5 ms·

Why Did the U.S. Abandon the Gold Standard?

11 points by nightbrawler 14y ago

grecy 14y ago
tldr; The gold standard won't come back because the government would not be able to print trillions of fictional dollars whenever they want.
- fusiongyro 14y ago
  That's not untrue, but that way of looking at things ignores the fact that constant, wild fluctuations in the value of currency have negative consequences for everyone that depends on the currency.
  - dpark 14y ago
    I also don't understand why gold-standard advocates seem to believe that gold is intrinsically the foundation of wealth. Why should the dollar be pegged to gold and not silver, or platinum, or rhodium? How about crude oil, or helium, or drinking water, or land in Manhattan? How about anything else that has value? All wealth is not gold, and I don't see a compelling reason why we should pretend that it is. All the things we value vary over time relative to each other. Given that, why should we arbitrarily pick one and say that it is the foundation of our currency? Why should the price of bread fluctuate wildly to accommodate gold speculators?
    - fusiongyro 14y ago
      Strangely, we used to have a system based on "bimetalism," the idea that the currency is pegged to a certain quantity of gold and pegged to a certain quantity of silver simultaneously. Now it sounds like adding epicycles.
      - danielweber 14y ago
        And the gymnastics that you have to go through to stop people from performing arbitrage on the stated ratio of gold:silver versus the market rate is also hilarious.
    - Turing_Machine 14y ago
      Gold was used because it's: 1) relatively hard to counterfeit 2) scarce enough that carrying enough in your pocket to equate to significant value is convenient 3) Durable 4) Fungible 5) The supply generally expanded at a slow and predictable rate (this wasn't always the case -- the Spanish conquests, e.g., set off a devastating round of inflation when all that gold got shipped back home). Silver and copper were also widely used. Platinum-group metals would work, but weren't widely known to the ancients. Crude oil: bulky and volatile. Helium: same as crude oil, but even more so (you'd need to haul around pressure tanks) Land: not portable. Not easily fungible. Drinking water: bulky. Gold was a pragmatic choice. In some of James Blish's SF stories, they used semiconductor-grade metals.
      - dpark 14y ago
        Maybe my comment was poorly worded. I'm not legitimately asking why we ever used gold. I agree it makes far more sense than helium or land when traded directly. Once we moved to a paper currency, though, very little of that really mattered anymore. No one cares that oil is bulky when they trade it, because at worst they're moving around pieces of paper (more typically just bits in a system). My real question is why gold should back our currency now. How does it make sense in a modern economy? We've divorced our currency from any one commodity, and I think that's a very good thing, because it helps to protect us from changes in the price of commodities.
        grecy 14y ago
        > My real question is why gold should back our currency now. How does it make sense in a modern economy? I've always wondered this: Without gold (or something) backing a currency, what stops the printing of trillions and trillions, aggressively devaluing the currency out there?
        dpark 14y ago
        Technically? Nothing. Practically? The inability to sell credit if this kind of policy is pursued. No one is interested in dollars if they have no value. What stops you from maxing out all the credit you can get and then walking away? Same basic situation. Nothing stops you, but you'll likely end up bankrupt and regardless you'll have a hard time getting credit again.
  - bryanlarsen 14y ago
    Yes, but most would argue that switching to a gold standard would make increase the amount of fluctuation rather than lessen it.
  - grecy 14y ago
    > that way of looking at things ignores the fact that constant, wild fluctuations in the value of currency Yup, the best kind of gambling the kind where you rig the game so you always win. There's nothing worse than pesky fluctuations to impede constant winning. Next thing we'll change the free market to guarantee goods can always be sold for a certain price, irrelevant of demand.. oh hang on.
    - fusiongyro 14y ago
      Maybe we should try a currency based on something you have in abundance: straw men.
- joshmaker 14y ago
  A poll of American economists a while back found 0% in favor of returning to the gold standard: http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_cw1nNUYOXSAKwrq http://www.igmchicago.org/igm-economic-experts-panel/poll-re...
- calciphus 14y ago
  It also means that the majority of our currency would be controlled by people outside our country, prospecting on its future value. If that doesn't terrify you, it should.
  - grecy 14y ago
    I'm not in your country. My country does not live in fear. I'm not terrified.
- tzs 14y ago
  I can use those "fictional" dollars to buy things, so the word "fictional" must be being used in that sentence with a meaning I'm unfamiliar with.
  - grecy 14y ago
    Fictional in the sense that I work my whole life and have say $500k. Someones else works their whole life and has say $750k. Some banks make some bad decisions, lose a bunch of money, then go and print a few trillion dollars so they come out ahead. These dollars we speak of truly must be fictional if some people have to work their entire lives to get 500 000 of them, while others can just "make" trillions on a whim to avoid having negative dollars.
    - tptacek 14y ago
      Dollars are not little achievement awards.
      - grecy 14y ago
        No, but they are fictional because there are people out there who can simply make trillions of them when it suits them to do so, in the same way Harry Potter can make people vanish when it suits him.
- arohner 14y ago
  While true, it's worth pointing out the Romans devalued their silver coins. One day they woke up and said "The denarian will now contain X grams of silver, rather than X+N grams. Oh and btw, all those contracts we wrote that said we'd pay you 100 coins, yeah, you're getting paid in the new denomination".
mtgx 14y ago
I don't think I'd want the gold standard to come back, but I definitely support the idea of much higher transparency in what the Fed is doing and who are they giving money to. Some are saying this might end the Fed's independence, but will it really? I think higher transparency would just lead to them becoming more honest with what they are doing with the money. I don't think other countries have overly secret central banks with nobody knowing where the money are going and how much they are printing, do they? I'm generally of the opinion that higher transparency is always a desirable quality of a democratic Government and its institutions. I also find it surprising (to say the least) that after 20 or so years of advocating for Fed transparency, Harry Reid is the one who's going to put a stop to the Audit the Fed bill in the Senate, which already passed the House with a big majority.
wissler 14y ago
The choice between fiat and gold (or gold/silver) is a false one. On a free market people would trade a wide variety of things, an important class of which are stocks and bonds, which indeed did function as money in the early United States, and would be even more practical today given that we have computers to facilitate conversion. A diverse, free market money system would put an end to global financial crises, which can only happen when everyone is using the same currency (or same small set of tightly coupled currencies) and therefore are all subject to the same general conditions: a centralized currency centralizes the crises as well. But what's even more important is that a free market money system is the only moral system -- people have a natural right to trade in whatever denominations they please.
- bryanlarsen 14y ago
  I don't think it necessarily follows that more independent currencies will decouple our global financial system. It wasn't that long ago that a crash of the Russian ruble caused a global financial crisis. The US dollar and the Russian rouble are about as decoupled as you get -- not very. It's the fact that everybody trades with everybody that makes crises global and widespread, and more currencies isn't going to change that one bit. If bitcoin became a widely used currency, crashes in its value would impact other currencies. All your proposal does is give the system a few more sources of instability, IMO.
  - wissler 14y ago
    It's hard to tell what premise you are arguing for. Are you trying to claim that the system I outlined is not really less coupled? Or are you trying to claim that being less coupled does not really lead to less coupling? "All your proposal does is give the system a few more sources of instability, IMO." Actually no, the one with a few guys with their hands on the levers, and that is also politically controlled and influenced, is far less stable than one where you are free to choose what is a best form of hedging for you.
- gte910h 14y ago
  Markets are only efficient if P=NP. We do not seem to think that's the case. http://arxiv.org/abs/1002.2284 http://arxiv.org/abs/1002.2284
jug6ernaut 14y ago
Obviously because the more the $ drops in value the more the Gold in Fort Knox grows...
jsnk 14y ago
It is worth reminding that adoption of the gold standard is mere possibility of the central point libertarians are trying to make. The real issue is force. Libertarians do not believe that it is okay for the government to exercise sole monopoly over issuance of currency with force. They want free market system that would allow competing currencies to develop rather jail those who issue their own currency.
- danielweber 14y ago
  Yep, this is why the prisoners are full to bursting with Bitcoiners. Who has been put in jail for their own currency that didn't try to use the names of existing currency?

11 points by nightbrawler 14y ago

grecy 14y ago

tldr; The gold standard won't come back because the government would not be able to print trillions of fictional dollars whenever they want.

fusiongyro 14y ago
That's not untrue, but that way of looking at things ignores the fact that constant, wild fluctuations in the value of currency have negative consequences for everyone that depends on the currency.
- dpark 14y ago
  I also don't understand why gold-standard advocates seem to believe that gold is intrinsically the foundation of wealth. Why should the dollar be pegged to gold and not silver, or platinum, or rhodium? How about crude oil, or helium, or drinking water, or land in Manhattan? How about anything else that has value? All wealth is not gold, and I don't see a compelling reason why we should pretend that it is. All the things we value vary over time relative to each other. Given that, why should we arbitrarily pick one and say that it is the foundation of our currency? Why should the price of bread fluctuate wildly to accommodate gold speculators?
  - fusiongyro 14y ago
    Strangely, we used to have a system based on "bimetalism," the idea that the currency is pegged to a certain quantity of gold and pegged to a certain quantity of silver simultaneously. Now it sounds like adding epicycles.
    - danielweber 14y ago
      And the gymnastics that you have to go through to stop people from performing arbitrage on the stated ratio of gold:silver versus the market rate is also hilarious.
  - Turing_Machine 14y ago
    Gold was used because it's: 1) relatively hard to counterfeit 2) scarce enough that carrying enough in your pocket to equate to significant value is convenient 3) Durable 4) Fungible 5) The supply generally expanded at a slow and predictable rate (this wasn't always the case -- the Spanish conquests, e.g., set off a devastating round of inflation when all that gold got shipped back home). Silver and copper were also widely used. Platinum-group metals would work, but weren't widely known to the ancients. Crude oil: bulky and volatile. Helium: same as crude oil, but even more so (you'd need to haul around pressure tanks) Land: not portable. Not easily fungible. Drinking water: bulky. Gold was a pragmatic choice. In some of James Blish's SF stories, they used semiconductor-grade metals.
    - dpark 14y ago
      Maybe my comment was poorly worded. I'm not legitimately asking why we ever used gold. I agree it makes far more sense than helium or land when traded directly. Once we moved to a paper currency, though, very little of that really mattered anymore. No one cares that oil is bulky when they trade it, because at worst they're moving around pieces of paper (more typically just bits in a system). My real question is why gold should back our currency now. How does it make sense in a modern economy? We've divorced our currency from any one commodity, and I think that's a very good thing, because it helps to protect us from changes in the price of commodities.
      - grecy 14y ago
        > My real question is why gold should back our currency now. How does it make sense in a modern economy? I've always wondered this: Without gold (or something) backing a currency, what stops the printing of trillions and trillions, aggressively devaluing the currency out there?
        dpark 14y ago
        Technically? Nothing. Practically? The inability to sell credit if this kind of policy is pursued. No one is interested in dollars if they have no value. What stops you from maxing out all the credit you can get and then walking away? Same basic situation. Nothing stops you, but you'll likely end up bankrupt and regardless you'll have a hard time getting credit again.
- bryanlarsen 14y ago
  Yes, but most would argue that switching to a gold standard would make increase the amount of fluctuation rather than lessen it.
- grecy 14y ago
  > that way of looking at things ignores the fact that constant, wild fluctuations in the value of currency Yup, the best kind of gambling the kind where you rig the game so you always win. There's nothing worse than pesky fluctuations to impede constant winning. Next thing we'll change the free market to guarantee goods can always be sold for a certain price, irrelevant of demand.. oh hang on.
  - fusiongyro 14y ago
    Maybe we should try a currency based on something you have in abundance: straw men.
joshmaker 14y ago
A poll of American economists a while back found 0% in favor of returning to the gold standard: http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_cw1nNUYOXSAKwrq http://www.igmchicago.org/igm-economic-experts-panel/poll-re...
calciphus 14y ago
It also means that the majority of our currency would be controlled by people outside our country, prospecting on its future value. If that doesn't terrify you, it should.
- grecy 14y ago
  I'm not in your country. My country does not live in fear. I'm not terrified.
tzs 14y ago
I can use those "fictional" dollars to buy things, so the word "fictional" must be being used in that sentence with a meaning I'm unfamiliar with.
- grecy 14y ago
  Fictional in the sense that I work my whole life and have say $500k. Someones else works their whole life and has say $750k. Some banks make some bad decisions, lose a bunch of money, then go and print a few trillion dollars so they come out ahead. These dollars we speak of truly must be fictional if some people have to work their entire lives to get 500 000 of them, while others can just "make" trillions on a whim to avoid having negative dollars.
  - tptacek 14y ago
    Dollars are not little achievement awards.
    - grecy 14y ago
      No, but they are fictional because there are people out there who can simply make trillions of them when it suits them to do so, in the same way Harry Potter can make people vanish when it suits him.
arohner 14y ago
While true, it's worth pointing out the Romans devalued their silver coins. One day they woke up and said "The denarian will now contain X grams of silver, rather than X+N grams. Oh and btw, all those contracts we wrote that said we'd pay you 100 coins, yeah, you're getting paid in the new denomination".

mtgx 14y ago

I don't think I'd want the gold standard to come back, but I definitely support the idea of much higher transparency in what the Fed is doing and who are they giving money to. Some are saying this might end the Fed's independence, but will it really? I think higher transparency would just lead to them becoming more honest with what they are doing with the money. I don't think other countries have overly secret central banks with nobody knowing where the money are going and how much they are printing, do they? I'm generally of the opinion that higher transparency is always a desirable quality of a democratic Government and its institutions. I also find it surprising (to say the least) that after 20 or so years of advocating for Fed transparency, Harry Reid is the one who's going to put a stop to the Audit the Fed bill in the Senate, which already passed the House with a big majority.

wissler 14y ago

The choice between fiat and gold (or gold/silver) is a false one. On a free market people would trade a wide variety of things, an important class of which are stocks and bonds, which indeed did function as money in the early United States, and would be even more practical today given that we have computers to facilitate conversion. A diverse, free market money system would put an end to global financial crises, which can only happen when everyone is using the same currency (or same small set of tightly coupled currencies) and therefore are all subject to the same general conditions: a centralized currency centralizes the crises as well. But what's even more important is that a free market money system is the only moral system -- people have a natural right to trade in whatever denominations they please.

bryanlarsen 14y ago
I don't think it necessarily follows that more independent currencies will decouple our global financial system. It wasn't that long ago that a crash of the Russian ruble caused a global financial crisis. The US dollar and the Russian rouble are about as decoupled as you get -- not very. It's the fact that everybody trades with everybody that makes crises global and widespread, and more currencies isn't going to change that one bit. If bitcoin became a widely used currency, crashes in its value would impact other currencies. All your proposal does is give the system a few more sources of instability, IMO.
- wissler 14y ago
  It's hard to tell what premise you are arguing for. Are you trying to claim that the system I outlined is not really less coupled? Or are you trying to claim that being less coupled does not really lead to less coupling? "All your proposal does is give the system a few more sources of instability, IMO." Actually no, the one with a few guys with their hands on the levers, and that is also politically controlled and influenced, is far less stable than one where you are free to choose what is a best form of hedging for you.
gte910h 14y ago
Markets are only efficient if P=NP. We do not seem to think that's the case. http://arxiv.org/abs/1002.2284 http://arxiv.org/abs/1002.2284

jug6ernaut 14y ago

Obviously because the more the $ drops in value the more the Gold in Fort Knox grows...

jsnk 14y ago

It is worth reminding that adoption of the gold standard is mere possibility of the central point libertarians are trying to make. The real issue is force. Libertarians do not believe that it is okay for the government to exercise sole monopoly over issuance of currency with force. They want free market system that would allow competing currencies to develop rather jail those who issue their own currency.

danielweber 14y ago
Yep, this is why the prisoners are full to bursting with Bitcoiners. Who has been put in jail for their own currency that didn't try to use the names of existing currency?