Taking Gold away from the people.

[ladajo]

Also remember that by getting off the gold standard, it removes some of the incentive to wage war on your neighbour to capture his treasury. Destruction of a nation by war tends to devalue its currency.

[Diogenes]

Assuming that their intentions are entirely altruistic, what has been the track record of those people managing our money? A $20.00 gold coin is now worth $1,400.00

You don't seem to be understanding the point then.

Yes, in 1930 an ounce of gold was worth about $20. Today, an ounce of gold is worth $1,400.
Meanwhile, $20 from 1930 is equivalent to about $450 today based on CPI.

Do you think that means that if we were on the gold standard all these years, that we'd each be that much wealthier and have that much more buying power?

It obviously doesn't work that way, but it seems to be what you are suggesting. Is that really how you think things work?

I think the dollar is inflated. So is the price of everything else in dollars.

I don't think you can translate 1 to 1 from the CPI. We have a lot more efficient ways of producing goods and services nowadays. This has nothing to do with economic manipulation but is instead the product of advancing technology.

[Diogenes]

Also remember that by getting off the gold standard, it removes some of the incentive to wage war on your neighbour to capture his treasury. Destruction of a nation by war tends to devalue its currency.

Did we really go to war with nations (or they us) for gold, back when we were all using it as currency?

[ladajo]

Not the primary reason, but an expected spoil many a time.

[hanelyp]

Yes, in 1930 an ounce of gold was worth about $20. Today, an ounce of gold is worth $1,400.
Meanwhile, $20 from 1930 is equivalent to about $450 today based on CPI.

Sounds like the ounce of gold tracked the cost of living a lot better than the dollar.

Gold worth 3.1 times more goods today (assuming CPI is accurate), perhaps distorted upward a bit at the moment by currency fears.
The dollar worth 4.4% of the 1930 value.

Gold looks even better accounting for the recent inflation some of us believe is not reflected by the official numbers.

[palladin9479]

None of this takes into account the real problem with a currency based on a fixed value. That is banking and lending / investments. A bank would only be able to loan an amount of money equal to a percentage of the value of the bullion in its vault. When applied on a national scale there simply isn't enough gold bullion to go around, and not nearly enough to provide for an industrialized economy. Worse is that because the money is tied directly to that shiny metal, someone stealing gold bullion from one bank would be stealing directly from depositors of that bank. The FDIC couldn't exist with a money supply based on gold as the government couldn't create gold to replace the stolen / lost gold. It really limits your economic growth. The economic booms we've witnessed would not be possible without the ability to create money for investments.

That being said, gold based currency is much less flexible and therefor less likely to lose its value. Your currency will ~always~ be worth something, there is a very finite floor that the currency can not go under. Just as there is a very finite ceiling that the currency can not go over. Its more stable and less prone to rescission and "investment scare" when there is a run on the market because everyone is scared and the value of the currency bottoms out.

So really depends which point of view one takes, optimistic and desiring growth will tend towards non-fiat monetary systems. Pessimistic and being afraid of someone "taking" your money would tend towards a gold backed system.

[Diogenes]

None of this takes into account the real problem with a currency based on a fixed value. That is banking and lending / investments. A bank would only be able to loan an amount of money equal to a percentage of the value of the bullion in its vault. When applied on a national scale there simply isn't enough gold bullion to go around, and not nearly enough to provide for an industrialized economy. Worse is that because the money is tied directly to that shiny metal, someone stealing gold bullion from one bank would be stealing directly from depositors of that bank. The FDIC couldn't exist with a money supply based on gold as the government couldn't create gold to replace the stolen / lost gold. It really limits your economic growth. The economic booms we've witnessed would not be possible without the ability to create money for investments.

That being said, gold based currency is much less flexible and therefor less likely to lose its value. Your currency will ~always~ be worth something, there is a very finite floor that the currency can not go under. Just as there is a very finite ceiling that the currency can not go over. Its more stable and less prone to rescission and "investment scare" when there is a run on the market because everyone is scared and the value of the currency bottoms out.

So really depends which point of view one takes, optimistic and desiring growth will tend towards non-fiat monetary systems. Pessimistic and being afraid of someone "taking" your money would tend towards a gold backed system.

Now THIS argument I understand, and I pretty much agree with it's conclusions. The main justification used by most people who favor a fiat money system is that it allows for more loans to more people, thereby stimulating economic growth.

However, it has long been my suspicion that rapid economic growth is not necessarily a good thing. From the standpoint of stability, perhaps letting people save their money until they've achieved the requisite amount of capital to launch their business might not be a bad thing. I have long suspected that the more free wheeling money supply teaches our society a lot of bad habits that it wouldn't have learned if it practiced something more like deferred gratification.

In my opinion, the excesses of the 1920s should have served as an example of the sort of problems that are created by making credit and capital too easy. (And we are about to do it again, but on a far worse scale.)

Would the country have been better off had we not gone down the fiat money route? I don't know for sure, but I have my suspicions.

[bcglorf]

Yes, in 1930 an ounce of gold was worth about $20. Today, an ounce of gold is worth $1,400.
Meanwhile, $20 from 1930 is equivalent to about $450 today based on CPI.

Sounds like the ounce of gold tracked the cost of living a lot better than the dollar.

Gold worth 3.1 times more goods today (assuming CPI is accurate), perhaps distorted upward a bit at the moment by currency fears.
The dollar worth 4.4% of the 1930 value.

Gold looks even better accounting for the recent inflation some of us believe is not reflected by the official numbers.

That's exactly the misunderstanding I wanted to correct.

If you earn $10k per year today in dollars, you wouldn't be any further ahead getting paid in gold. Your employer would only be paying you $10l worth of gold per year instead. The relative value of everything, including your salary, would remain unchanged.

[krenshala]

I can't remember were I read it now, but I remember reading that regardless of the price of gold, an ounce of gold was worth approximately 400 loaves of bread.

If you were paid in gold instead of dollars, your pay might not change but your purchasing power would keep up with current prices (assuming you were paid by weight, not current value).

[hanelyp]

If you earn $10k per year today in dollars, you wouldn't be any further ahead getting paid in gold. Your employer would only be paying you $10l worth of gold per year instead. The relative value of everything, including your salary, would remain unchanged.

Yes, but to deal with that both wages and prices must inflate with the devaluation of currency. Devaluation of currency is bad for the economy.

[bcglorf]

If you earn $10k per year today in dollars, you wouldn't be any further ahead getting paid in gold. Your employer would only be paying you $10l worth of gold per year instead. The relative value of everything, including your salary, would remain unchanged.

Yes, but to deal with that both wages and prices must inflate with the devaluation of currency. Devaluation of currency is bad for the economy.

Devaluation ALTERS the economy, sometimes it's good and sometimes it's bad. More generally, changing the value of the currency ALTERS the economy, whether the value is going up or down.

If currency's value had tracked gold, so would wages and prices. Gold isn't a magical currency, the people using it are still going to trade it for the same relative value of goods and labor.

The difference is this, with gold the changes that alter the economy come and go with the discovery and loss of a shiny metal. With a fiat based currency changes rise and fall at the decision of people whose fortunes are tied into the economy's health.

It's not rocket science to observe which one is better macro economic policy.

[Diogenes]

If you earn $10k per year today in dollars, you wouldn't be any further ahead getting paid in gold. Your employer would only be paying you $10l worth of gold per year instead. The relative value of everything, including your salary, would remain unchanged.

Yes, but to deal with that both wages and prices must inflate with the devaluation of currency. Devaluation of currency is bad for the economy.

Devaluation ALTERS the economy, sometimes it's good and sometimes it's bad. More generally, changing the value of the currency ALTERS the economy, whether the value is going up or down.

If currency's value had tracked gold, so would wages and prices. Gold isn't a magical currency, the people using it are still going to trade it for the same relative value of goods and labor.

The difference is this, with gold the changes that alter the economy come and go with the discovery and loss of a shiny metal. With a fiat based currency changes rise and fall at the decision of people whose fortunes are tied into the economy's health.

It's not rocket science to observe which one is better macro economic policy.

Just how often would any significant find represent a substantial percentage of all the gold currently out there? I really can't see how any significant discoveries or losses would occur that could POSSIBLY equal the fluctuations of a "Declared" base of value.

Your theory also presumes that those who would seek to manipulate our currency will be benign. Remember that money trader that bankrupted the Bank of England?

The thing I like about Gold is that you can't cheat. Sure, Discover a huge new massive supply and we get a fluctuation of what? 1% ? Let a ship load of the stuff get sunk, and we get a fluctuation of what? 1% ? Seriously, just how big a fluctuation would you expect for the most magnificent find, or the most atrocious loss?

Fiat currency enables Keynesian economics. Specie currency does not. (not to the same extent anyways.) Do you have any idea how much Keynesian economics has cost the world, and what it will cost us in the future? Right now, the greatest threat to this Nation (U.S.) and the World in General are the financial games people have been playing with the money. Given that Specie currency is a lot less amenable to game playing than is fiat currency, I can't see how the bad of Specie currency can possibly out weigh the good of it.

[ladajo]

I do not think that there is as much physical gold in the world as you are maybe thinking. Several sources estimate about 165,000 tons total have been mined troughout history. Which woudl physically be a cube about 20 meters per side.
Also, I think the issue is not so much discovery, as it is some entity or governement accumulating a large realtive supply, and then placing it in circulation in a quick money grab. This has been done with other limited precious commodities on occasion. The question is more one of relative scale.

[Diogenes]

I do not think that there is as much physical gold in the world as you are maybe thinking. Several sources estimate about 165,000 tons total have been mined troughout history. Which woudl physically be a cube about 20 meters per side.
Also, I think the issue is not so much discovery, as it is some entity or governement accumulating a large realtive supply, and then placing it in circulation in a quick money grab. This has been done with other limited precious commodities on occasion. The question is more one of relative scale.

You mean like the Chinese could do any time they feel like with their vast accumulation of Dollars?

[ladajo]

More or less, yes.