Silly Objections about the Gold Standard

Posted on by

I was listening to the radio today and some commentator mentioned that going back to the gold standard is totally unreasonable because we “don’t have enough gold”.  This is really a silly objection.  The merits of gold take some explaining while the “don’t have enough gold” line is just a slogan type phrase without any thought put into it.  So lets take a look at the  “don’t have enough gold” line and root out the falsehoods impregnated in it.

Gold has traditionally been used as money precisely because it is rare.  The freemarket picked gold and silver because they are precious metals.  What makes them precious?  They are uncommon/rare.  It’s pretty simple, we don’t want gold to be common place because it would not work well as money.  The maket could have chosen steel but, steel production is about 545,500 times that of gold.  If I wanted to buy stuff with steel, I would need a huge truck to transport it.  The reason that gold has been used as money is because of its high value per unit of weight.

It is true that if the U.S. returned to the gold standard today that their would be far more dollars in circulation than in the past in proportion to U.S. gold reserves.  I would say “so what?”  The fact that there are more dollars in circulation simply means that gold would have to be re-linked to the dollar at a higher amount.  This has been done before in the 1930s when FDR revalued gold because of all the money that was printed under his and the Hoover administration.  Today we could re-link to gold in much the same way (but hopefully without confiscation).  So instead of 36 dollars for every ounce of gold it would be something like 1500 dollars an ounce or maybe even 40000 dollars an ounce according to some estimates.  This would simply mean that I would need to turn in 1500 dollars to the bank to recieve an ounce of gold.  With modern banking electronics and bank cards I would not even need to turn in Federal Reserve notes to recieve hard currency.  When I swipe my card for $15 it would simply remove gold from my alloted pile in the bank and put it into another alloted pile that is owned by the seller of the good I just bought.  Whether the gold is physically moved or just kept track of in a ledger would probably be up to the bank.  As you can see, modern technology would make a present day gold standard much more cost effiecent than 100 years ago when you had to physically withdraw gold from the bank.

I would also argue that the “not enough gold” argument misses the whole point entirely, or more precicely three points.

1)  The fact that gold is linked to the dollar means that the federal government could not print off money at will.  This money printing steals wealth from the population and hurts the poor and the middle class the worst because their wages are largely fixed and do not benefit from inflation like Wall Street and other politically connected groups. Putting a check on government inflation(theft) is the whole point of the gold standard. The dollar could be linked to anything hypothetically; silver, copper, land, or even oil could be used in the same way.  The reason gold has been used is because of its high value per weight but, this doesn’t mean that something else could not be used in the future.  Hell, the governemnt could use sea shells and it would still limit how much money it could print.

2)  Gold has value in itself.  I know pundits on TV and on financial shows say that gold does not have any value because it does not do anything but, they are simply wrong. Go into any pawn shop or Jewelry store. Gold is obviously highly valued by large segments of the population.  The reason it is money is because it is widely in demand.  This does not mean that everyone has to want gold but, instead means that someone, somewhere down the road will want to own gold.  This could change to silver or maybe energy units (like oil or killowatts) but gold has traditionally been the most widely valued good and that is why it is used as money.

3) Gold also provides a function as well. Gold provides a unit of account that allows all of society to make long term investment decisions.  Other things can be used as a unit of account but, gold arose on the free market because its supply is relatively stable, only growing at a very predictable rate of about 2% a year.  Today we use Federal Reserve notes as a unit of account but, we never know how much inflation is going to be year after year.  This creates massive distortions in the economic system that makes society poorer because of peoples inability to make long term investment decisions because of the intertemporal nature of investment.    All of civilization is based on people being able to judge the value of things in the present and over time.  Gold does this pretty well, government bureaucrats are pretty poor substitutes. Once again, many things can be used as a unit of account but in the past, the freemarket has used gold.

 

 

In conclusion, the whole “not enough gold argument” is pretty naive.  There are some better arguements against gold that are more intellectually sound like the “we need to inflate to save the economy!” argument. You can read more about that here, here, and here.

 

526 thoughts on “Silly Objections about the Gold Standard”

  2. Thanks for any other wonderful post. Where else could anyone get that kind of info in such an ideal approach of writing? I have a presentation subsequent week, and I’m at the look for such info.

    Reply ↓

  4. I loved as much as you’ll receive carried out right here. The sketch is attractive, your authored subject matter stylish. nonetheless, you command get got an shakiness over that you wish be delivering the following. unwell unquestionably come further formerly again as exactly the same nearly a lot often inside case you shield this increase.

    Reply ↓

  6. This is really interesting, You are a very skilled blogger. I have joined your feed and look forward to seeking more of your fantastic post. Also, I have shared your web site in my social networks!

    Reply ↓

  11. Wow, superb blog structure! How long have you been running a blog for? you make blogging glance easy. The total glance of your web site is fantastic, let alone the content material!

    Reply ↓

  12. Magnificent goods from you, man. I have understand your stuff previous to and you’re just extremely great. I actually like what you’ve acquired here, really like what you’re saying and the way in which you say it. You make it enjoyable and you still care for to keep it sensible. I can not wait to read much more from you. This is really a terrific site.

    Reply ↓

  19. One of the leading academic and scientific-research centers of the Belarus. There are 12 Faculties at the University, 2 scientific and research institutes. Higher education in 35 specialities of the 1st degree of education and 22 specialities.

    Reply ↓

  22. It’s really a nice and useful piece of info. I’m satisfied that you shared this helpful info with us. Please keep us up to date like this. Thanks for sharing.

    Reply ↓

  23. I got what you intend, thankyou for posting.Woh I am glad to find this website through google. “Don’t be afraid of opposition. Remember, a kite rises against not with the wind.” by Hamilton Mabie.

    Reply ↓

  24. My coder is trying to persuade me to move to .net from PHP. I have always disliked the idea because of the costs. But he’s tryiong none the less. I’ve been using Movable-type on numerous websites for about a year and am worried about switching to another platform. I have heard excellent things about blogengine.net. Is there a way I can import all my wordpress posts into it? Any help would be really appreciated!

    Reply ↓

  25. Whats Taking place i am new to this, I stumbled upon this I have discovered It positively useful and it has helped me out loads. I am hoping to contribute & aid different users like its aided me. Great job.

    Reply ↓

  27. That is the precise blog for anyone who desires to find out about this topic. You realize a lot its nearly arduous to argue with you (not that I really would want…HaHa). You positively put a brand new spin on a subject thats been written about for years. Nice stuff, just great!

    Reply ↓

  36. I was wondering if you ever considered changing the page layout of your blog? Its very well written; I love what youve got to say. But maybe you could a little more in the way of content so people could connect with it better. Youve got an awful lot of text for only having one or two images. Maybe you could space it out better?

    Reply ↓

Leave a Reply

Your email address will not be published. Required fields are marked *