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It's been well demonstrated that economies with gold standard currencies fall apart.. it played a big role in the global great depression and every affected na

by jokr004 11y ago

It's been well demonstrated that economies with gold standard currencies fall apart.. it played a big role in the global great depression and every affected nation ditched the gold standard before their economies were able to recover. There is no example of this system working well and plenty of examples of it failing.

msandford 11y ago
> It's been well demonstrated that economies with gold standard currencies fall apart Then why were gold and silver considered money for thousands of years if they were so awful and horrible and destroyed everyone's economies? We still use forks and spoons even after the spork was invented, and regular chairs even after beanbag chairs were invented. Perhaps it was the financial innovations that caused the problems, not the actual money? It's obviously hard to disentangle the two, but the East India Company didn't make up a bunch of gold, they issued a lot of stock. That was the innovation that really enabled things to go nuts. The Great Depression here in the US was the result of tremendous amounts of credit being issued against stocks; people were allowed to buy on margin in absolutely insane ways. Eventually prices went down and the margin calls were made and the whole thing collapsed. But the gold didn't cause the problem. The problem was the issuance of credit based not on the creditworthiness of the individual or the project but based on the assumed value of the instruments that the credit was being issued to purchase. Blaming the money for not being able to inflate is like blaming the victim for being weak enough that the criminal is able to murder them. It confuses the cause (the criminal) with the outcome (the victim is murdered).
- snowwrestler 11y ago
  There is a big difference between using gold and silver for currency--which people did for thousands of years--and a gold- or silver-backed paper currency, which only existed for a couple hundred years at most. I know gold standard fans like to equate them, but they are not the same thing at all. Gold and silver used as money were actually a form of barter. They did not require people to trust a government, and in fact predated government as we know it today. Gold- and silver-backed currency were actually paper, and thus required people to trust the government to redeem them. Well, if you're going to stipulate that people have to trust the government, then gold or silver is just an implementation detail. In operation, it works like government price fixing of gold and silver. Like any price fixing, it leaves the economy open to outside manipulation by anyone who controls enough of the price fixed item. Fiat currency is resistant to such manipulation because no one can ever control enough of it to manipulate the economy. The government can create or destroy as much as it needs to.
  - msandford 11y ago
    > There is a big difference between using gold and silver for currency--which people did for thousands of years--and a gold- or silver-backed paper currency, which only existed for a couple hundred years at most. I know gold standard fans like to equate them, but they are not the same thing at all. That's a very interesting point! I think I "knew" that they were different without ever putting it together like that. It's obviously true though, there were a number of years here in the US when you could own dollars but not the gold that the dollars supposedly represented. http://en.wikipedia.org/wiki/Executive_Order_6102 http://en.wikipedia.org/wiki/Executive_Order_6102 > Gold and silver used as money were actually a form of barter. I'm not sure I agree with that but it's probably semantics. Is gold "money" or "commodity" and why? There's no obviously right answer. If people did bookkeeping in ounces of gold and paid their taxes in ounces of gold, doesn't that make it "money" in the sense that we would use today? > Fiat currency is resistant to such manipulation because no one can ever control enough of it to manipulate the economy. The government can create or destroy as much as it needs to. So it's not clear to me that granting the government (technically the Federal Reserve which is privately owned and truly only answers to its owners) control over the economy the way we have is actually a good thing. You still have an entity that can manipulate prices and the economy, it's just most people accept this as a good thing without any thought at all. Most people probably still believe that the gold inside Fort Knox or the Federal Reserve banks are somehow meaningful and in some way related to our money; but they aren't. You've traded the possibility of someone manipulating the economy in a harmful way for the certainty that someone will manipulate the economy but with the outcome unknown at any time. The Fed still does price fixing, by the way. They fix the price of money, or as most people call it, the interest rate. Because their balance sheet knows no limits they can buy or sell as much of anything as they want until the interest rate is the "right" one as decided by a bunch of people who don't have a lot of connection to the real economy anymore. You might argue that the Supreme Court is similar (unelected and generally unaccountable) but there's a difference. The people on the Supreme Court can make decisions based on existing law and precedent and legal arguments brought before them. And it's fairly easy for the Congress to override their decisions if they're particularly egregious since they publish opinions that explain their reasoning. As it stands there's really no feedback mechanism for the Federal Reserve short of writing new laws that change the entire system. None is built in. Sure they have to go before Congress twice a year, but they can't be fired for policy opinions. It's a sweet gig if you can get it, but it's kind of insane just how much power these folks wield and how little accountability they face for their actions.
NoMoreNicksLeft 11y ago
All currencies fall apart. Period. It's unfair to claim that only gold standard currencies fall apart, or that they're more inclined to do so.

by jokr004 11y ago

msandford 11y ago

> It's been well demonstrated that economies with gold standard currencies fall apart Then why were gold and silver considered money for thousands of years if they were so awful and horrible and destroyed everyone's economies? We still use forks and spoons even after the spork was invented, and regular chairs even after beanbag chairs were invented. Perhaps it was the financial innovations that caused the problems, not the actual money? It's obviously hard to disentangle the two, but the East India Company didn't make up a bunch of gold, they issued a lot of stock. That was the innovation that really enabled things to go nuts. The Great Depression here in the US was the result of tremendous amounts of credit being issued against stocks; people were allowed to buy on margin in absolutely insane ways. Eventually prices went down and the margin calls were made and the whole thing collapsed. But the gold didn't cause the problem. The problem was the issuance of credit based not on the creditworthiness of the individual or the project but based on the assumed value of the instruments that the credit was being issued to purchase. Blaming the money for not being able to inflate is like blaming the victim for being weak enough that the criminal is able to murder them. It confuses the cause (the criminal) with the outcome (the victim is murdered).

snowwrestler 11y ago
There is a big difference between using gold and silver for currency--which people did for thousands of years--and a gold- or silver-backed paper currency, which only existed for a couple hundred years at most. I know gold standard fans like to equate them, but they are not the same thing at all. Gold and silver used as money were actually a form of barter. They did not require people to trust a government, and in fact predated government as we know it today. Gold- and silver-backed currency were actually paper, and thus required people to trust the government to redeem them. Well, if you're going to stipulate that people have to trust the government, then gold or silver is just an implementation detail. In operation, it works like government price fixing of gold and silver. Like any price fixing, it leaves the economy open to outside manipulation by anyone who controls enough of the price fixed item. Fiat currency is resistant to such manipulation because no one can ever control enough of it to manipulate the economy. The government can create or destroy as much as it needs to.
- msandford 11y ago
  > There is a big difference between using gold and silver for currency--which people did for thousands of years--and a gold- or silver-backed paper currency, which only existed for a couple hundred years at most. I know gold standard fans like to equate them, but they are not the same thing at all. That's a very interesting point! I think I "knew" that they were different without ever putting it together like that. It's obviously true though, there were a number of years here in the US when you could own dollars but not the gold that the dollars supposedly represented. http://en.wikipedia.org/wiki/Executive_Order_6102 http://en.wikipedia.org/wiki/Executive_Order_6102 > Gold and silver used as money were actually a form of barter. I'm not sure I agree with that but it's probably semantics. Is gold "money" or "commodity" and why? There's no obviously right answer. If people did bookkeeping in ounces of gold and paid their taxes in ounces of gold, doesn't that make it "money" in the sense that we would use today? > Fiat currency is resistant to such manipulation because no one can ever control enough of it to manipulate the economy. The government can create or destroy as much as it needs to. So it's not clear to me that granting the government (technically the Federal Reserve which is privately owned and truly only answers to its owners) control over the economy the way we have is actually a good thing. You still have an entity that can manipulate prices and the economy, it's just most people accept this as a good thing without any thought at all. Most people probably still believe that the gold inside Fort Knox or the Federal Reserve banks are somehow meaningful and in some way related to our money; but they aren't. You've traded the possibility of someone manipulating the economy in a harmful way for the certainty that someone will manipulate the economy but with the outcome unknown at any time. The Fed still does price fixing, by the way. They fix the price of money, or as most people call it, the interest rate. Because their balance sheet knows no limits they can buy or sell as much of anything as they want until the interest rate is the "right" one as decided by a bunch of people who don't have a lot of connection to the real economy anymore. You might argue that the Supreme Court is similar (unelected and generally unaccountable) but there's a difference. The people on the Supreme Court can make decisions based on existing law and precedent and legal arguments brought before them. And it's fairly easy for the Congress to override their decisions if they're particularly egregious since they publish opinions that explain their reasoning. As it stands there's really no feedback mechanism for the Federal Reserve short of writing new laws that change the entire system. None is built in. Sure they have to go before Congress twice a year, but they can't be fired for policy opinions. It's a sweet gig if you can get it, but it's kind of insane just how much power these folks wield and how little accountability they face for their actions.

NoMoreNicksLeft 11y ago

All currencies fall apart. Period. It's unfair to claim that only gold standard currencies fall apart, or that they're more inclined to do so.