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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 e
by 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 agoI 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 agoStrangely, 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 agoAnd 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 agoGold 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 agoMaybe 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 agoTechnically? 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.
- grecy 14y agoI ask because that's my basic understanding of what happened in the aftermath of the 2008 crash in the US. It seems trillions of dollars were printed with very little negative impact. How can that be?
- dpark 14y agoI don't fully know. To some extent it did have an impact, as some creditor nations stated publicly that our policies were affecting their decisions about buying future American debt. One of the ratings agencies also dropped our rating slightly (though that was a partisan farce). I think a lot of the impact was reduced by the fact that the money supply is already very large, and also by the fact that much of the new money didn't really enter the public currency supply. e.g. Buying a block of bad mortgages from a bank probably doesn't affect much. The bank was already treating this as a real asset, borrowing against it, etc.
- bryanlarsen 14y agoYes, 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 agoMaybe we should try a currency based on something you have in abundance: straw men.