Another pseudo-reform movement....

[RadioRaheem84]

http://topdocumentaryfilms.com/breaking-inequality/

This might end up being the next big thing on the net. Apparently, America's problems are all because of the gold standard.

Can someone please explain why Americans are obsessed with gold and the notion that it will repair America's dollar?

Did Nixon taking the dollar off the gold standard really create that much havoc that wouldn't already have been created by finance capitalism?

Any rebuttals to the gold standard theory?

[tuwix]

And what have you expected from bourgeois government? That they erase inequality or decrease it? :D

[RadioRaheem84]

Well my question is if this is correct or if it's another Ron Paulish attempt to say the problem is fiat currency? I am asking for a critique of the gold standard theory.

[Sinister Cultural Marxist]

Who needs to own the means of production when we can just have rich people take all their meaningless paper and attach its value to some meaningless metal. Then all of our social hardship and economic problems will just go away.

[Tim Cornelis]

The critique is we need to increase the money supply to allow for economic growth. If we tie currency to gold then this is a problem because the gold supply does not grow proportionally to economic growth.
^
What I've been told.

[tuwix]

Well my question is if this is correct or if it's another Ron Paulish attempt to say the problem is fiat currency? I am asking for a critique of the gold standard theory.


The best criqique is that the Great Crisis of 30' was during the times of gold standard.

Besides as Tim Cornelis noticed, resonable increasing of money supply causes economic growth and gold standard make it imposible.

[WelcomeToTheParty]

The gold standard would be a step back for Capitalism with terrible repercussions for ordinary people. Monetary policy is an important tool for stabilizing the economy and staving off deflation.

[Red Commissar]

TBH the whole gold standard "movement" is limited to a few goldbugs and quacks, most serious economists are not really enamored with the idea of reverting to a gold standard. So I guess lolbertarians share another similarity with us in being isolated and irrelevant in the grand scheme of things.

The younger people who fall in line with this is honestly because of introductory economics. I really wish I was joking about this but it seems many of these people seem to start on this when they take some econ course in college or high school and learn about fiat currency. They are frightened that the money has no real worth beyond the strength of a state's economy and what we assign to it- they think it'd be more stable with a finite source to put it against. Bonus points if you have someone going on about how quantitative easing undertaken by the Federal Reserve is debasing the US currency and therefore making us all poor. Cue horror stories about hyper inflationary disasters in Weimar Germany, Argentina, and Zimbabwe, tie it to a government pointlessly trying to expand money supply. Gold!

Combine this with the conservative idea of trying to limit government abuses by controlling the money supply. So the way they see it a gold standard would both stabilize the supply and thus prevent the government from spending "beyond its means" as they often go. In effect they'd force a form of "balanced budget" and then we'd never have deficits ever again! Government will no longer oppress us with food stamps! Currency will operate as it would ideally work, for the consumer and producer rather than the government.

Of course a lot of this doesn't really make much sense. Firstly, the idea that gold somehow would protect against inflation and such is not really true since we've seen significant inflation (and deflation) spikes even in the years when a gold standard was being run. A gold standard won't protect an economy against external shocks like a spike in oil prices such as the OPEC embargo back in the 70s.

http://upload.wikimedia.org/wikipedia/commons/2/20/US_Historical_Inflation_Ancient.svg

Second, the idea that somehow the gold standard would correct abuses by those in power is idiotic. Corporations have power over our lives not because of fiat currency but because of capitalism which tends towards the concentration of power in the hands of the few. Of course we know this but this is lost on other people who want to reach an idealized free market. The early populist movements- who share similarities with the right-wing populists of today- in the United States had made it a point to do away with the gold standard because they saw the system as beneficial to those in power, especially the bankers (which unfortunately brought up the usual Jewish conspiracies). I'd argue honestly that a gold standard would probably make inequality far worse because the money supply would have to be reduced and what's left would still be mostly in the hands of the rich.

Third, which ties into the above, how would we go about instituting a gold standard? The whole thing is complex because of all the major currencies, so we'll just look at the US currency supply, which is fairly large on its own. There is a lot of dollars in circulation both in the US and abroad, as well as the reserves held by corporations and governments, and there is no way that the US's current gold supply, even if the US were to get even more gold reserves, could back up the current supply. This would necessitate either one of two things- in a pot dream, the US somehow finds a bunch of gold to back this (which would unleash its own problems on the value of gold), or more realistically would have to significantly reduce its money supply to match its reserves. However, the scale the US would need to do this on would more than likely wreck the economy and probably not recover. Only the strong'd emerge from this so you'd be back to square one with regards to inequality.

Fourth, most economists don't really buy it. Nixon pushed the US off the gold standard because many countries were already moving off and he was worried that staying on the gold standard would drive away investors since they could not compete with the interest rates of other countries. Most economists- even Milton Friedman (http://books.google.com/books?id=Q7J_EUM3RfoC&dq=friedman+and+schwartz&q=great+contraction#v=snippet&q=great%20contraction&f=false) and his Chicago School- agree that the Gold Standard was probably a major factor in the Great Depression of the 30s because it severely restricted monetary supply when the economy was already undergoing a severe contraction. Gold prices afaik aren't all that consistent anyways so the idea that they're a good store of value is oversold (say it ain't so, gold is suspect to market forces too?!?)

Fifth- why gold? If you're already paranoid about the fact that paper currency has no intrinsic value, why suddenly put faith in a metal to achieve the same thing? It worked in the past? Sure, many things worked in the past but there's a reason why those things are in the dustbin of history. What gives gold its value? Its shiny, doesn't go bad, and has some cultural worth but beyond that there is no real utility for it beyond some applications in electric-related things like conductivity. It's a safe bet that most of these people are apocalypse nuts fearing the ever nearing doomsday when the chickens come home to roost and the tax-and-spend liberals crash the economy. So now we got post-apocalyptic society- who is going to see your gold as anything of value? Presumably in such a scenario people want food, clothes, weapons, maybe some pleasures... what good is gold if it can't be readily converted? I somehow doubt they'll be able to "coin" the gold either considering the resources you need for this too...

Honestly it's stuff like this that makes me utterly confused why people seem to think that businesses are in the same boat as the "little guy" when facing government problems, apparently not realizing that corporations influence government, it's not as if the government is some independent force that utterly ignores corporate power. A "gold standard" still leaves those in power to determine the value by which they pay your for services and goods, different names for the same shit.

[MarxSchmarx]

TBH the whole gold standard "movement" is limited to a few goldbugs and quacks, most serious economists are not really enamored with the idea of reverting to a gold standard. So I guess lolbertarians share another similarity with us in being isolated and irrelevant in the grand scheme of things.

The younger people who fall in line with this is honestly because of introductory economics. I really wish I was joking about this but it seems many of these people seem to start on this when they take some econ course in college or high school and learn about fiat currency. They are frightened that the money has no real worth beyond the strength of a state's economy and what we assign to it- they think it'd be more stable with a finite source to put it against. Bonus points if you have someone going on about how quantitative easing undertaken by the Federal Reserve is debasing the US currency and therefore making us all poor. Cue horror stories about hyper inflationary disasters in Weimar Germany, Argentina, and Zimbabwe, tie it to a government pointlessly trying to expand money supply. Gold!

Combine this with the conservative idea of trying to limit government abuses by controlling the money supply. So the way they see it a gold standard would both stabilize the supply and thus prevent the government from spending "beyond its means" as they often go. In effect they'd force a form of "balanced budget" and then we'd never have deficits ever again! Government will no longer oppress us with food stamps! Currency will operate as it would ideally work, for the consumer and producer rather than the government.

Of course a lot of this doesn't really make much sense. Firstly, the idea that gold somehow would protect against inflation and such is not really true since we've seen significant inflation (and deflation) spikes even in the years when a gold standard was being run. A gold standard won't protect an economy against external shocks like a spike in oil prices such as the OPEC embargo back in the 70s.

http://upload.wikimedia.org/wikipedia/commons/2/20/US_Historical_Inflation_Ancient.svg

Second, the idea that somehow the gold standard would correct abuses by those in power is idiotic. Corporations have power over our lives not because of fiat currency but because of capitalism which tends towards the concentration of power in the hands of the few. Of course we know this but this is lost on other people who want to reach an idealized free market. The early populist movements- who share similarities with the right-wing populists of today- in the United States had made it a point to do away with the gold standard because they saw the system as beneficial to those in power, especially the bankers (which unfortunately brought up the usual Jewish conspiracies). I'd argue honestly that a gold standard would probably make inequality far worse because the money supply would have to be reduced and what's left would still be mostly in the hands of the rich.

Third, which ties into the above, how would we go about instituting a gold standard? The whole thing is complex because of all the major currencies, so we'll just look at the US currency supply, which is fairly large on its own. There is a lot of dollars in circulation both in the US and abroad, as well as the reserves held by corporations and governments, and there is no way that the US's current gold supply, even if the US were to get even more gold reserves, could back up the current supply. This would necessitate either one of two things- in a pot dream, the US somehow finds a bunch of gold to back this (which would unleash its own problems on the value of gold), or more realistically would have to significantly reduce its money supply to match its reserves. However, the scale the US would need to do this on would more than likely wreck the economy and probably not recover. Only the strong'd emerge from this so you'd be back to square one with regards to inequality.

Fourth, most economists don't really buy it. Nixon pushed the US off the gold standard because many countries were already moving off and he was worried that staying on the gold standard would drive away investors since they could not compete with the interest rates of other countries. Most economists- even Milton Friedman (http://books.google.com/books?id=Q7J_EUM3RfoC&dq=friedman+and+schwartz&q=great+contraction#v=snippet&q=great%20contraction&f=false) and his Chicago School- agree that the Gold Standard was probably a major factor in the Great Depression of the 30s because it severely restricted monetary supply when the economy was already undergoing a severe contraction. Gold prices afaik aren't all that consistent anyways so the idea that they're a good store of value is oversold (say it ain't so, gold is suspect to market forces too?!?)

Fifth- why gold? If you're already paranoid about the fact that paper currency has no intrinsic value, why suddenly put faith in a metal to achieve the same thing? It worked in the past? Sure, many things worked in the past but there's a reason why those things are in the dustbin of history. What gives gold its value? Its shiny, doesn't go bad, and has some cultural worth but beyond that there is no real utility for it beyond some applications in electric-related things like conductivity. It's a safe bet that most of these people are apocalypse nuts fearing the ever nearing doomsday when the chickens come home to roost and the tax-and-spend liberals crash the economy. So now we got post-apocalyptic society- who is going to see your gold as anything of value? Presumably in such a scenario people want food, clothes, weapons, maybe some pleasures... what good is gold if it can't be readily converted? I somehow doubt they'll be able to "coin" the gold either considering the resources you need for this too...

Honestly it's stuff like this that makes me utterly confused why people seem to think that businesses are in the same boat as the "little guy" when facing government problems, apparently not realizing that corporations influence government, it's not as if the government is some independent force that utterly ignores corporate power. A "gold standard" still leaves those in power to determine the value by which they pay your for services and goods, different names for the same shit.

Excellent post. Here's my attempt at a TL;DR version

Money is an abstract concept that seems nefarious.
+Money runs the world.
+Gold is concrete.
+Empower gold and you crack at the foundations of a false idle that runs the world.
=
Ingredients for the conspiracy theory crowd to become excited.

[Clarksist]

As Tim Cornelis and Red Commissar started to point out, but I didn't see where they said this exactly, is that the gold standard is bad for the economy during a boom and a bust.

In a boom, the total value of the economy skyrockets but that is linked to a limited money supply which causes deflation in prices. More and more products enter the market and the money supply can't catch up, so things have to be priced lower to sell.

The problem with this is that deflation can lead to a deflationary spiral. Basically, when prices are dropping people (specifically the big time capitalists) tend to sit on their money because it is increasing its purchasing power without you having to encounter risk in investment. Each dollar you have is able to buy more because prices are falling, so why risk losing money on an investment when that money is becoming more valuable?

Then we have a bust cycle. The economy shrinks and its total value is worth less. Markets shrink up, but the money supply doesn't. The ratio of money to goods presumably shifts so that the purchasing power of the money supply lowers. If there is less to buy, less investment, but the same amount of money prices begin to skyrocket.

Because busts also lead to lower employment, a realization crisis occurs. That's where you can't sell all of the shit you made. People just can't afford the inflated prices.

This is what drives me bonkers about Ron Paul being seen as some economics wonk. His ideas (like putting the US on the gold standard) don't make any sense. They equate to pure fantasy.

[cyu]

http://finance.yahoo.com/blogs/daily-ticker/gold-prices-collapse-everyone-remembers-just-yellow-metal-150633740.html

If this were mere "volatility"--if gold had some fundamental value that it would likely eventually return to--then the price drop would be no big deal. But there's no solid theoretical way to "value" gold, so its price could do almost anything.

speculating about what gold prices will do is speculating, not investing, and many of the folks who bought gold or gold funds over the past few years have assumed they were "investing."

the primary argument for buying gold--the argument that gold would protect you from the hyper-inflation that would surely follow the government's crazy money-printing--has been flat-out wrong.

The only thing that determines the price of gold is what someone is willing to pay for it.

gold is not some magical perfect investment, but, instead, just yellow metal.

[Slavic]

Gold currently is only good for speculators. Gold's price is volatile like all commodities, but it is small compared to fiat. Those in the U.S. who champion the use of gold do so because they believe that the U.S. ecconomy is only going to get worse. If the fiat currency of the U.S. experiences hyper inflation, those who purchased gold could exchange it for another country's currency that has a greater purchasing power.

This is all of course hypothetical since a substantial inflation of U.S. currency will severely hamper international trade and alter all national currencies. The idea of gold as a safe investment only occurs to ignorant speculators.