Guest Post: Gold Standard for All, From Nuts to Paul Krugman

Tyler Durden's picture

Via Amity Shlaes' Bloomberg News Column,

Nut cases. That’s what they are. And if you take an interest in them, you are a nut case, too.

That’s the consensus among credentialed economists who describe advocates of a return to the monetary regime known as the gold standard. In fact, the economic pack will marginalize you as a weirdo faster than you can say “Jacques Rueff,” if you even raise the topic of monetary policy in relation to gold.

An example of such marginalizing appears in a recent issue of the Atlantic magazine. Author Adam Ozimek lists four rules upon which economists overwhelmingly agree. Right away, that puts readers on guard; they don’t want to be the only one to disagree with eminences.

The first rule Ozimek offers is that free trade benefits economies. So obvious. That makes the penalty for disagreement higher. Then you read down to the final principle: “The gold standard is a terrible idea.” By putting the proposition in such strong terms, the author raises the penalty for disagreeing. If you don’t subscribe to this view, you risk both being classed as the kind of genuine nut case who believes in protectionism, and enduring the disdain of other economists -- “all economists,” as the Atlantic headline writer summarized it.

But “all economists” is not the same as “all economies.” The record of gold’s performance in all economies over the past century is not all “terrible.” Especially not in relation to areas that concern us today: growth, inflation or the frequency of bank crises. The problem here may lie not with the gold bugs but with those who work so hard to isolate them.

Gold’s Real Record

Conveniently enough, the gold record happens to have been assembled recently by a highly credentialed team at the Bank of England. In a December 2011 bank report, the authors Oliver Bush, Katie Farrant and Michelle Wright review three eras: the period of a traditional gold standard (1870-1913); the period of a gold-standard variant, the Bretton Woods gold-exchange standard (1948 to 1972); and a period of flexible exchange rates (1972-2008).

The report then looks at annual real growth per capita worldwide, over many nations. Such growth, they find, was stronger in the recent non-gold-standard modern period, averaging an annual increase of 1.8 percent per capita, than in the classical gold-standard period before 1913, when real per- capita gross domestic product increased 1.3 percent annually. Give a point to the gold disdainers.

But the authors also find that in the gold exchange standard years of 1948 to 1972 the world averaged annual per- capita growth of 2.8 percent, higher than the recent gold-free era. The gold exchange standard is a variant of the gold standard. That outcome doesn’t tell you we must go back to the gold exchange standard yesterday. But it does suggest that figuring out how the standard worked might prove a worthy, or at least not a ridiculous, endeavor.

Gold shone in other ways. In a gold-standard regime, money is backed by gold, so it’s impossible, or at least more difficult, for governments to inflate. Naturally the gold standard and Bretton Woods years therefore enjoyed lower rates of inflation compared with the most recent era. The gold standard endures a reputation for causing more banking crises than other monetary regimes. The Bank of England paper suggests gold stabilizes banks: The incidence of banking crises in the non-gold-standard period is higher than the incidence in the two gold periods.

“Overall the gold standard appeared to perform reasonably well against its financial stability and allocative efficiency objectives,” wrote Bush, Farrant and Wright.

Stable Markets

Markets and countries enjoyed relative stability in gold- standard years, and capital in those years flowed to worthy growth-generating projects. The main sacrifice in gold regimes that the authors identify is that governments lose authority to micromanage domestic economies. But given governments’ records, that may not be such a bad thing, either.

It all suggests that contempt for old gold hands such as Congressman Ron Paul of Texas might not be warranted. And that it might be interesting to peruse the numerous gold-related currency plans outside the door of the academic salon. Plenty of people, many former bankers, think it is time to pass laws returning the U.S. to some version, strong or weak, of the gold standard.

Lewis Lehrman, financier and founder of the Gilder-Lehrman Institute, which focuses on history, recently published a plan to take the world back to gold, “The True Gold Standard.” Charles Kadlec, another former Wall Streeter, co-wrote his own proposal, “The 21st Century Gold Standard,” with Ralph Benko. The case for gold as a mandatory metric for the Federal Reserve in setting interest rates is made in new legislation offered by Congressman Kevin Brady, another Republican from Texas. Dozens of state legislatures are introducing their own gold- or silver-related currency legislation.

One reason people slap the nut-case label on others with impunity is that for the past 30 or 40 years most economic education has systematically excluded the gold standard and its exponents from the classroom. It’s easy to call something your professors never respected the work of a nut case. But it’s also worthwhile to ask why the professors white out the gold standard from the books. Perhaps it is because the systems they raved about in their dissertations, systems of flexible exchange rates, subsequently underperformed.

This inconsistency in their own modeling is of course hard to acknowledge. Recently Bloomberg Television drew enormous attention when co-anchor Trish Regan moderated a debate between Ron Paul and Paul Krugman, the Nobel prize-winning New York Times columnist.

Krugman’s Nostalgia

Krugman sought to hold the middle ground, noting that all he sought, through his recommendation that federal debt rise to 130 percent of gross domestic product, was a return to the kind of America in which his parents lived. The professor treated the congressman’s remarks as unscholarly; in a blog post afterward, Krugman wrote “everything Paul said about growth after World War II was wrong.”

But Krugman too has some sorting through to do. The years when his parents lived were gold years, the Bretton Woods gold exchange standard, a time when the federal government, except in world war, would never had considered raising debt to 130 percent of the economy, as Krugman suggested in the debate.

If we are going to speak of consensus, let’s not forget one that is truly universal: Our economic system stands a good chance of breakdown in coming years. The only way to limit damage from such a breakdown is to ready ourselves to choose other models by learning about them now.

Not to do so would be nuts.

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diogeneslaertius's picture

this made sex to my eyeballs

economics9698's picture

The gold standard helps the average consumer by keeping inflation at zero and prices declining.  If there is $200 in the economy and company A builds a better mouse trap, lowering its price from $15 to $10 and increasing sales from 2 units to 4 units the total revenue for the company increased from $30 to $40. 

This is extremely important to understand and why the elite capital owners DO NOT want a gold standard.

When company A has good times not there is $10 less in the money supply and other companies, call them B and C, MUST lower prices to maintain market share or lose market share.

Understand what that means.  This was referred to as “messy competition” in the 19th century.  Industrialist hated having to constantly lowering prices and finding ways to save money whenever a competitor improved their productivity.

Competitor C must lower prices from $2 to $1.9 losing revenue (on sales of 20 units) from $40 to $38.

Competitor B must lower prices from $5 to $4.5 on sales of 10 units lowering total revenue from $50 to $40.

Is the picture becoming clear why capital elites do not like the gold standard?

Savings was $80 before the better mouse trap was invented but now there is a increased demand for money as consumers scramble to buy the better mouse trap.  Savings drop from $80 to $77 and more money is spent.

Under a gold standard with fewer savings available demand for loadable funds would drive up interest rates, attracting more savings, and so forth, the cycle repeating.

The key to the gold standard is it forces manufacturers to constantly strive to be competitive or they will price themselves out of the market by other, maybe unrelated industries.  Think of the implications in today’s world and the significance this would have on oil markets.

The gold standard removes the power of central governments, forced balanced budgets and trade, in the long run.

The main appeal is that in the 1880s to 1890s prices DECLINED 25% and wages ROSE 3% for the masses.  Compare that to today’s wealth concentration going to the top 20% and the bottom 30% stagnated for decades.

Simply put fiat allows governments to live unrestrained and wealth to be transferred from the bottom 80% to the top 20%.  This is the real reason central governments and elites want a central bank.  They simply hope the masses are too stupid to catch on to the con game.

economics9698's picture

Tyler should have me write one of these blogs.

Matt's picture

The other two big things about fiat and perpetual inflation:

Banks and Pensions. It would be much harder to make fat bonuses running a bank in a chronically deflationary environment, and promising everyone a pension would be very difficult, too.

Max Fischer's picture

 

 

The main appeal is that in the 1880s to 1890s prices DECLINED 25% and wages ROSE 3% for the masses.  Compare that to today’s wealth concentration going to the top 20% and the bottom 30% stagnated for decades.

Much to your embarrassment, you have this totally wrong.  Of course, you're just another hypocritical libertarian, so it's not surprising.* 

Wage differentials between the owners and laborers widened dramatically during the "Gilded Age." In fact, this period of time (from the end of the Civil War to the creation of the Federal Reserve/1913) marks one of the WORST periods for wage dispersion in American history.  There are many reasons for this including the rapid evolution of manufacturing during this time, enabling corporations to substitute skilled labor for cheaper, unskilled labor. This, coupled with an influx of immigrants during this period kept a tight lid on wage appreciation for the laborers (the 99%), while the owners and the titans of industry (the 1%) became richer and richer.  Furthermore, I'm sure the depression of 1893 and the myriad of bank panics during this time had an enormous affect on the 25% price deflation you speak of.

The topic of wage inequality during the second half of the 19th century is rich with data and research, and for you to suggest that this was an era of prosperity for the masses because, for some cherry picked interval of time, wages rose a stupid 3% means one thing and one thing only:  YOU HAVE NO FUCKING CLUE WHAT YOU'RE TALKING ABOUT.

mf.

* Definition of hypocrisy: getting a paycheck from the government as a contractor, yet spending all day on the internet ranting against government socialism.

Mariposa de Oro's picture

Starting off a response with an insult doesn't help your position....

BTW, us government contractors sometimes bitch about socialism on our own time.  It's a crap system but we're stuck with it.  You don't like it?  Quit bitching on the internet and change YOUR shitty system.  Till then, I'll keep cashing those checks.  Thanks for the money, Comrade.

;)

Transformer's picture

Max, I'm working on a dissertation about this very subject.  I've read quite a few books on it, and it seems you are full of it.  There  were quite a few years there where wages improved, on averaqge, about 1% a years, and at the same time prices were going down at an even higher rate.  The Panic of '93 was very short lived.  And yes the .01% did very well also.  But for workers, it was an exceptional period.  Just the kind of thing that elites don't like and as a matter of fact they were scheming up the Federal Reserve starting in about 1990.

You might want to read Rothbards book about all this,  It's free on line.

Max Fischer's picture

 

 

There's no way you're a Ph.D candidate in American History, because anyone who suggests the Depression of 1893 was no big deal is a total idiot. Until the Great Depression, the 1890's was the worst decade in post-Civil War history. Additionally, anyone who suggest that it was an "exceptional" time for laborers is also an idiot, unless, of course, by "exceptional" you mean exceptionally bad. Only the biggest idiots on Earth would suggest that the American laborer of the 1800's was treated "exceptionally" well.  Much has been written about the wage and wealth inequality, child labor, and slave-like conditions that marked this "gilded" period of our country.  Does the best of times and the worst of times ring a bell?  Probably not.  

During the last quarter of the 19th century, the advancement of the manufacturing process and new technologies enabled corporations to replace skilled workers with women, children, unskilled men and immigrants for a fraction of the labor cost.  If there was any increase in wages, it was only because workers were forced to work nonstop at cheap, slave-like rates.  Even with the most cursory understanding of this period, you'd know that work related deaths/accidents and child labor participation was higher then than anytime in history.  Furthermore, nearly 50% of all laborers lived in poverty.*  50%!!!!  So, yes, while wages might have ticked upward, it was not enough to pull half the laborers in this country out of poverty. The rapid creation of wealth that was produced after the Civil War and before the depression of 1893 went straight into the pockets of the 1%, while the masses suffered extreme hardship. Whatever you think of the wealth inequality in the US today, it was infinitely WORSE in the late 19th century.    

Here, even encyclopedia.com says, the 1890's was a decade of depression, unemployment, widespread poverty and crisis...... 

MF

http://www.westga.edu/~hgoodson/Economic%20Trends.htm

 

Sean7k's picture

During the 1890's only, 45% of the laborers made wages above 500 per year. Using a citation for an entire period when it is specific to a certain timeframe is your MO. The citation does not include all labor, but an unspecified subclass, typical of  historical treatments that do little but generalize.

This is the purpose of reading specialized teaxts on a subject and leaving the "encyclopedia.coms" of the world to the educational propagandists that write them.

Yes, there were mant difficulties for the American worker, as exemplyfied by the union movement and government military support of factory owners. However, the standard of living clearly rose, monetary value was stable. (Rothbard, History of Money and Banking in the United States).

Further, you ignore the anthropological aspects of comparisons within historical periods. You cannot use current values to deride the conditions of a century past without qualifications of what was normal. Income disparities are far worse now then they were in the late 1800's, the Citizen did not have the debt impairmrnts of today and the people could still own property. 

All emerging economies share a history of poverty, see China. The difference between success and failure is the continued development of growth in a middle class. Until the elimination of the gold standard, America and Europe were great examples of this.

Max Fischer's picture

 

 

I only used encyclopedia.com to show how how easily obtainable and universal this information is.  Poverty was so rampant in the 1890's that I shouldn't have to cite anything at all. It's basic, universally accepted knowledge. It's a FACT not "educational propaganda" as you suggest. 

Libertarians always do this.  Whenever they're confronted with FACTS, they try to wiggle out of the argument by saying that all the data and facts have been skewed by historians with an agenda, like communist university professors, or something.  It's like a creationist looking at fossils.... those fossils aren't real!... God is tricking us to test our fatih!  Bullshit.

I don't even understand the rest of your post.  It's just gibberish.  What the fuck does this mean:  

Further, you ignore the anthropological aspects of comparisons within historical periods.

In the end, you haven't disputed anything I said.  You've only posted a bunch of words with very little meaning behind it all.

MF.

Sean7k's picture

Of course you don't Max, you're a functioning illiterate. You misused your citation, then provided no context for your claims. You use inferior sources, because you are incapable of understanding better quality ones. They are not facts because you proclaim them to be. 

InjuredThales's picture

Max Fischer, Syphilis Mundane: sheepster and luddite.

Max, Max, Max.  You post a link with decades of American life distilled into banal truisms (really? it can all be reduced to one page? I guess it can when you have such a simplistic view of the world) and you expect us to take you seriously?  Do you have any sources, other than Coles Notes? 

Max is a common knowledge 'intellectual'. The kind who, like the people referenced by Shlaes above, like to say "everybody knows" or "look how many people say" and never bother to question, even for a moment, the quality of the underlying information.  That's not what's important, is it Max?  It's all about staying safely inside the comforting womb of the herd, so you never have to think or be criticized by anyone for being different.

I have a hard time believing this guy isn't an ultra-sophisticated troll.  But, he seems to go to so much effort to be wrong.  IMHO, much prefer MillionDollarBonus' brand of trolling. He dashes off 6 quick lines, and sits back with popcorn to enjoy.

Yes Max, one day government flipped a switch, took over, and transformed everything from poverty to plenty!  The huge revolution that was the last 50 years of the 19th century and first 20 of the 20th never happened! 

Max Fischer's picture

 

 

It's all about staying safely inside the comforting womb of the herd, so you never have to think or be criticized by anyone for being different......

WTF?  Are you kidding me?  I'm practically the only person at ZH (maybe a couple others) who bothers to question the tirelessly repeated libertarian talking points that reverberate within this echo chamber.  If not for me, you guys would have a perfectly sealed echo chamber. Accusing me of not wanting to be questioned, or wanting to stay safely inside the herd is, quite frankly, ridiculous.  I'm front and center in enemy territory. 

I'll also note that you never once disputed anything I said. All you've done is criticize me with unfounded accusations.  Calling me a Luddite is hilarious because you got that from me.  As far as I know, I'm the only one who's used that word here and it describes the ZH lemmings and their archaic ideologies perfectly.  I'm one of the few here that's NOT a Luddite.  Perhaps you should familiarize yourself with the meaning of the word.

ALL in all, a very poor response from you.

MF 

Max Fischer's picture

 

 

Wow, another anti-government hypocrite! And a proud one, too! Probably a libertarian, right?  Tea Party?  "Fuck all the parasites collecting government checks, except me!"  

The longer I'm exposed to libertarians, the more and more I despise them.  Pure hypocrites.... ALL OF THEM!

You don't like it?  Quit bitching on the internet and change YOUR shitty system.....

WTF?  YOU guys are the one's bitching about the system, not me!  I'm merely pointing out your ignorance, lack of historical understanding and BLATANT hypocrisy.  

Libertarians.... biggest hypocrites in America.  

mf 


Mariposa de Oro's picture

again......

Starting off a response with an insult doesn't help your position....

Sean7k's picture

For someone that hates libertarians, you seem to find plenty of time to hang out with them. That and labeling people without any knowledge of their positions or political persuations. Speaking from ignorance, regardless of whether you yell or not, is a testimony to immaturity and lack of education.

trembo slice's picture

Define Libertarianism MFer, since it is the worst philosophy ever and we're all hypocrites. 

InjuredThales's picture

Max, thank you, again, for the links to such renowned historical sources as Encyclopedia.com (do try to spell it correctly next time) and some dumb fuck no one has ever heard of before. Now our ignorance is laid bare!

Oh, btw, you forgot the wikipedia link.  Probably should add that before people get suspicious that your kowledge of this topic (and any other I have ever seen you weigh in on) is superficial.

centipede's picture

Why don't you show us some data you are talking about. If you really want to make a point that would be more impressive than just name calling.

francis_sawyer's picture

He has no point... All he likes to do is come on and shill against anything remotely libertarian (note that the word 'libertarian' is imbedded within almost all of his posts)...

- Don't like the price of gas? It's all the fault of libertarians

- Make a case for gold as sound money? You're a libertarian nutcase

- Did your team lose today? Libertarians

- Is your nutsack itchy? Fucking libertarians again

~~~

So once you get past all the libertarian droning, MF will try to toss out a few gems (like comparing the standard of living in 1890 vs. today ~ which is an 'unwinnable' argument across the board because the points used to argue are myopic & unquantifiable because they mostly exclude the role of cheap energy, cheap money, & expansion)... It's like trying to compare your somewhat weatherbeaten (but loyal) wife with some bitch of a celebrity like Kim Kardashian...

The problem in a digital society is that people think they can just jump around (in space & time) and draw conclusions about this & that (& faux intellectuals like MF are all too happy to chime in with their opinions)... However, humans are still basically analog...

 

 

Freewheelin Franklin's picture

The Typical Libertarian is hated by conservatives because he wants the freedom to snort coke off a teenaged hookers ass while smoking pot and watching a movie full of boobies and cuss words in preparation for sodomizing his illegal immigrant housekeeper, Carlos. The Typical Libertarian also wants criminals, terrorists and Mexicans to roam freely about causing all manner of social chaos, and has no interest in forcing people to love Jesus Christ. The Typical Libertarian is a traitor to the GOP and America because he failed to support the war in Iraq, the PATRIOT Act, the Stimulus, and both Bush and McCain, despite the fact that both men once said something at a cocktail party about maybe possibly lowering taxes on some people some day.

The Typical Libertarian is hated by liberals because he is a crypto-archconservative who wants poor people to go without education, medical care, police protection, food, shelter, and oxygen. The Typical Libertarian spends his weekends running down endangered species in his monstrous, gas-guzzling SUV before stopping off to smoke a pack of cigarettes in a daycare. The Typical Libertarian wants the world to be run by unaccountable multinational conglomerates instead of unaccountable governments. The Typical Libertarian is a racist, sexist, profit-driven nihilist who failed to mark the ascendance of the Chosen One, and has never protested for Union rights nor worn a T-shirt with the word Darfur on it.

Despite clinging to a hopelessly unworkable, idealistic and marginal political philosophy, the Typical Libertarian has recently been discovered as the cause for the downfall of Western Civilization.

A Nanny Moose's picture

Since prices were declining, even low wages bought more stuff. Unskilled workers still made more than the small farmer. Overall, wealth increased over the period in question.

Panic of 1893 - Gresham's law acted on gold and there was a government induced railroad bubble. Yes...government meddling in the economy. I don't suppose you get the aversion to government spend yet.

Matt's picture

Exactly. The railroad boom was terrible, since the government paid per mile of track laid, so the railroads responded to the incentive by simply building lots of crappy railroad really fast, to maximise profit in the short term, only to go bankrupt once the incentives disappeared.

Matt's picture

Hey Max: Explain why wage disparity matters?

You are arguing about two different things that could both be true.

Employees' wages could increase, and wage disparity could also increase.

How is this bad? If everyone is getting richer, why does it matter if some people are getting more richer?

Debugas's picture

in your example company losing competition would offer its workers to work for paper (or any other variaty of promisses to pay). People afraid losing jobs would agree to be paid with paper and so you can kiss your gold standard good-bye.

 

Actually this is exactly what is happening in Argentina and now Spain when people run out of hard currency (their governments can not print) like USD or EUR

diogeneslaertius's picture

its like a pack of insane dr. evil caliber hypnotists took the global economy and turned it into a $4Q hologram running on a super computer in the basement of goldman sachs

 

like some kind of economic death star which they wheel around in and use to blow up entire economies

 

 

.... oh wait

diogeneslaertius's picture

krugman is literally like some crazy mayan high priest

and as the heads roll down the steps

the ponzi thralls howl in mad delight

Transformer's picture

Any time spent reading Krugman is time you will never get back and is thoroughly wasted  --Max Keiser

Bansters-in-my- feces's picture

End the FED.

Fuck Timmy G up the a$$

AND oh ya.....Buy gold with toilet paper.....

UP Forester's picture

I say:

1.  Bring the percentage up to at least 300%

2.  Create at least $5 Trillion in new electrons

3.  Piss off the BRICS nations by pulling their SWIFT status

4.  Pop the corn, sit back, and get drunk, laughing away

Bansters-in-my- feces's picture

Trusting fiat is trusting Liars,thiefs and killers......The goverment.

The Alarmist's picture

Would love to see the Venn diagram showing the intersection of gold-hating-consensus economists and anthropogenic-climate-change-consensus scientists.

TideFighter's picture

Wheelbarrows are 10% off at uncle Homer's. Just sayin'.

i_fly_me's picture

The traditional gold standard (fixing the price of gold in dollars) *is* a terrible idea.  It is just as socialist as fixing the price of anything else.  Eventually we'll be rid of the fractionalized paper gold 'markets' and dollars and physical gold will freely bid for each other just like any other two currencies do.  It's only a matter of time.

Likstane's picture

You got it backwards.  Gold is not priced in constitutional dollars.  A constitutional dollar is a fixed weight of silver and its prevailing market equivalent in gold(The real gold/silver ratio-not measured in FRN's)  The standard is 371.25 grains of silver(about .77 ozt)  If this is the "standard", then the only way to debase the dollar is to change the weight of the metal making up a dollar.  

i_fly_me's picture

It's still price fixing and it doesn't work.  Fixing the price of a*anything* by government fiat instead of allowing free market price discovery isn't the answer (and it never was).

Likstane's picture

Fixing a dollar at 371 grains of silver is merely defining what a dollar is.  This is not price fixing.  The value of a dollar is what someone will give you for it.   It may be 1 tomato or 100 tomatos. 

i_fly_me's picture

Why have a dollar then?  Why not just ust use grains of silver?  The answer tells you why this doesn't work.

Libertarian777's picture

Actually he's correct. A dollar is defined as 371 grains of silver. Why? Because it was some sort of average of the weight of silver in silver coins in circulation at the time. We could use grains, but it's easier to use a 'dollar' as defined. Congress' power to regulate the value of money would mean they could define a new unit, with e.g. A weight of 10 grains or whatever. My assumption is 1 grain is too small a unit of weight to be useful (1 grain of gold might be useful on the other hand).

Nevertheless, don't confuse money (gold or silver) with a money equivalent currency. Even a (paper) dollar fully backed by gold, is still only a claim on gold, not the gold itself. Unfortunately when we speak of 'a dollar' nowadays people are referring to a FRN which is neither a dollar nor a claim on a dollar. It is a pure counterfeit. A silver certificate at least is a claim on a dollar.

Why have a dollar then? The same reason we have a mile and don't measure everything in feet or inches.

i_fly_me's picture

Your miles analogy is erroneous ... miles are still a denomination of distance; dollars are not a denomination of weight.  My point remains: it doesn't matter if it is the founding fathers doing it by referencing what the market was already using or a government central bank doing it, it is price fixing.  The reason there is a dollar, or a pound or a mark is precisely because it allows fractionalization and debasement.  If not, there would be no need to use anything but silver or gold denominated in weight.  In adopting any currency even if it is explicitly 'backed' by a commodity you are inherently intending at least fractionalization and ultimately practical debasement.  As you fractionalize and debase the price of the 'backing' commodity starts to become worth more than the fixed price (or defined value if that sounds better to you) and the treasury or central bank vaults will find their vaults emptying.  The government will then be forced to *reprice* the commodity to reverse the flow. This is how we got here ... eventually we just got boxed into a corner and couldn't reprice anymore so we just quit the backing lie altogether.

The only pure currency is the commodity itself allowed to bid directly for goods in a free market but no society would bind themselves to that.  The only workable real world solution is to float the currency against everything in true free market fashion.  Real wealth (commodities, labor, etc) will bid for those currency units at a price that reflects the currency's utility as a medium of exchange.  If the government or banking system abuses the currency it will weaken it in relation to real money ( e.g. gold) and other currencies and curb those abuses automatically.

Likstane's picture

Thats what a 'dollar' was/is; silver denominated in weight.   I don't think you're getting it. 

 

i_fly_me's picture

Perhaps not.  Help me out.  Why didn't the price of silver stay $1/371 grains?

Likstane's picture

The weight of a "dollar" is still 371 grains of silver.  The problem is the term dollar is substituted for the Federal reserve note.  They are not the same thing.  The reason 371 grains of silver or their equivalent is not commonly used is because people are willing to part with approximately 31 Federal reserve notes instead. 

Transformer's picture

Yes, the value of silver did not go up.  The value of the dollar went. . . .  let's see.... now how does that go?  The value of silver did not go up (but it costs more), and the dollar went down, but wouldn't that be less grains of silver...... no wait.   It's cheaper to make stuff, so the value of stuff went down, and there for it costs less, and so a dollar buys more of it, and so the dollar (ie. silver) is worth more so it must cost more.... right.  Like about $31/oz.  But that doesn't make sense.  Cause if the silver cost more then the dollar would actually buy less, since it takes more of them to buy the silver.  Damn, it's complicated, huh?

Likstane's picture

uhhh.....thanks for your help

/sarc

BigJim's picture

I think you're missing his point.

Having a national unit of money defined by a government-imposed standard of a particular weight, opens the door to debasement, because money is not measured in ounces of gold, but a derivative known as 'the dollar', the value of which can be changed at a moment's notice by TPTB.

THIS is why the gold standard is a bad idea (though still better than any other government-imposed system).

i_fly_me's picture

Aaaand when the price of silver rose in 1814 and during the civil war that was FRNs too?