I am not a proponent of the gold standard for a variety of reasons but since Ron Paul and others have raised it as an issue this post by Sam Fisher got me thinking Gold's value is based on scarcity and only a handful of countries have possibly large gold deposits that can be easily mined. If most of the World switched to the gold standard could the countries that have large gold deposits (Russia, Canada, South Africa, Australia) control the global economy by either increasing or decreasing the gold supply?
One of the arguments made against the gold standard in the 80s/90s was that it would alienate both sides of the political spectrum in America/Europe, in terms of placing large amounts of economic control in the hands of countries either liberals (South Africa) or conservatives (Russia) hated. With that said, gold would be like oil, and we seem perfectly fine to allow that crucial proponent of our economy be controlled by, essentially, very unstable foreign countries. I guess most countries would feel fine leaving things with this relatively more stable bunch. I mean, I suppose a country could still sabotage the world with an OPEC like trade embargo, but for now that seems unlikely with the countries in question. Of course, in the future...eh. In any case, the gold standard already leaves your macroeconomic policy options to God? Goldcorp? Nature? Gaia? So if you're willing to go down that road, you might as well let Canada control your monetary policy.
I've always thought why do ron paulers want to tie currency to gold. Why not want to tie it to a commodity that's actually useful like oil or wheat or iron. Either way, the concept of tying currency to a specific commodity is dumb. It's now how much you have, it's how well you can use it.
Also, I don't think even Ron Paul is crazy enough to want a pure gold standard. My understanding is that he wants the ability for citizens to diversify away from fiat money by choosing a basket of currencies, most being private, which is more in line with the modern Austrian/real business cycle movement. I'd also think he would be amenable to a currency board type compromise. Those have a bunch of problems as well, but they're not as bad as those caused by a pure gold standard.
That is because gold isn't a perishable and in ancient times had really no other use. You don't want to use up the basis for your currency for some other use or have it lose its value because it rotted.
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If that was true, then water could have been used as the basis. I think it's more the fact that it's shiny and at humanity's basis, we're just like flies attracted to a light bulb.
Gold also is one of the fastest conductors of electricity, and has many industrial applications. It's not quite oil, but it's not useless either.
Oil and gold have completely different levels of significance to the world economy's productivity. Everyone in the world depends on oil as a commodity for transport and energy. Gold may have some uses, but it really doesn't have a ton of intrinsic value. Gold is essentially a fiat currency that (like Northside Storm said) nature creates and regulates. At the end of the day, you can only buy productive output with it because most of the world believes that it's worth something. Reverting back to the gold standard is a step in the wrong direction in my opinion. A country's economic strength should be defined by it's productive output, not by its ability to dig a shiny metal out of the ground.
This is true. The guy on Ancient Aliens with the tall hair and tan suit explained in one episode that gold has many technological applications.
Videos like this have always bugged me because they paint half the picture. According to usinflationcalculator.com, prices have risen by 2189.4% since 1913 (or a 95.4% loss in purchasing power). According to the IRS website: - Average annual salary in 1913 was $800 paying $0 in income tax. - Average annual salary in 2010 (no 2011 data yet) was $41673.83 paying $6600 in income tax, assuming an unmarried individual that takes no deductions Even though prices have risen by 2189.4% since 1913, an individual's purchasing power has risen by 4384.2%, meaning he/she is able to buy more than 2x the good and services. All this talk about the dollar losing its purchasing power have failed to take into account the fact that wages/salaries have actually risen significantly more quickly than prices.
Sure but what if wages were paid out in gold rather than dollars? I get where you're coming from, but getting gold out of the ground is more difficult than devaluing currency with a few keystrokes.
Sorry, I guess I'm not understanding your line of reasoning. What difference does it make whether wages were paid in gold rather than dollars? Currency is currency regardless of whether it's gold, dollars, euros, yen, or seashells. The only thing that matters is the amount of productive output (in the form of goods/services) that can be purchased relative to wages. Gold's purchasing power goes through peaks and troughs just like any other currency. During the height of economic crises (like 1978-80 or right now), gold seems to be "worth more" because people willing to pay higher prices for it, but gold's value tends to be mean reverting. Yes, a fiat currency can be abused. However, an increase in money supply doesn't necessarily mean an decrease in quality of life, especially if there's a corresponding increase in production. Think of all the innovations from the past 40 years that probably would've never happened if there was no "money creation" of any kind...either through government fiscal policy or a banking system tied to the Fed. Many of the innovations we take for granted now (GPS, Internet, etc.) probably wouldn't exist today if we'd been forced to dig shiny metal out of the ground first to invest in them. Maybe I'm seeing the world through rose-tinted glasses, but I'm not worried about currency devaluation as long as this country continues to produce and innovate.
I think you sorta proved why paper currency is more efficient. Why not tie the value of a currency to production and GDP rather than one commodity. Economy is cyclical and when you need to slow or boost the economy, you can increase/decrease the money supply. It's not easy to dig up a significant amount of gold to help stimulate the economy nor is it efficient to stockpile gold to cool the economy. Paper is more efficient but yes, can also be abused much easier. But keep in mind, with a gold standard, you could print all the money you want as long as you can dig the gold to back it up. So countries with more gold inherently can print more money. Those countries such as Russia and China would have more purchasing power than the United States. How does that make any sense? I agree with Kyrodis stance. Innovation and stability in the country should drive how much currency is worth. Imagine Afghanistan claiming to have more purchasing power (i.e. economic strength) than Norway because they found $1 trillion worth of gold.
The problem with something like water is that it isn't scare. Also it's harder to store than gold. I agree that people like gold because it's shiny as in ancient times aluminum was as scarce as gold and also isn't perishable but nobody used metallic aluminum as currency.
There's no intrinsic value to gold. Relative scarcity is not a sound basis for one's economic system. Instead of gold, why don't we all agree to tie purchasing power to something equally rare: another tulip mania, or Kate Upton's breasts? Would be a more interesting bubble.
