I think this is a joke, but Virginia had Tobacco-based currency in colonial times.
It was just as terrible as one would think. In surplus years, a family could spend their life savings on essentials to get them through the next season, to be left with nothing when prices spiked the next year.
We were on the gold standard (Bretton Woods system) that was established after WWII until Nixon ended it in 1971 when countries started to demand gold as payment from the Federal Reserve Banks instead of US Dollars because they didn't believe America could pay its debt due to spending more than it collected in taxes, and they were correct. We've been deficit spending ever since to pay for all of our toys. We owe more now than at any other time in our history. No country that has gone to a fiat currency system at any time in world history has lasted. It was probably the worst thing that Nixon did to this country, but we only talk about the other bad thing he did.
I think the price of silver was fixed in terms of gold as well.
However, today, we have more economic activity than we have gold. If we went back to gold standard, we’d either literally not have enough money, or the price of gold would be artificially inflated far above its current free market valuation.
Not to say that the deficit isn’t a ticking time bomb, but we need another solution for politically expedient overspending.
In a gold standard the price of gold would not be 'above its free market valuation' but it would be the market valuation, taking into account its rediscovered monetary role.
In a gold standard the currency used would still be the dollar, just backed by gold, so the FED would be able to print it into the dust just the same. The money supply could still expand just as it does now to accommodate for growth, but the main difference is the rest of the world wouldn't be subsidizing the US any longer.
But what happens to the price of a finite resource when demand rises? That's not an artificial increase...that is the free market valuation. It's not really different than the price of the finite pool of bitcoin. Demand soars and so does the price and the opposite happens when demand is reduced.
Yes but this newfound demand for gold will be based entirely on a government regulation, making it artificial. If the market naturally desired enough gold to back every transaction, the price would skyrocket right now
Billions of people going about their day in a world denominated in fiat Dollars for five decades now doesn’t scream “artificial trust” to me. Sure, one day it’ll all go to hell, but then so did the gold standard.
If you want to stop politicians from overspending, then stop politicians from overspending. Don’t insist on using an arbitrary element as the reference point for all value.
You might as well have a currency backed by CPU hours or bowls of petunias or live Gregorian choir performance tickets.
Billions of people go about their day in a country dominated by artificial social credit system, I don't see how this live of argument proves or disproves anything is artificial. Why are 'natural' things suppose to be more stable, we had 'natural' tulip mania? Are mortgage backed securities artificial? Is lending based on Experian's credit rating 'natural'? Is bitcoin natural? I am not seeing how this line of inquiry leads to tangiable information.
I don't think we are overspending at all acutely, I think we should be spending a lot more on the real economy instead of inflating unproductive asset bubbles, life we've been since the 70s.
I think currency is just an institution, it's no different from parliament or the catholic church, it runs only on faith. If tomorrow everyone looses faith in it, it disappears.
> However, today, we have more economic activity than we have gold.
Don't want to engage in the broader debate, but you do realize that gold is fungible and able to broken down into very small pieces? Are you familiar with the term reserve banking? The gold standard doesn't mean you make transactions with actual physical pieces of gold. It means financial institutions have to hold physical gold reserves relative to the money they issue.
Also that the base money supply (MO) is a very small fraction of the money used in the economy.
https://en.wikipedia.org/wiki/Money_supply
Whether we exchange gold or certificates representing gold is immaterial.
Some quick googling tells me the total value of all gold on the planet is 187000 tons x 35273 fine ounces per ton x USD 1897.93 per fine ounce = 12.5e12, ie, USD 12000 Bn. Sounds great, that’s a lot of money. But it’s not annual production, it’s total amount mined so far in human history.
However, according to [1] the global GDP last year was USD 84537 Bn. That’s annual economic activity.
So there’s no hope in hell that we could produce enough gold every year to represent all the economic activity.
Your base gold supply + your extended money via credit can circulate an unlimited amount of times to support the transaction volume needs of the global economy.
The whole concept of a gold standard is that you can trade your paper money in for real metal at any time.
What you describe, base gold supply + credit, implies fractional reserve banking. As soon as you have a fractional reserve, the gold standard promise no longer holds. The question becomes - what level of fractionality is acceptable? And who decides that, the government? What stops them from decreeing that one ounce of gold now represents a billion dollars and letting the printing press fly?
(In fact, this is precisely what did happen. Look up the historic value of the British Pound. Gradually got watered down over the centuries as I described.)
If the government can make up the fraction they want to use, let’s just skip the extra steps and let them make up the amount of money they want to print directly.
Ultimately you can’t get away from the fact that we’re creating a hell of a lot of economic value every year and we’ll never dig up gold at the same rate, probably ever.
Deficit spending is only a problem if you have full employment and I'd rather have full employment than a fiscally irresponsible government (not taking on debt is irresponsible).
Remember, for each fiat dollar there is one dollar of debt. If companies, rich people, the government or foreign nations don't have the debt then you and your fellow people must have that debt. A government with a surplus is a basically rich man "hoarding" his money (0% interest is almost equivalent to hoarding). Creating debt is a prerequisite for increasing the money supply, the same way buying or mining gold is a prerequisite for a gold backed currency. The inability to create enough debt is preventing wealth from being created.
I believe the US was on a mixed gold and silver standard at the time and they periodically ran into silver production issues.
reply