
Why Did the U.S. Abandon the Gold Standard? - nightbrawler
http://www.mentalfloss.com/blogs/archives/144863
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jsnk
It is worth reminding that adoption of the gold standard is mere possibility
of the central point libertarians are trying to make.

The real issue is force. Libertarians do not believe that it is okay for the
government to exercise sole monopoly over issuance of currency with force.
They want free market system that would allow competing currencies to develop
rather jail those who issue their own currency.

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danielweber
Yep, this is why the prisoners are full to bursting with Bitcoiners.

Who has been put in jail for their own currency that didn't try to use the
names of existing currency?

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grecy
tldr; The gold standard won't come back because the government would not be
able to print trillions of fictional dollars whenever they want.

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fusiongyro
That's not untrue, but that way of looking at things ignores the fact that
constant, wild fluctuations in the value of currency have negative
consequences for everyone that depends on the currency.

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dpark
I also don't understand why gold-standard advocates seem to believe that gold
is intrinsically the foundation of wealth. Why should the dollar be pegged to
gold and not silver, or platinum, or rhodium? How about crude oil, or helium,
or drinking water, or land in Manhattan? How about anything else that has
value? All wealth is not gold, and I don't see a compelling reason why we
should pretend that it is.

All the things we value vary over time relative to each other. Given that, why
should we arbitrarily pick one and say that it is the foundation of our
currency? Why should the price of bread fluctuate wildly to accommodate gold
speculators?

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Turing_Machine
Gold was used because it's:

1) relatively hard to counterfeit 2) scarce enough that carrying enough in
your pocket to equate to significant value is convenient 3) Durable 4)
Fungible 5) The supply generally expanded at a slow and predictable rate (this
wasn't always the case -- the Spanish conquests, e.g., set off a devastating
round of inflation when all that gold got shipped back home).

Silver and copper were also widely used.

Platinum-group metals would work, but weren't widely known to the ancients.

Crude oil: bulky and volatile. Helium: same as crude oil, but even more so
(you'd need to haul around pressure tanks) Land: not portable. Not easily
fungible. Drinking water: bulky.

Gold was a pragmatic choice.

In some of James Blish's SF stories, they used semiconductor-grade metals.

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dpark
Maybe my comment was poorly worded. I'm not legitimately asking why we ever
used gold. I agree it makes far more sense than helium or land when traded
directly. Once we moved to a paper currency, though, very little of that
really mattered anymore. No one cares that oil is bulky when they trade it,
because at worst they're moving around pieces of paper (more typically just
bits in a system).

My real question is why gold should back our currency _now_. How does it make
sense in a modern economy? We've divorced our currency from any one commodity,
and I think that's a very good thing, because it helps to protect us from
changes in the price of commodities.

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grecy
> My real question is why gold should back our currency now. How does it make
> sense in a modern economy?

I've always wondered this: Without gold (or something) backing a currency,
what stops the printing of trillions and trillions, aggressively devaluing the
currency out there?

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dpark
Technically? Nothing. Practically? The inability to sell credit if this kind
of policy is pursued. No one is interested in dollars if they have no value.

What stops you from maxing out all the credit you can get and then walking
away? Same basic situation. Nothing stops you, but you'll likely end up
bankrupt and regardless you'll have a hard time getting credit again.

~~~
grecy
I ask because that's my basic understanding of what happened in the aftermath
of the 2008 crash in the US.

It seems trillions of dollars were printed with very little negative impact.
How can that be?

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dpark
I don't fully know. To some extent it did have an impact, as some creditor
nations stated publicly that our policies were affecting their decisions about
buying future American debt. One of the ratings agencies also dropped our
rating slightly (though that was a partisan farce).

I think a lot of the impact was reduced by the fact that the money supply is
already very large, and also by the fact that much of the new money didn't
really enter the public currency supply. e.g. Buying a block of bad mortgages
from a bank probably doesn't affect much. The bank was already treating this
as a real asset, borrowing against it, etc.

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jug6ernaut
Obviously because the more the $ drops in value the more the Gold in Fort Knox
grows...

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mtgx
I don't think I'd want the gold standard to come back, but I definitely
support the idea of much higher transparency in what the Fed is doing and who
are they giving money to. Some are saying this might end the Fed's
independence, but will it really? I think higher transparency would just lead
to them becoming more honest with what they are doing with the money. I don't
think other countries have overly secret central banks with nobody knowing
where the money are going and how much they are printing, do they? I'm
generally of the opinion that higher transparency is always a desirable
quality of a democratic Government and its institutions.

I also find it surprising (to say the least) that after 20 or so years of
advocating for Fed transparency, Harry Reid is the one who's going to put a
stop to the Audit the Fed bill in the Senate, which already passed the House
with a big majority.

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wissler
The choice between fiat and gold (or gold/silver) is a false one. On a free
market people would trade a wide variety of things, an important class of
which are stocks and bonds, which indeed did function as money in the early
United States, and would be even more practical today given that we have
computers to facilitate conversion. A diverse, free market money system would
put an end to global financial crises, which can only happen when everyone is
using the same currency (or same small set of tightly coupled currencies) and
therefore are all subject to the same general conditions: a centralized
currency centralizes the crises as well.

But what's even more important is that a free market money system is the only
_moral_ system -- people have a natural right to trade in whatever
denominations they please.

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bryanlarsen
I don't think it necessarily follows that more independent currencies will
decouple our global financial system. It wasn't that long ago that a crash of
the Russian ruble caused a global financial crisis. The US dollar and the
Russian rouble are about as decoupled as you get -- not very. It's the fact
that everybody trades with everybody that makes crises global and widespread,
and more currencies isn't going to change that one bit. If bitcoin became a
widely used currency, crashes in its value would impact other currencies.

All your proposal does is give the system a few more sources of instability,
IMO.

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wissler
It's hard to tell what premise you are arguing for. Are you trying to claim
that the system I outlined is not really less coupled? Or are you trying to
claim that being less coupled does not really lead to less coupling?

"All your proposal does is give the system a few more sources of instability,
IMO."

Actually no, the one with a few guys with their hands on the levers, and that
is also politically controlled and influenced, is far less stable than one
where you are free to choose what is a best form of hedging for you.

