Gold, it's only for looks in America.

[Quicklet]

Actually basing the money supply on gold is just as fictitious as basing it on nothing. The difference is that basing it on nothing makes it much easier to adopt fiscal policies that makes sense and help guide the economy to a healthy, low-inflation state.

It also makes it tremendously easy to adopt fiscal policies that are terrible. See for example GWB's terribly fiscally irresponsible governance. What you are looking for is responsible fiscal policy. But guess what, going back to the gold standard isn't going to make that happen.

I think you're missing an important distinction between the two, which is why you're assuming that a gold standard is no better than fiat. As anyone could tell you, the historical development of a metallic standard is an outgrowth of the properties of valuable metals. They have value to people, are portable, etc., so they have been a convenient medium for trade. Fluctuations in supply will affect them in the same way that it'll affect fiat money, but in the case of gold, if for some reason its usefulness as a medium of trade grew obsolete, it would still have its original value as a good.

Now go to fiat money. The only thing that fiat money is based on is the power of the government. In a sense, fiat money is as you claim the better standard for governmental fiscal policy, because what would be better suited to coercive economic practices than a money supply that's based on coercive power? The reason fiat money is "better suited" for fiscal policy is typically because it makes it harder to see when the government fucks up and screws everybody over, because there are all sorts of actions that can be taken to "soften" (yet prolong) / "fix" (in a roundabout way) the problems that it creates. When you're working with any standard that's based off an actual good, you can't get away with that because people will actually call on their assets if they lose faith in a banking institution. So really, it might make some of the immediate consequences of bad fiscal policies less pronounced, but it's an enabler for these bad policies to continue AND if the system collapses entirely, it severely hurts whoever is holding notes as opposed to people who have, say, gold (or real estate or stock or any real asset) because if the confidence in the backer of the money supply to honor those notes is gone, then you're left with worthless paper.

What you seem to be suggesting is that a "low-inflation" economy is the sign of a rising standard of living, and that you can only do that through carefully crafted fiscal policies that are further expedited using fiat. I'm not so sure I'd agree with that to begin with, but I don't think it's so easy to write off a non-fiat standard as being completely inferior to fiat in either case.

[aurik]

No, low inflation is a desirable artifact of fiat. It encourages investment rather than hoarding. Whereas in a gold standard, I could earn a bunch of gold, do absolutely nothing with it for 100 years, and still have the same amount of money. That's wasteful.

[guartz]

Wow Quicklet I'm impressed.

Somebody mentioned deflation as a draw-back for limited reserve standards. Do you think it's possible for common hoarding to cause a deflationary spiral, or do you think it has to be an organized effort? Or is it inevitable? In theory.. at least.

Or would it work out like Hume said, between nations in price flow mechanism, but more locally, if that's possible?

[guartz]

No, low inflation is a desirable artifact of fiat. It encourages investment rather than hoarding. Whereas in a gold standard, I could earn a bunch of gold, do absolutely nothing with it for 100 years, and still have the same amount of money. That's wasteful.

It forces investment... and common greed "encourages" investment.

[Quicklet]

No, low inflation is a desirable artifact of fiat. It encourages investment rather than hoarding. Whereas in a gold standard, I could earn a bunch of gold, do absolutely nothing with it for 100 years, and still have the same amount of money. That's wasteful.

I'm not sure if you're referring to price inflation or monetary supply inflation, but I'm afraid you're starting to get into the psychology of action which unfortunately I don't have particularly much to say about. That aside, I would contend that inflation due to the ability to manipulate the money supply in a fiat economy may encourage investment, but the end result is the credit cycle which we are seeing evidence of right now. All it really does is redistribute wealth to those close to the source of monetary injection (and away from those farthest from it) as well as hurt those who are close to the source of any eventual monetary retraction (which is a direct consequence of the central banking system and partial reserve policies combined with manipulation of the monetary supply). It's questionable whether or not such investments due to these policies are actually beneficial, or if many of them turn out to be bad investments based on temporary and unsustainable economic conditions created by these fiscal policies.

You say that a gold standard would not do anything about bad fiscal policy, but if a fiat standard enables or encourages these policies which by nature create unsustainable investments and do as much harm as whatever good you might say they do, why wouldn't a gold standard be more desirable on the basis of preventing these bad fiscal policies from being allowed to fester and only create a larger problem in the long run?

[Ishido]

The intrinsic value of gold has depreciated over the years, centuries, etc as it has been used as money or used as the standard for money.

The idea of basing money on one substance is much simpler than the fiat system, but they are both part of the evolution of money.

My question is: Guartz, why do you always create your posts so that it looks like you are chasing a conspiracy rather than creating a discussion about something? Saying something like "Why are we not going back to the Gold Standard?" instead of your OP would get you far less flames than saying the Gov't has a conspiracy against using gold to back currency (and thus producing more productive feedback than what you have here).

[aurik]

No, low inflation is a desirable artifact of fiat. It encourages investment rather than hoarding. Whereas in a gold standard, I could earn a bunch of gold, do absolutely nothing with it for 100 years, and still have the same amount of money. That's wasteful.

I'm not sure if you're referring to price inflation or monetary supply inflation, but I'm afraid you're starting to get into the psychology of action which unfortunately I don't have particularly much to say about. That aside, I would contend that inflation due to the ability to manipulate the money supply in a fiat economy may encourage investment, but the end result is the credit cycle which we are seeing evidence of right now. All it really does is redistribute wealth to those close to the source of monetary injection (and away from those farthest from it) as well as hurt those who are close to the source of any eventual monetary retraction (which is a direct consequence of the central banking system and partial reserve policies combined with manipulation of the monetary supply). It's questionable whether or not such investments due to these policies are actually beneficial, or if many of them turn out to be bad investments based on temporary and unsustainable economic conditions created by these fiscal policies.

You say that a gold standard would not do anything about bad fiscal policy, but if a fiat standard enables or encourages these policies which by nature create unsustainable investments and do as much harm as whatever good you might say they do, why wouldn't a gold standard be more desirable on the basis of preventing these bad fiscal policies from being allowed to fester and only create a larger problem in the long run?

I'm referring to price inflation and encouraging an economic system to work at capacity. Money is really just a fiction, no matter if it's paper or gold. It's a quantification of a unit of human labor. It should naturally inflate over time: we should value work done now greater than work done 10, 100, 1000 years ago.

What really makes a nation rich: the efficient utilization of their most valuable asset, human capital. With a gold (or any other non-fiat) standard, it is a lot more difficult to create incentives for people to reinvest their property into the system. The system on a gold-backed currency may work in the short term, as long as the people are optimistic, but when the populace gets pessimistic then they revert to hoarding, creating the same feedback loop that made the 1930s depression so severe. http://en.wikipedia.org/wiki/Keynesian_ ... ive_saving pessimism begets pessimism, and the system feeds back upon itself until the population is idle on a massive scale while prices adjust.

The gold standard is essentially a set of gold handcuffs that restrict the government from responding in effectively -- in either a positive or negative way -- to the economy. Now that seems like a good thing if the people with the purse are fucking retards, hi2u mr bush and your 3.5 trillion-dollar war, but when the economy is in general distress for whatever reason (countless other examples in the last 50 years), these handcuffs would only serve to prevent the fed.reserve from mitigation of the crises, leading to longer, more severe economic droughts. And in the long term, less efficient utilization of human capital.

[Quicklet]

I'm referring to price inflation and encouraging an economic system to work at capacity. Money is really just a fiction, no matter if it's paper or gold. It's a quantification of a unit of human labor. It should naturally inflate over time: we should value work done now greater than work done 10, 100, 1000 years ago.

While I understand your point (continuing improvements in technology and capital structure should increase productivity, leading to more goods produced, a wider variety of good produced, and an overall increase in the standard of living), I'm not sure I'd take it as a law that that needs to happen. If you look at the increasing world population and the (perhaps more relevant) globalization of trade so that the available labor pool has markedly increased, I doubt it would be hard to find instances where work done now is valued less than work done in the past. While human labor is definitely one broad representation of what money quantifies, I would take it one step further and say that it's (using crude terminology) a quantification of value itself, since there are no assurances that human labor will actually produce a good that's valuable. At least, I wouldn't subscribe to the idea that we value goods ultimately in terms of the human labor put into them even though it does play a significant factor.

This is regrettable, but I have a feeling that your analysis of economics and mine are just based on fundamental differences. Both the initial and prolonging causes of the Great Depression were the very policies the government implemented which limited the economy from stabilizing itself. If you think about it, the logical problems inherent with the assumption that an economy is labor-driven as opposed to value-driven lead to absurd consequences, as does the idea that excessive savings creates some endless loop that creates a repression/depression unless some entity steps in and forces people to spend money.

Really the problem is that you subscribe to Keynesian thought and I don't, so it's just a matter of interpreting the situation in two different ways that lead to two different conclusions.

[Obev]

The economic system of a nation SHOULDN'T be a for-profit business!

Fucking communist.

[Creeps]

The economic system of a nation SHOULDN'T be a for-profit business!

News flash, America is a capitalist society. Everything is a for-profit business, deal with it.

[Quicklet]

I heard you get gold from killing creeps.

[Creeps]

Judging from what my checking account looks like this week, it's doubtful.

[Dense]

No, low inflation is a desirable artifact of fiat. It encourages investment rather than hoarding. Whereas in a gold standard, I could earn a bunch of gold, do absolutely nothing with it for 100 years, and still have the same amount of money.

Watch this through, it completely challenges what you're saying, and what you are probably taught in your schools, but please be aware: I do think that all of us have been misled by media coverage and education:

http://video.google.com/googleplayer.sw ... 9002339531

[aurik]

No, low inflation is a desirable artifact of fiat. It encourages investment rather than hoarding. Whereas in a gold standard, I could earn a bunch of gold, do absolutely nothing with it for 100 years, and still have the same amount of money.

Watch this through, it completely challenges what you're saying, and what you are probably taught in your schools, but please be aware, I do think taht all of us have been misled by media coverage, and education:

http://video.google.com/googleplayer.sw ... 9002339531

Doesn't impress me.

[Dense]

No, low inflation is a desirable artifact of fiat. It encourages investment rather than hoarding. Whereas in a gold standard, I could earn a bunch of gold, do absolutely nothing with it for 100 years, and still have the same amount of money.

Watch this through, it completely challenges what you're saying, and what you are probably taught in your schools, but please be aware, I do think taht all of us have been misled by media coverage, and education:

http://video.google.com/googleplayer.sw ... 9002339531

Doesn't impress me.

It's meant to be an explanation of the real source of inflation. A tie to the reason why purchasing power has decreased in your country, and a good reason of where the US taxes are going. Taxes in the US are currently being used to pay interest from borrowed money to the Federal Reserve, a private institution. That act of lending, coupled with the fact that the Fed can simply produce money at whim, leads to the current inflation.

[aurik]

No, low inflation is a desirable artifact of fiat. It encourages investment rather than hoarding. Whereas in a gold standard, I could earn a bunch of gold, do absolutely nothing with it for 100 years, and still have the same amount of money.

Watch this through, it completely challenges what you're saying, and what you are probably taught in your schools, but please be aware, I do think taht all of us have been misled by media coverage, and education:

http://video.google.com/googleplayer.sw ... 9002339531

Doesn't impress me.

It's meant to be an explanation of the real source of inflation. A tie to the reason why purchasing power has decreased in your country, and a good reason of where the US taxes are going. Taxes in the US are currently being used to pay interest from borrowed money to the Federal Reserve, a private institution. That act of lending, coupled with the fact that the Fed can simply produce money at whim, leads to the current inflation.

As I said, the video doesn't impress me. Inflation is, in moderate amounts, a good thing. It keeps people interested in reinvesting instead of hoarding, and reinvesting means more jobs, which means productivity moves towards the theoretical maximum. The whole "inflation is caused by increases in the money supply" thing is a bit of a red herring. Moderately-low inflation is a natural artifact of a safely growing economy, where the demand for goods and services in the economy will always slightly outweigh the supply. The fed uses interest rates to expand or contract the money supply to curb or accelerate inflation to a healthy point.

With a fiat money, the fed can expand or contract the money supply at will which will accelerate or decelerate inflation. With gold-backed money, the influx or efflux of money into the system is based on, well, the amount of metal dug out of the ground. As I said, the gold standard is basically a set of gold handcuffs that prevent appropriate responses to the economic crises the market naturally goes through.

[archibaldcrane]

Is there a way to still have a fiat monetary system without these "interest charges" to the federal reserve, turning it into a public institution? Or is the whole "the federal reserve is private" not...really true? Does every country with a fiat monetary system have this same issue (if it is an issue)?

[oxx2]

BG: where nerdy gamers become global economists

[aurik]

Is there a way to still have a fiat monetary system without these "interest charges" to the federal reserve, turning it into a public institution? Or is the whole "the federal reserve is private" not...really true? Does every country with a fiat monetary system have this same issue (if it is an issue)?

The federal reserve board is a government agency.

The federal reserve banks are quasi-governmental, though they retain some properties of a capitalist corporation in order to make them more efficient.

http://en.wikipedia.org/wiki/Federal_re ... government

[archibaldcrane]

So basically, in efforts to achieve "capitalist efficiency" we allow there to be a profit to be made in the "Federal Monetary Policy" game, because in theory the money that could be otherwise "saved" from having it be completely government owned is more than made up for by the supposed increased efficiency that profit-driven capitalism provides.

The other side then argues that because of the opaque nature in which the Federal Reserve Board acts, combined with the extreme profit potential due to the ridiculous amount of money changing hands, the partially private reserve banks use their power (derived from...not sure where - influence due to ties to the Federal reserve board members maybe?) to manipulate the hell out of monetary policy for their own gains, contrary to the interests of the American people (as they should, being that this is capitalism) and the necessary checks and balances are not in place to prevent such abuses. Some even think that they are powerful enough to push the country into war, as war is the instance in which the most profit can be realized in reserve banking.

Do I pretty much have the both sides correct?