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Imagine having to tell the economy it can only grow as fast as a specific rare metal is mined for money to continue to make sense. The gold standard was a syste

Imagine having to tell the economy it can only grow as fast as a specific rare metal is mined for money to continue to make sense. The gold standard was a system breaking up by its inherent contradictions, as another poster has phrased it, when Nixon went off it.

ty6853 1y ago
>Imagine having to tell the economy it can only grow as fast as a specific rare metal is mined for money to continue to make sense This is only the case if you have full reserve banking. Under gold-backed fractional reserve there is no requirement that there be enough gold to back all the notes in circulation promising gold. There are certainly problems with fractional reserve banking but gold backing is not a fundamental weak point here. Even IRL if everyone demands real dollar notes there is not enough in the banks and the FDIC reserves to pay it all out on demand if everyone recalled their deposits, they could not even run the money printer fast enough to cover it. Yet somehow world trade still goes on, despite there being more value of goods in trade than currency than can back it. Side note for completeness: theoretically all trade of any size happen with even a single gold coin by increasing velocity of money.
- robocat 1y ago
  > Under gold-backed fractional reserve there is no requirement that there be enough gold to back all the notes in circulation promising gold What happens when foreign buyers want to withdraw gold and not hold "money" in an account? Internally, gold-backed fractional reserve sounds reasonable.
roenxi 1y ago
The growth rate of the economy wasn't limited by the rate of gold mining - people would just adjust prices relative to gold. And by most accepted measures I'm pretty sure the US economy was growing faster when it was on a gold standard.
- deeg 1y ago
  This isn't correct. The gold standard caused a lot of problems with money shortages; in the 1800s they were called panics. The shortages powered William Jennings Bryan to the Democratic presidential nomination after his "Cross of Gold" speech. https://en.m.wikipedia.org/wiki/Cross_of_Gold_speech https://en.m.wikipedia.org/wiki/Cross_of_Gold_speech
  - roenxi 1y ago
    Were those panics ultimately bad for growth? The US in the 1800s was one of the fastest growing economies we've ever seen in all of human history; growing from ~0% to ~20% of the world economy. It isn't often someone outpaces that. The gold standard clearly didn't limit growth in any concerning way if you are associating it with one of the top 10 all time growing economies. In fact, dropping the gold standard has been associated with the economic weakness that characterises the modern US as they mean regress and the Asian powers regain economic ascendancy. Panics and crisises aren't automatically a bad thing. If people are doing something wildly stupid they need to stop and undertake alternative activities. Something has to make them do that; if it is a panic then that is better than persisting with stupidity. Besides, the US still has regular crisises. There is one every 10 years or so. They just don't see as much upside between them as they used to. > The shortages powered William Jennings Bryan to the Democratic presidential nomination after his "Cross of Gold" speech. If Trump says something does that automatically make it true in 100 years? No. Politicians aren't automatically right and neither are voters. People get stuff wrong in policy all the time. Popularity and truth are different. And Wikipedia suggests that most people disagreed with him regardless, he lost the election and the US proceeded to adopt a gold standard. Which still doesn't tell us much about its policy merits I might add.
    - deeg 1y ago
      If you don't think panics are a bad thing I don't know what to tell you. Can you point to a panic that was good? My point about Bryan is that the gold standard was causing so much pain that he rode his solution to the nomination. That his solution (bimetallism) was terrible helps explain his loss.
marcusverus 1y ago
> Imagine having to tell the economy it can only grow as fast as a specific rare metal is mined for money to continue to make sense. It makes intuitive sense that the gold standard would have limited economic activity, but did it actually do? If the gold standard had been constricting economic activity, one would expect GDP growth to have accelerated after the gold standard was eliminated, but as far as I can tell that didn't happen.

ty6853 1y ago

>Imagine having to tell the economy it can only grow as fast as a specific rare metal is mined for money to continue to make sense This is only the case if you have full reserve banking. Under gold-backed fractional reserve there is no requirement that there be enough gold to back all the notes in circulation promising gold. There are certainly problems with fractional reserve banking but gold backing is not a fundamental weak point here. Even IRL if everyone demands real dollar notes there is not enough in the banks and the FDIC reserves to pay it all out on demand if everyone recalled their deposits, they could not even run the money printer fast enough to cover it. Yet somehow world trade still goes on, despite there being more value of goods in trade than currency than can back it. Side note for completeness: theoretically all trade of any size happen with even a single gold coin by increasing velocity of money.

robocat 1y ago
> Under gold-backed fractional reserve there is no requirement that there be enough gold to back all the notes in circulation promising gold What happens when foreign buyers want to withdraw gold and not hold "money" in an account? Internally, gold-backed fractional reserve sounds reasonable.

roenxi 1y ago

The growth rate of the economy wasn't limited by the rate of gold mining - people would just adjust prices relative to gold. And by most accepted measures I'm pretty sure the US economy was growing faster when it was on a gold standard.

deeg 1y ago
This isn't correct. The gold standard caused a lot of problems with money shortages; in the 1800s they were called panics. The shortages powered William Jennings Bryan to the Democratic presidential nomination after his "Cross of Gold" speech. https://en.m.wikipedia.org/wiki/Cross_of_Gold_speech https://en.m.wikipedia.org/wiki/Cross_of_Gold_speech
- roenxi 1y ago
  Were those panics ultimately bad for growth? The US in the 1800s was one of the fastest growing economies we've ever seen in all of human history; growing from ~0% to ~20% of the world economy. It isn't often someone outpaces that. The gold standard clearly didn't limit growth in any concerning way if you are associating it with one of the top 10 all time growing economies. In fact, dropping the gold standard has been associated with the economic weakness that characterises the modern US as they mean regress and the Asian powers regain economic ascendancy. Panics and crisises aren't automatically a bad thing. If people are doing something wildly stupid they need to stop and undertake alternative activities. Something has to make them do that; if it is a panic then that is better than persisting with stupidity. Besides, the US still has regular crisises. There is one every 10 years or so. They just don't see as much upside between them as they used to. > The shortages powered William Jennings Bryan to the Democratic presidential nomination after his "Cross of Gold" speech. If Trump says something does that automatically make it true in 100 years? No. Politicians aren't automatically right and neither are voters. People get stuff wrong in policy all the time. Popularity and truth are different. And Wikipedia suggests that most people disagreed with him regardless, he lost the election and the US proceeded to adopt a gold standard. Which still doesn't tell us much about its policy merits I might add.
  - deeg 1y ago
    If you don't think panics are a bad thing I don't know what to tell you. Can you point to a panic that was good? My point about Bryan is that the gold standard was causing so much pain that he rode his solution to the nomination. That his solution (bimetallism) was terrible helps explain his loss.

marcusverus 1y ago

> Imagine having to tell the economy it can only grow as fast as a specific rare metal is mined for money to continue to make sense. It makes intuitive sense that the gold standard would have limited economic activity, but did it actually do? If the gold standard had been constricting economic activity, one would expect GDP growth to have accelerated after the gold standard was eliminated, but as far as I can tell that didn't happen.