money must be itself a tradeable commodity. Commodities that are useful as money have all the traditional traits you learn in elementary school, and gold is the traditional and current best fit for those traits. You just said money a medium of exchange. As long as both parties agree to the transaction, and it wasn't a barter, whatever wasn't the good or service was the money. And you don't mean the money must be a trade-able commodity. No one is going to walk around with a set of weights and tubs of water to determine the purity of coins so they can buy or sell a sandwich. You're making the argument that if the currency could be exchanged for lumps of metal at a treasury office that it would somehow be an improvement. > Belief in the viability of "monetary policy" and fiat currencies always comes from a belief that no one can really know how economics works, so whatever anyone does right now might not work in the future. I honestly have no idea what you're saying here. Which economists claim that no one can know how economies work? > Well, obviously that's going to be true of people who refuse to learn what economics as a field actually is. So far the fiat currency system has been a part of the most rapid progression of technology and trade in recorded history. I'm not saying it was the driver behind it, but that has been the dominant currency system in place for the last 70ish years. It absolutely has flaws, and absolutely can be ruined by corruption and poor governance. It also works so well that people who hate fiat currencies still use them every day. I'd bet .225 ounces of 99% pure gold alloy that you bought your lunch with it. I wonder how much money that is.