That's the perfect summary of what most of the pro "End the Fed!" or "Gold Standard!" arguments amount to.
Something's 'worth' is how much somebody is willing to pay for it. People will pay for gold, therefore gold has worth. Gold's worth is also very consistent. If you truly believe gold is not 'worth' something, I challenge you to take all the gold in your house and throw it in the trash.
...by your same logic, fiat money has worth as well. I challenge you to take all your fiat money and burn it.
Gold's worth is not remotely consistent. Certainly not when compared to the worth of other currency options.
right because the gold standard has never led gold to have terrible deviations from the mean. http://www.straightdope.com/columns...-to-all-the-gold-spain-got-from-the-new-world ruh roh
To be fair, that's gold weighted in US dollars, so depending on the currency fluctuations, one could make a tentative argument that gold has an inherent stable value that offsets the fluctuations of the currency that is used to measure it. Of course, much of that value comes from psychological circuit breakers that tell us shiny is good or the whims of speculators, but eh.
I don't know if this can be called a successful troll attempt by tallanvor/uolj/whatever he's calling himself. True, a lot of people are calling him an idiot, but I don't think it worked out the way he planned.
But the value of something is based on what it can get you in exchange. Since this is a inflation-adjusted dollar chart, it suggests that $1 in the chart has fairly constant value in what it can buy you, so the differentials reflect entirely the change in the value of what gold can get you. Now, certainly, if you were transacting in other currencies, the numbers would be different - but gold has substantially wider moves here (from 400 to 2000 back to 300, etc) than the dollar has ever had. So no matter what currency you look at, gold will fluctuate wildly.
Did you even read the first several sentences I wrote, or are you just selectively responding to the last paragraph? You're missing my point entirely. I'm not saying gold is worthless (although I don't own an ounce of gold). I'm saying your argument that fiat has no "backing" aside from a government promise is bunk. Gold technically has no "backing" either because the worth people assign to it far outweighs its utility as a commodity. Wouldn't you agree? Gold is just like any other fiat currency except for the fact that it's a naturally occurring element. It's used as a medium of exchange to make transactions easier...a matter of convenience. People who accept it as payment only do so because they have "faith" in its worth, that they can purchase real economic output with it, not because they have any real use for it. Question is...would you rather have a fiat medium of exchange we can control directly? Or would you rather leave that up to nature?
That actually reminds me. Friedman once argued that a supply shock wouldn't lead to cost-push inflation as long as the money supply remained constant, i.e. the increased price of the supply-shocked good would be offset by falling price of another. It never quite passed the smell test with me, primarily because prices/wages are sticky and I'm guessing the banking system would create endogenous money to meet higher prices, increasing both the money supply and household debt levels. Eventually, we would all see stagflation effects even if the Fed did nothing to change the money supply. Just wondering what your thoughts were...
The chart's inflation-adjusted, so dollar's purchasing power is a flat line in terms of everything included in the CPI: housing, food, apparel, education, etc. Of course, not everything is included in the CPI, so there would be some wiggles in real price levels. What that chart really says is that gold's purchasing power fluctuates wildly in terms of the things in the CPI basket.
I feel like he was trying to counter central banks mounting the Phillips curve by saying that we wouldn't have had the stagflation of the 1970s without constantly upwards-adjusting expectations when it came to inflation thanks to over-aggressive central bank action, even with exogenous oil price shocks and shortages caused by OPEC. "Constant money supply" can encompass endogenous money as well, though Friedman was not a big fan of that concept, so it's probable he was just thinking about exogenous money supply shocks (i.e central bank interventions being pretty much the only way to move money supply). I'd argue that Friedman's analysis is flawed because he a) most probably ignored endogenous money and b) his statement is absolutely false if the item in question is a critical factor of production for multiple items (the perfect example being oil), which theoretically, if you run it through either the Keynesian model, or hell DSGE real business cycle models, imply a huge shift inwards of aggregate supply (due to decrease in productivity), and an increase in price level due to decrease in money demand (driven by less output and higher interest rates in the RBC model, and driven by the inwards shift of the AS curve in the Keynesian model), so you end up with higher prices, and lower output. Classic stagflation. As an aside, I find sticky prices pretty dubious. Sticky downwards wages, I can live with somewhat, but sticky prices (more relevant in this case) do suffer from the fallacy that it is theoretically easier to change prices than to change output, even with all the menu costs a New Keynesian can throw at you. This is one of the main reasons why I split away from the orthodox neoclassical synthesis, and am ambivalent about the New Keynesian model.
Sorry, I want to make sure I'm following the last part correctly. You don't believe prices are sticky because output is really what can change on a dime, and ultimately that's what determines a product's price level (assuming constant demand)?
