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Guest Post: The Gold Standard Debate Revisited

Tyler Durden's picture


Submitted by Pater Tenebrarum of Acting Man blog,

Why Trying to Prove a Point about Economics with 'Just Two Charts' is a Really Bad Idea


The Gold Standard Debate Revisited 

The discussion over the GOP's gold standard proposals continues in spite of the fact that everybody surely knows the idea is not even taken seriously by its proponents – as we noted yesterday, there is every reason to believe it is mainly designed to angle for the votes of disaffected Ron Paul and Tea Party supporters, many of whom happen to believe in sound money. As we also pointed out, there has been a remarkable outpouring of opinion denouncing the gold standard. Unfortunately many people are misinformed about both economic history and economic theory and simply regurgitate the propaganda they have been exposed to all of their lives. Consider this our attempt to present countervailing evidence. 


Demagoguery and Cherry-Picking Data

The 'Atlantic' felt it also had to weigh in on the debate, and has published an article that shows like few other examples we have examined over recent days how brainwashed the public is with regards to the issue and what utterly spurious arguments are often employed in the current wave of anti-gold propaganda. The piece is entitled “Why the Gold Standard Is the World's Worst Economic Idea, in 2 Charts”, and it proves not only what we assert above, it also shows clearly why empirical evidence cannot be used for deriving tenets of economic theory. Since we have first seen the article, its author has been forced to add a footnote, presumably because he received irate mail from readers complaining about his cherry-picking of data that seemingly fit his narrative, but he has not withdrawn his contentions.

The article uses the famous William Jennings Bryan 'Cross of Gold' speech as a polemic sound bite device apropos of precisely nothing. Bryan wanted the US treasury to continue supporting silver miners by artificially enforcing the fixed exchange rate of the bimetallic system.  This has zero bearing on the question whether adopting a gold standard would be a good idea or not. But 'crucifying our economy on a cross of gold' sure sounds dramatic, and more importantly it sounds like 'gold is bad', which is why it was used.

The article compares the behavior of prices in the period 1919 to 1932 (which includes several periods of major monetary upheaval over which the Fed presided, namely the post WW I inflationary bust and the post 1929  deflationary bust, separated by the boom of the roaring 20's) – with the behavior of prices as measured today since 'QE' began in 2008.

The point the author is trying to 'prove' is that prices are more 'stable' under the fiat money system than they were under the gold standard, even though the modern-day Fed is evidently busy inflating the money supply all-out (a fact which he glosses over).

This is erroneous on a great many levels. First of all, it presupposes that 'stable prices' are a desirable goal. However, the so-called 'price stability policy' has proven to be quite misguided and dangerous (readers interested in why this is so should take a look at a detailed discussion of the problem in “The Errors and Dangers of the Price Stability Policy”). Moreover, if the author really wanted to make an empirical point about the relative stability of the currency's purchasing power under gold and under the centrally planned fiat money system, then why didn't he show us the chart below?



A log chart of the dollar's purchasing power from just before 1800 to about 2003. The dotted line shows the periods when gold convertibility was suspended – click chart for better resolution.



What is so remarkable about this chart is that the dollar's purchasing power was still the same on the eve of the founding of the Fed as it was at the beginning of the 19th century. Clearly the decision to abandon the gold standard has hastened the collapse of the dollar's value – at the point where the chart ends, 7 cents of the purchasing power of the gold-backed dollar of yore were left. Since then we have actually arrived at a paltry 4 cents.

So much for 'stable prices' under the fiat money regime – it has produced a 96% decline in the currency's purchasing power over the past century, in contrast with the perfect preservation of purchasing power during the century preceding the founding of the Fed.

We could actually leave it at that and simply state that the author of the Atlantic piece has obviously cherry-picked data in order to mislead his readers. However, there is more to it than that. Both ideological and economic questions are raised by the article.


The Consensus

We actually spilled some coffee due breaking out in laughter by the time we reached the second paragraph of the article. The author informs us:


“Economics is often a contentious subject, but economists agree about the gold standard — it is a barbarous relic that belongs in the dustbin of history. As University of Chicago professor Richard Thalerpoints out, exactly zero economists endorsed the idea in a recent poll.”


Obviously then, not a single Austrian school economist was included in the poll. We believe the poll result is what is colloquially known as a contrary indicator. The fact that establishment economists are unanimous in their rejection of the gold standard has not even necessarily to do with their actual views on monetary theory. In many cases it has likely more to do with the fact that most of them are  bought and paid for by the State – deviating from the party line that a centrally planned fiat money is the be-all and end-all is widely regarded as a career killer.

If you want to know why, read this illuminating article that appeared at the Huffington Post: “Priceless: How The Federal Reserve Bought The Economics Profession”. This should be a true eye-opener for most people. So let's not be naïve and invoke the well-known logical fallacy of appeal to authority, in this case that of an alleged 'scientific consensus'. First of all this consensus does not exist, secondly many of the people who were asked the question would not dare to answer it differently. It is exactly as Hans-Hermann Hoppe once said:


“[...] intellectuals are now typically public employees, even if they work for nominally private institutions or foundations. Almost completely protected from the vagaries of consumer demand ("tenured"), their number has dramatically increased and their compensation is on average far above their genuine market value. At the same time the quality of their intellectual output has constantly fallen.


What you will discover is mostly irrelevance and incomprehensibility. Worse, insofar as today's intellectual output is at all relevant and comprehensible, it is viciously statist. There are exceptions, but if practically all intellectuals are employed in the multiple branches of the State, then it should hardly come as a surprise that most of their ever-more voluminous output will, either by commission or omission, be statist propaganda.”


 (emphasis added)


Economic History 

Then the Atlantic author goes on to present the stock argument against gold that is forwarded by all and sundry when the gold standard is discussed:


“What makes it such an idea non grata? It prevents the central bank from fighting recessions by outsourcing monetary policy decisions to how much gold we have — which, in turn, depends on our trade balance and on how much of the shiny rock we can dig up. When we peg the dollar to gold we have to raise interest rates when gold is scarce, regardless of the state of the economy. This policy inflexibility was the major cause of the Great Depression, as governments were forced to tighten policy at the worst possible moment. It's no coincidence that the sooner a country abandoned the gold standard, the sooner it began recovering.


Why would anyone want to go back to the bad old days? The gold standard limited central banks from printing money when economies needed central banks to print money, and limited governments from running deficits when economies needed governments to run deficits. ”


Again, this argument glosses over the fact the biggest economic busts in history were the end result of booms the Federal Reserve aided and abetted. To be sure, when looking at the purchasing power of the gold-backed dollar during the 19th century, although it turned out to be extremely stable in the long run, one can see that there were considerable fluctuations in the shorter term. Apart from the major fluctuation actuated by the abandonment of gold convertibility during the civil war,  all the other ups and downs were the result of the booms and busts engendered by fractionally reserved banks engaging in credit expansion, quite often hand in hand with some form of government intervention.

This is not the space to recount the entire monetary and banking history of the United States, but it must be made clear that even under a gold standard, credit expansions by means of fractional reserve banking can and do take place and create the familiar phenomena of the boom-bust cycle.

The business cycles of the 19th century were fairly harmless compared to today's. The fiduciary media created during credit expansions were usually destroyed by the subsequent deflationary busts, and so the purchasing power of the currency was as a rule always restored to its pre-boom level, as the extant money supply returned to the amount effectively backed by specie.

It is quite different today, when there is a lender of last resort with the ability to create money ex nihilo in unlimited amounts.  Banks will take far greater risks, become far more leveraged and this will result in far bigger – both in duration and amplitude -  boom-bust cycles. Moreover, a steady erosion of the currency's purchasing power is dead certain due to the explicitly inflationary policy of the central bank.

The inflexibility of the monetary system under a gold standard which the Atlantic author bemoans (“we have to raise interest rates when gold is scarce, the central bank will be prevented form printing money”, etc.) is precisely what makes the gold standard a superior system. This inflexibility is what stands in the way of wealth confiscation by the State and the banking cartel. It also stands in the way of the perpetuation of capital malinvestment, which the 'flexible' centrally planned currency practically guarantees.

As to the 'recovery' observed upon abandonment of the gold standard in the 1930's, it quickly turned out to be a fata morgana. As soon as the central bank was forced to tighten credit only a little bit to avoid run-away inflation, the recovery immediately collapsed again. It was an inflationary illusion and therefore unsustainable. There is a reason why the entire period in question is today known as the 'Great Depression' and not as 'the two recessions and the boom of the 1930's'.


 Money Printing and Wealth Creation

All the assertions about the advantages of money printing and interest rate manipulation rest on the fallacy that printing money can actually create wealth and that manipulating the market interest rate below the level dictated by the intertemporal preferences of economic actors can actually be beneficial.

The exact opposite is true: money is the only good in the economy an increase in the supply of which confers no benefit to society whatsoever. Why anyone would think that price fixing – which is what the interest rate manipulation of the central bank amounts to – is a good policy is utterly incomprehensible. Either price fixing as such is economically beneficial, or it isn't.

Regardless of which school of thought they belong to, economists by and large do agree that price controls are a bad idea, as this is something both economic theory and historical experience show unequivocally.

Somehow they make an exception though when it comes to money: in the realm of money, price fixing and central planning are deemed to be the just fine. The contradiction inherent in holding these diametrically opposed beliefs  concurrently is never discussed – obviously, raising this question would force many economists to confront something they prefer to gloss over so as not to suffer career setbacks (see above).

Lastly, it is always implicitly assumed that somehow, the labor market will move from a state of 'equilibrium', this is to say a state when there is no involuntary unemployment, to a state of 'disequilibrium' by mysterious forces that are deemed to be an inherent feature of the market economy. What is usually neglected in these deliberations is to provide an explanation as to how the previous state of equilibrium came into being in the first place. If it is true that recessions and unemployment are a 'natural' feature of the market economy that require government intervention, then why are there periods when the economy is apparently providing full employment (excluding the catallactic unemployment residual) all by itself? How could these happy states of affairs ever come about? The interventionists are silent on this point.


A Question of Methodology

The cherry-picked data series used in the Atlantic demonstrate a problem of methodology as well. As noted above, the 1919-1932 period was one of great economic and monetary upheaval. In 1914-1919, during which time the gold standard was actually suspended in order to finance WW I, there was an enormous explosion in prices, which is a recurring phenomenon when wars are financed by means of inflation.

In the severe recession of 1920-1921, which today no-one remembers because it was over so quickly, the at the time still quite conservative Fed decided to adopt a very tight monetary policy in order to bring prices down again. Concurrently the Harding administration refused to engage in deficit spending and economic intervention. It was the very last time in history that a US administration adopted a 'laissez-faire' stance during an economic contraction. Given how quickly the recession was over, this approach evidently worked quite well.

Curiously though, the author of the Atlantic article never apprises his readers of this fact, in spite of using the period in question to attempt to prove the exact opposite, namely that both money printing and deficit spending are allegedly desirable and necessary during recessions.

It is also not once mentioned that the gold convertibility of the dollar did not keep the banking system from expanding the money supply. According to calculations by Murray Rothbard in 'America's Great Depression', the true US money supply expanded by roughly 66% during the boom of the roaring 20's. The Federal Reserve's much too loose monetary policy was the main reason for the enormous money supply and credit expansion during this time. Not surprisingly, a major bust ensued after the Fed belatedly tightened credit in 1929.

What we want to point out here is this: leaving aside the fact that the author compares apples and oranges to begin with, as the calculation of CPI has been altered beyond recognition in modern times, one cannot just arbitrarily pick two data series and assert that they prove a point of economic theory.

The historical data  of the market are always highly complex, with countless dynamic factors influencing every given slice of economic history – therefore, economic history is always unique. One cannot engage in repeatable experiments to test 'hypotheses' of economic theory.

Rather, the only thing one can do is to interpret economic history with the help of sound economic theory  – in the social sciences, theory is antecedent to history. It may be that one's theory is flawed, but economic history can not be used to prove or disprove a point of theory. The only way of disproving tenets of economic theory is by means of causal-rational deductive reasoning.

As Ludwig von Mises notes in Human Action, ch. XXIII,1.:


“When an institutionalist ascribes a definite event to a definite cause, e.g., mass unemployment to the alleged deficiencies of the capitalist mode of production, he resorts to an economic theorem. In objecting to the closer examination of the theorem tacitly implied in his conclusions, he merely wants to avoid the exposure of the fallacies of his argument.


There is no such thing as a mere recording of unadulterated facts apart from any reference to theories.As soon as two events are recorded together or integrated into a class of events, a theory is operative. The question whether there is any connection between them can only be answered by a theory, i.e., in the case of human action by praxeology.  It is vain to search for coefficients of correlation if one does not start from a theoretical insight acquired beforehand.


The coefficient may have a high numerical value without indicating any significant and relevant connection between the two groups.”


(emphasis added)


Economic Forecasting

Economic theory can explain why the recent period of extremely high inflation (note that we use the term inflation here in its original meaning, namely denoting an expansion of the money supply) has not yet led to a massive increase in final goods prices. Any assertions and forecasts we can make in the context of the fact that the Fed has expanded the money supply by over 80% in the past four years  are however constrained by the laws of praxeology.

Or to put this in different words: it is our a priori knowledge of economic laws as deduced from the axiom of human action that allows us to make qualitative assessments of the economy based on the market data. Prediction is  constrained in this manner as well, but in another sense is a different matter altogether: we cannot know today what the future states of knowledge of economic actors will be. Therefore, economic forecasts will always be subject to considerable uncertainty.

Let us consider the inflation of the money supply in light of the kernel of truth contained in the quantity theory of money. Since we don't know with certainty whether the money supply will continue to be increased in the future and we also don't know with certainty whether the demand for money will decrease, increase, or remain the same, we can make no apodictic forecasts regarding future developments in the purchasing power of money.

What we can say with certainty is that the increase in the money supply hitherto has altered relative prices in the economy and that it has enabled exchanges of 'nothing' (money from thin air) for 'something' (real resources that could be bid for with this money) and that this has led to a redistribution of wealth from later to earlier receivers of the newly created money. We know that the economy's entire price structure has been altered from the state it would have attained absent the inflation.

We can also state with certainty what would happen in the future if we apply a number of ceteris paribusassumptions. If for instance the quantity of money in the economy continues to be increased (a good bet), but the demand for money remains constant or declines and no goods-induced changes in purchasing power occur, then final goods prices will certainly rise.

Our forecasts must always be a mixture of the constraints imposed by the laws of praxeology and what Mises called 'understanding'. Obviously, some will be better at forecasting than others; economists employing causal-logical reasoning will on average always have a leg up on the competition. These are mainly the economists that were not asked for their opinion in the poll cited by the author of the Atlantic article. :)


Ludwig von Mises on the Gold Standard

We have already pointed out that to us, the most important thing is that money be returned to the free market instead of being administered by the State. It is a good bet that the market would choose gold (and perhaps also silver) as its money, but this is not the decisive point.

However, it is quite clear that a gold standard would be vastly preferable to the legal tender credit money we use at present.

We leave you with a few pertinent quotes on the gold standard by Ludwig von Mises, which enumerate both its undeniable advantages as well as the motives of its enemies:


“The return to gold does not depend on the fulfillment of some material condition. It is an ideological problem. It presupposes only one thing: the abandonment of the illusion that increasing the quantity of money creates prosperity.” (in 'Economic Freedom and Interventionism')


“The gold standard did not collapse. Governments abolished it in order to pave the way for inflation. The whole grim apparatus of oppression and coercion, policemen, customs guards, penal courts, prisons, in some countries even executioners, had to be put into action in order to destroy the gold standard.” (in: 'The Theory of Money and Credit')


"The excellence of the gold standard is to be seen in the fact that it renders the determination of the monetary units purchasing power independent of the policies of governments and political parties.” (ibid.)




The percentage decline of the US dollar against gold since 1718, via Sharelynx - click chart for better resolution.





Charts by: American Institute for Economic Research, Sharelynx


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Wed, 08/29/2012 - 14:35 | 2747356 Newsboy
Newsboy's picture

Debt Based Money:

Hit [Force Quite]!

Wed, 08/29/2012 - 14:43 | 2747373 Muppet of the U...
Muppet of the Universe's picture

Can someone explain to me why we can't just use fiat and have the consequences of printing the money past a set limit percapita be death by anal squewering? 

Also, can't they just print the money into oblivion with a gold back currency?  All they would have to do is increase the dollar per oz of gold ratio... that seems like, hyper inflation is still a real threat.  no sutupid ppl answer pls

Wed, 08/29/2012 - 15:21 | 2747515 casey13
casey13's picture

It does not matter what is used as money. Governments have proven time and again they can not be trusted with money. The Romans used only gold and silver for money but in the end the coins were debased so much they were nearly worthless slugs. Gold and silver are best used to protect you from the governments abuse of the money supply.    

Wed, 08/29/2012 - 15:21 | 2747518 lemonobrien
lemonobrien's picture

the limit is the thing. golds and silver is a natural limit; letting men regulate the limit leads to corruption. 

Wed, 08/29/2012 - 15:25 | 2747536 gorillaonyourback
gorillaonyourback's picture

Yes you r right watch the"secret or oz" by bill still. What makes sense is debt free money. Ideally you want a debt free fiat moneyin circulation along with gold and silver coins in circulation. The metal will always act to control the fiat but give flexability for governments to print fiat and spend into the economy as populations increase or trade surpluses and deficits require

Wed, 08/29/2012 - 15:54 | 2747667 vast-dom
vast-dom's picture

"The excellence of the gold standard is to be seen in the fact that it renders the determination of the monetary units purchasing power independent of the policies of governments and political parties.”
  Thus it is precisely why only a revolution will allow us to return back to gold standard. Abandon all hope until enough sheeple are slaughtered and enough muppets raped that we see some traction...we are truly fucked.

Thu, 08/30/2012 - 02:18 | 2748821 TwoShortPlanks
TwoShortPlanks's picture

 You don't need a Gold Standard to use Gold.

let's have a look at a completely realistic scenario (IMO).

Fact: The Fed is sitting on about 261,500,000 Troy Ounces of US Government Gold in its vaults.

Fact: The Gold at the Fed was audited only last month, this is the first time in over 40 years, why now? (is a picture forming in your mind where I'm taking this?).

Fact: The market rate for Gold is around $1,700/oz.

Fact: Markets are screaming for QE, employment is dismal and the global economy is slowing...Austerity isn't an option but stimulus certainly is.

Fact: The US needs more Inflation to erode its debt and debt obligations.

Hypothetical 1: Fed Chairman Bernanke announces at the Jackson Hole Forum (This Friday) that the Fed will agree to monetize US Gov Gold as a loan to the Fed at an annualised rate of 0.01% and at whatever market rate at time of program commencement.

Hypothetical 2: Come 1st Jan 2013 the BIS makes Gold a Tier 1 Capital Asset and thus rescinds the 50% Capital Requirements on Gold assets.

Hypothetical 3: On news that the Fed will monetize Gold and it's rise to Tier 1 Capital, markets push Gold to $3,000/oz.

Hypothetical 4: The Fed enforces a -.25% rate on Federal Reserves and forces $1.25 Trillion of Bank Reserves out into the marketplace. Banks look to lend entities directly related to Government projects.

The Congressional Order is signed, the Fed runs the printing presses and the Gold doesn't even need to be moved, the stuff just sits there.

The US Gov pumps $784.5 Billion into infrastructure programs and Banks tag-along injecting money into 'Guaranteed Business' from these projects.

$2.034 Trillion enters federal works projects within 12 months and the Fed slowly raises rates each quarter to 1.5%.

After 18 months the money multiplier has kicked-in and the monetary base has expanded by $2.034 Trillion plus an additional $2.034 Trillion worth of bank loans via Fed lending.

The US economy booms, Inflation causes wages to rise as well as CPI. Consumers commence borrowing and consuming.

My point here is simple: You don't need a Gold Standard to use Gold, you just need to use it. Monetization was primarily used to force Banks to lend buy taking away Bonds from the marketplace, but they're not Gold as an asset to monetize and create large Gov works programs. The Banks will smell returns (especially if pos. Fed rates return) and pump loans out into the economy (in principle at least), which in-turn restarts the economic engine.

Gold does not need to be part of some historical 'Standard'.

Thu, 08/30/2012 - 04:03 | 2748880 SeattleBruce
SeattleBruce's picture

Muppet of the U..."can't they just print the money into oblivion with a gold back currency?"

Let's say you could buy something for 1/10th of an ounce of gold for $160 today.  Suddenlty the prevailing idiots in goobermenint decide to reprice gold to $10,000 an ounce, and create all that additional 'gold backed currency' - guess what that $160 item goes to $1,000 - as you say, a risk of hyperinflation.  But that would make everyone immediately lose confidence in the gold backed currency and demand gold itself (kind of like now).  So if those governments under a gold standard wanted to maintain legitimacy, and not create panic, they'd need to be pretty cautious about how they priced gold, and what the backing of currency was.

Furthermore, you could create severe penalties for corruption for the body that set the price for gold - and perhaps make that body like the SCOTUS, which ostensibly is non-political.  By making the committee that prices gold, and thereby impacts the entire money supply and pricing structure (say it's made up of financial and non-financial, private and government - runs the gamut), susceptible to real jail time, or instant removal from the committee upon proof of corruption, you could limit the manipulation of a true, or fairly true market price for gold.

It's the initial re-establishment of sound money, and the establishment of true consequences for corruption, that's going to take I'm afraid massive upheaval.

Wed, 08/29/2012 - 14:37 | 2747362 Buckaroo Banzai
Buckaroo Banzai's picture

The Atlantic?!? That's an easy target-- what a bunch of libtard fuckwits they are.

Is there anything that rag publishes that isn't leftist agitprop?

Wed, 08/29/2012 - 15:38 | 2747571 Dr Benway
Dr Benway's picture

They have some good stuff. Or at least they used to. Check out this 30 year old article about diamonds:


Also, the whole right-left thing is a smokescreen, it mystifies me why even smart ZHers insist on using this false distinction.

Wed, 08/29/2012 - 15:54 | 2747664 ParkAveFlasher
ParkAveFlasher's picture

Great link drop.  Like Ron Paul asked Ben Bernanke, "Why not diamonds?"  To which Bernanke replied famously...

Wed, 08/29/2012 - 16:05 | 2747717 Dr Benway
Dr Benway's picture

Haha yeah claiming 'tradition' as a driver for multi-billion dollar asset allocations, that was one of his greatest moments

Wed, 08/29/2012 - 14:38 | 2747363 CH1
CH1's picture

Gold standards are an old way of looking at money.

Open Currencies - competing money - is the new, better way.

Wed, 08/29/2012 - 14:47 | 2747393 Xibalba
Xibalba's picture

say what?!?!?!  Have you read your history books?  

Wed, 08/29/2012 - 15:07 | 2747473 CH1
CH1's picture

say what?!?!?!  Have you read your history books? 

LOL.. How do you think I got to that conclusion?

And I'll presume you're talking bout real history books, not the shit they shove down juvenile throats at state indoctrination centers.

Wed, 08/29/2012 - 17:01 | 2747804 Xibalba
Xibalba's picture

Faith and credit is no way to back system.  Not for the long term anyways....but I suppose you thought that out.  Your statement proves that it's possible to logically come to the wrong conclusion.  

Wed, 08/29/2012 - 19:57 | 2748326 Titan Uranus
Titan Uranus's picture

How about backing it with Hope and Change - that's worked out pretty well so far...

Wed, 08/29/2012 - 14:52 | 2747416 piceridu
piceridu's picture

Yeah, gold and silver compete openly with toilet paper money and see what wins...see Indonesia

Wed, 08/29/2012 - 15:10 | 2747490 CH1
CH1's picture

The point of competition is that people can choose... and not be dictated to.

Wed, 08/29/2012 - 15:59 | 2747691 malek
malek's picture

That's going to be as helpful as if each county had different (competing) measurement systems.

Wed, 08/29/2012 - 16:16 | 2747741 CH1
CH1's picture

as if each county had different (competing) measurement systems.

Countries!? Seriously? Countries?

That's some worn-out, barbaric shit.

Wed, 08/29/2012 - 16:16 | 2747753 Vooter
Vooter's picture

That's gotta be the stupidest fucking thing I've ever read. Creating digital fiat "money" requires no labor, you idiot. Why do you think gold and silver have been accepted as a store of wealth by humans for the last 5,000 years? Because there's a finite supply--and that supply requires a good amount of work to extract. Under your "open currency" system, you could simply declare that every grain of sand on the planet Earth is worth a dollar--who's gonna say otherwise? You're just another imbecile trying desperately to get something for nothing, just another sheep who can't stand the idea that the party really is OVER....

Wed, 08/29/2012 - 16:53 | 2747882 n8dawg84
n8dawg84's picture


Your example of declaring a grain of sand to be worth a dollar doesn't fit because sand is in a near infinite supply.  While the value of a grain would be a dollar, you would not be able to get anything for it.  If I read CH1 correctly and understand his point, he's saying that with three competing currencies (gold, silver, fiat) people could choose the currency they transact in rather than being forced to use one.  If one of those currencies becomes too abundant in the market then prices would rise in that currency.  For example, if there was too much fiat, prices would rise in fiat while remaining steady when priced in gold or silver.  Likewise, if for some reason gold became too abundant, prices would rise in gold and one might wish to transact in silver or fiat.  Of course, there are other factors that play into that as well.  The point is, it's a checks-and-balance idea. 

Thu, 08/30/2012 - 01:56 | 2748807 FanCap
FanCap's picture

Why have a single counterparty to each type currency? There could be a thousand different gold or silver backed or fiat currencies. People would move between them not only based on value ratios, but based on the health of the counterparty and stability of the currency they issue. Think asset backed banknotes writ large.

Fri, 08/31/2012 - 04:14 | 2751727 NBAD
NBAD's picture

But wouldn't people eventually solely choose gold, which leads us back to square one, how to get there?

Wed, 08/29/2012 - 14:38 | 2747365 q99x2
q99x2's picture

Let them use their gold for a standard not mine.

Wed, 08/29/2012 - 15:22 | 2747525 Papasmurf
Papasmurf's picture

Their gold may have a heart of tungsten.

Wed, 08/29/2012 - 14:39 | 2747369 madcows
madcows's picture

the great depression occurred before the elimination of the gold standard.

The current depression occurred after the elimination of the gold standard.

Therefore, a return to the gold standard will not magically create a stable economy.

Likewise, our current government malfeasance is independent of the gold standard.

How about instead of the Gold standard, we balance the budget and arrest those who are crooked?  I think that would solve more problems than tying our currency to a shiny metal.

Wed, 08/29/2012 - 14:49 | 2747404 Xibalba
Xibalba's picture

Only because the FED valued gold at a ridiculously low amount.  They were wrong then, and they're wrong now.  If they had the foresight to leave room for 'growth' and valued gold at say, $250 instead of 30' would work.  Now they're gonna have to value it at >$10,000 to reflect all the paper they've 'created'.  

Wed, 08/29/2012 - 15:43 | 2747606 Arcturus
Arcturus's picture

In a gold standard gold price must be fixed for it to work at all. If you think fiat is manipulated what would make anyone think gold mainipulation to stop because now we have a gold standard?

Wed, 08/29/2012 - 16:05 | 2747718 killerhertz
killerhertz's picture

Incorrect. Price is determined by the market. I think you are missing the point... Gold/silver are merely mediums of exchange. You could use wampum, GM trucks, whatever. But gold was historically selected for it's rarity, durability, divisibility, fungibility, etc. USD (or a competing currency - currently it's impossible to compete with US FRNs) could be valued in X troy oz of gold. The value of this currency would then fluctuate with its demand.

Wed, 08/29/2012 - 19:36 | 2748283 Arcturus
Arcturus's picture

So with a gold standard no coins would be issued only the fiat would stay constant? Because now that it is traded as a commodity price wpould fluctuaate up and down and be MANIPULATED if such and such a country wanted to devalue its currency.

Wed, 08/29/2012 - 14:58 | 2747433 Seize Mars
Seize Mars's picture

The great depression was caused by a credit bubble. In other words, the FED was counterfeiting.

No FED, no bubbles. Know FED, know bubbles.

So they said it was a gold standard in the 1920's, but it wasn't - they lied.

The only way to ensure that their lies can't hurt you is define a weight of gold that is a value, then trade in those weights. In other words, you don't need a government to define money. Money can be defined without coercion.

Thu, 08/30/2012 - 04:09 | 2748889 SeattleBruce
SeattleBruce's picture

Plus there weren't and still aren't proper consequences for monetary manipulation.  After all, it made them rich and powerful and us paupers and slaves...what motivation did 'they' have to change it?  Now it's time to put those just consequences in place.

Wed, 08/29/2012 - 15:21 | 2747517 Stoploss
Stoploss's picture

Albert:  Look at the chart, the ledgend say's dollar..

The gold standard benefitted the dollar, by maintaining it's purchasing power.

That is why the central planners hate it, because they can't devalue the mutha fucka dolla, with a gold standard in place.



Wed, 08/29/2012 - 15:23 | 2747530 lemonobrien
lemonobrien's picture

you mean they can't print and hire a bunch of niggas to build shit we don't need.

Wed, 08/29/2012 - 16:41 | 2747823 Panafrican Funk...
Panafrican Funktron Robot's picture

"Therefore, a return to the gold standard will not magically create a stable economy."

Advocates for the gold standard generally refrain from promising that there won't be up and down years.  We're simply saying that we don't want the government fucking with supply and demand.  Because, as we've seen since the beginning of governments, fucking with supply and demand creates bad outcomes.  100% of the time.  Supply and demand not only extends to currencies, they are the most pure expression of that curve.  We're not really suggesting anything radical here.  Bashing the gold standard, while simultaneously bashing oil subsidies or the GM bailout (or the financial sector bailout, or whatever pet thing you think is bullshit), is hypocritical.  

"Likewise, our current government malfeasance is independent of the gold standard."

There is no gold standard, ergo, government malfeasance.

Wed, 08/29/2012 - 14:40 | 2747374 Big Corked Boots
Big Corked Boots's picture

The Atlantic shovels in 10,000 words of pseudointellectual waste the same points that the average HuffPo poster can excrete in 100.


Wed, 08/29/2012 - 14:58 | 2747432 diogeneslaertius
diogeneslaertius's picture


Wed, 08/29/2012 - 14:41 | 2747375 loveyajimbo
loveyajimbo's picture

Any legit gold standard has to have at least some convertability aspect or it is total Bullshit.  Since our gold, even if actually still here, is so encumbered that exchanging bullion for fiat will NEVER happen.  that is why China and Russia are loading up while our Gov has their thumb up their ass.  As soon as China or russia introduce a legit gold-backed currency, the dollar and the US economy is shit out of luck.

Wed, 08/29/2012 - 15:37 | 2747576 SilverNoob
SilverNoob's picture

Unless gold plated tungsten suddenly becomes a PM which case the US is laughing all the way to the bank!

And pigs sprout wings from their flanks and take flight...

Wed, 08/29/2012 - 14:41 | 2747376 LMAOLORI
LMAOLORI's picture


It really doesn't matter because if a party reintroduces it in their platform they are ridiculed anyway so No Gold Standard for you.

Wed, 08/29/2012 - 14:45 | 2747385 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Gold and silver is money; nothing else is.  It isn't even hat gold would "back" money, because it is money.

Look at the Fed.  They create dollars at of thin air, or at least that is what we are told.  Yet they have gold certificates on loan rom the UST that they themselves loan out.  Gold price, and thus th Fed's balance sheet (the book that backs the dollar) has a direct correlation with the price of gold.

We have always been on a gold standard.  The finacial system is the same as it ever was.

Wed, 08/29/2012 - 14:47 | 2747394 Payne
Payne's picture

China will go to a PM standard in the next 2 years and force the hand of the FED and ECB.

Wed, 08/29/2012 - 14:48 | 2747398 solgundy
solgundy's picture

Gold standard in the US? way, at least not until China has most of the gold & backs the Yuan

Wed, 08/29/2012 - 14:50 | 2747410 Xibalba
Xibalba's picture

Russia, Iran, and China you mean?  

Wed, 08/29/2012 - 14:49 | 2747407 Bam_Man
Bam_Man's picture

Sad to say it, but there is zero chance that we will see a return to the gold standard before the current fiat monetary regime has failed completely. And I mean completely - as in total collapse. Sadly, the current system will take many millions of peoples' lives down with it.

Wed, 08/29/2012 - 15:46 | 2747631 Arcturus
Arcturus's picture

Not sure why you are "Sad to say". Gold price must be fixed to work in gold standard. It will be as manipulated as fiat is today.

Wed, 08/29/2012 - 14:52 | 2747414 mrktwtch2
mrktwtch2's picture

all gold is a yellow are shined up cant eat them or live in them..the only vlaue they have is what somebody will pay for it..and you gold bugs can wait till hell freezes over because its never going back to the gold 10 yrs when its 450 again..will you still be holding it?? walmart doesnt accept

Wed, 08/29/2012 - 14:57 | 2747428 Turin Turambar
Turin Turambar's picture

Yeah, why hold onto gold, when you can use green colored slips of paper or shiny metal discs that have value only because of legal tender laws?


You're an economic illiterate.  When the Fed is finished robbing everyone and the fiat house of cards comes tumbling down, at least you'll be able to use your dollars to wipe yourself after you take a dump.  There's one more superiority to gold that you can add to your list.  LOL

Wed, 08/29/2012 - 15:03 | 2747459 jomama
jomama's picture

bennybux aren't very soft or absorbent and they give you green dingleberries...

Wed, 08/29/2012 - 16:00 | 2747694 ParkAveFlasher
ParkAveFlasher's picture

MW2, among other things, don't confuse gold with diamonds.  Gold is elemental.  It is produced by starfire.   Its mass in/on earth is finite.  It is distilled from other materials.  Diamonds are not elemental.  They are formed.  They can be manufactured.  They accumulate in the earth from geological processes. 

Wed, 08/29/2012 - 17:05 | 2747913 spentCartridge
spentCartridge's picture

Diamonds are not forever, eventually (at around about sea level), they will decay into graphite.

But it does take a very long time.

Gold is indestructible ... which means it lasts forever.

Wed, 08/29/2012 - 19:24 | 2748263 smiler03
smiler03's picture

You can certainly tell that many ZH readers are scientifically challenged. No wonder a lot of you despair at the state of American education.

Wed, 08/29/2012 - 21:11 | 2748455 BigDuke6
BigDuke6's picture

i thought your handle said 'spermCartridge'...

you like?

Thu, 08/30/2012 - 05:06 | 2748925 spentCartridge
spentCartridge's picture

It isn't my fault that the pair of you are both idiots.

Diamonds are not created in the same atmospheric conditions as we find and use them, they are created deep inside the planet at pressures that are very much greater than at sea level and that environment is the best place for them to be, if it wasn't, they would not exist here. When diamonds are extricated from their natural environment they will degrade, over a very long period of time, into graphite. That's the way geology, pertaining to diamond formation on Earth really does work.

But perhaps employing a little research into some facts before posting mindless comments is beyond either of you?

Wed, 08/29/2012 - 14:59 | 2747440 Brazillionaire
Brazillionaire's picture

Maybe so, but if you play golf, one ounce gold coins make really cool ball markers! I play a lot of golf, so I have hundreds of ball markers.

Wed, 08/29/2012 - 23:34 | 2748700 TwoShortPlanks
TwoShortPlanks's picture

Yeah, my girlfriend uses oz bars instead of jade eggs for pelvic floor kegel now is...GOLD!

Wed, 08/29/2012 - 15:03 | 2747458 Papasmurf
Papasmurf's picture

Gold could go down to $450 again.  For that to happen, a lot of banksters would have to be jailed.

Wed, 08/29/2012 - 16:17 | 2747755 flacorps
flacorps's picture

Or a lot of gold would have to be found.

Gold mining requires huge ponds of cyanide water--it's not an environmentally pretty picture and nobody wants to do it much anymore.

For gold to go down, the value of the dollar would have to go up ... and I don't see that happening.

Gold is a solid store of value and almost impossible to ruin ... as few other things are.

Wed, 08/29/2012 - 15:04 | 2747464 Bay of Pigs
Bay of Pigs's picture

Keep reading ZH. Maybe someday you'll wake up...

Wed, 08/29/2012 - 15:07 | 2747475 Joe Sixpack
Joe Sixpack's picture

"you cant eat" [gold]


True, and federal reserve notes are part of a high fiber diet.

Wed, 08/29/2012 - 16:02 | 2747707 SilverNoob
SilverNoob's picture

Fuck me, are you for real? You just trollin' boy or you mongo?

First of all, gold ain't no rock boy. It's a metallic element, which like all elements on God's green earth were produced in the core of some ancient star by the fusion of lighter elements. When said star went Nova, all the materials generated by this star were expelled into space where it eventually condensed into gravitational nuclei which form the planets. Ergo, there is a limited, finite amount of this substance which has been used for thousands of years as medium of exchange until it was monetized by small Greek colonies in Asia Minor. This became a highly effective form of trade and the idea caught on with the other city states who produced their own coinage. When the Roman Republic gained ascendency it became the US of A in it's day. Rome went from Republic to principate and from the reign of Nero onward began to debase it's money. The Roman empire declined into a state of anarchy and it's no surprise that by 500AD the western roman empire produced nothing but crappy little bronze coins called minims with the crude face of some barbarian calling himself 'Rex'. Contrast that to the more successful Eastern Roman empire which had monetary reforms under Constantine the Great and Anastasius. They lasted a while longer because they kept the gold.

Fiat money, debasement inevitably result in disaster, and as in the case of the Roman empire, the US empire has been in decline since 1913. The power of the buck is gone baby, it is gone! It's lost all of it's value. At least while the Romans were debasing their money with copper, it took about 400 years. America is declining at a much, much faster rate, by the creation of currency from thin air. 


Energy cannot be created. Energy cannot be destroyed. The same applies to money. Money cannot be created. It can only be freakin' mined!


God dammit boyy!

Wed, 08/29/2012 - 16:47 | 2747841 Panafrican Funk...
Panafrican Funktron Robot's picture

"you cant eat them"

Ergo, stocks and bonds.  They are fucking delicious.

Wed, 08/29/2012 - 17:27 | 2747978 Calculated_Risk
Calculated_Risk's picture

What fucking retard eats money?! This has got to be the most shit for brained argument ever fucking thought of!
Unless you eat paint chips... But then your probably a "brony" too. Fukwit!

Wed, 08/29/2012 - 23:23 | 2748684 TwoShortPlanks
TwoShortPlanks's picture

$1,600/oz can buy a lot of food, shit-for-brains!

Wed, 08/29/2012 - 14:54 | 2747420 Turin Turambar
Turin Turambar's picture

Blah, blah, blah.  It's all talk.  Nothing substantial will happens until the dollar crashes.  You can take that to the bank.

Wed, 08/29/2012 - 15:08 | 2747483 MrBoompi
MrBoompi's picture

The US was going broke under the gold standard.  We had to abandon it or find ourselves in the position of being unable to trade with foreign countries.  Although I have no problem with a gold standard, life as we know it would certainly change.  We don't know what its like to pay our bills with actual money.

Wed, 08/29/2012 - 15:28 | 2747549 Turin Turambar
Turin Turambar's picture


Don't confuse Bretton Woods with a real gold standard.  Bretton Woods was fiat money masquerading as a gold backed currency.  I bet you believe Obama's Affordable Care Act lives up to its name, don't you?  LOL

Wed, 08/29/2012 - 16:10 | 2747730 flacorps
flacorps's picture

Bretton Woods was fiat internally, with a bluff of convertibility externally. de Gaulle called our bluff. We folded.

Wed, 08/29/2012 - 16:05 | 2747710 The Continental
The Continental's picture

I strongly disagree. The US was growing fantastically rich and powerful under a gold standard. Even after the idiot Wilson dragged us into the tail end of WWI. the US was left standing as the world's creditor with a large trade surplus and virtually all the gold bullion in the world. In 1913, the FED is incepted and proceeds to tempt the populace and institutions into leveraged bets and debts, culminating in the 1929 crash and economic collapse to follow. Then FDR declared national bankruptcy, to none other than the FED as creditor. It was a national setup done to a heretofore rich and prosperous American society by a rapacious parasitic entity duplicitously named the Federal Reserve Bank. In the years 1913-1929 the FED knowingly manipulated and exploited the gold standard to it's own advantage. Do not blame gold for the debacle. Blame the greedy corrupt men who hid behind a veneer of a gold standard to defraud the entire country.

Wed, 08/29/2012 - 16:04 | 2747716 killerhertz
killerhertz's picture

Yes because it's easier to behave recklessly than make sane decisions about domestic and foreign policy.

Wed, 08/29/2012 - 15:29 | 2747550 Venerability
Venerability's picture

The Ron Paul-istas will not, in general, support the Romney ticket unless they get actions as well as words.

And today we saw yet another contrived - that's contrived - Gold and Silver takedown by the JPM Nexus in a Three Treasury Note Auction week, totally by rote. These takedowns occur EVERY Three Treasury Note Auction week, no matter what the particular excuse is, as we all know.

On the bright side for Gold and Silver Bulls, the world PPTs are setting up a counter-excuse for the Monetary Metals to rise strongly again next week no matter what Dr. Bernanke does or does not say on Friday "against the Euro." These periods of Gold rising fast against the Euro always lead to its rising fast against all other currencies, including Naked Emperor Dollah, with a very slight lag.

But the GOP should not flirt falsely with the Paul-istas - and No, I am not one of them, despite being a very strong Gold Bull - since the Paul-istas can be very vindictive. Taunt them too much, they will either stay away on Election Day or even vote for Obama as a protest.



Wed, 08/29/2012 - 15:40 | 2747596 jjsilver
jjsilver's picture

To have a Gold standard or not is not the issue. The issue is a private criminal banking cartel controlling the issuance of our currency and charging interest. This is unconstitutional. Abolish the Federal Reserve and return the issuance of currency back to congress where it belongs.

Wed, 08/29/2012 - 15:48 | 2747636 wstrub
wstrub's picture

If the assets (distilled labour) are able to move from one generation to the next intact we will have a non-productive work force.  The baby boom generation exacerbates this issue because we have had less than two children per family.  The money will continuously be destroyed.  It has to be.

Wed, 08/29/2012 - 15:48 | 2747643 Remington IV
Remington IV's picture

Ron Paul is a nutcase

Wed, 08/29/2012 - 21:14 | 2748464 BigDuke6
BigDuke6's picture

the main stream media is strong with this one.

Wed, 08/29/2012 - 15:55 | 2747670 Paracelsus
Paracelsus's picture

The Asians have been burned many times by the round-eye mob.They don't  trust the west.They don't trust their politicians.They do trust PM's and this isn't news.The barter system and gold as money are alive and well in Asia,while the western public is only now waking up.Wait until the farmers won't take fiat anymore and then the SHTF beaucoup...

Wed, 08/29/2012 - 16:06 | 2747720 flacorps
flacorps's picture

Try a thought experiment. What would the world experience if BTUs were the basis for currency? Suppose the piece of paper in your hand represented a claim on a certain amount of energy, stored as gasoline, diesel fuel, ammonia, hydrogen or what-have-you?

Wed, 08/29/2012 - 23:19 | 2748677 Lednbrass
Lednbrass's picture

In terms of theory it has the same pluses and minuses as using gold, but the majority of humanity would be completely unable to grasp it.  It is difficult to get people to understand the gold standard idea, that would be way too abstract and many millions of empty heads would pop like balloons.

If a nation could pull it off they would be the reserve currency of the world the next day.

Wed, 09/05/2012 - 09:29 | 2764147 flacorps
flacorps's picture

Enron was moving crab-wise toward it, before they proved to be a gigantic scam.

Wed, 08/29/2012 - 16:48 | 2747848 Yellowhoard
Yellowhoard's picture

Concurrently the Harding administration refused to engage in deficit spending and economic intervention

They went further than that. The Harding administration slashed Federal spending and slashed tax rates as well. This resulted in one of the fastest turnarounds in economic history.

Wed, 08/29/2012 - 17:00 | 2747900 Dr. Gonzo
Dr. Gonzo's picture

 -As we also pointed out, there has been a remarkable outpouring of opinion denouncing the gold standard.-  

"What? Gold money in my pocket? To spend with? To keep? To use as a medium of exchange? That scares the shit out of me! How would i get a welfare check? How would little johnie get paid for "serving" his country overseas in our wars on borrowed paper money? How would we have government schools to indoctrinate our younins? No sir. Too dangerous. You just have old Obomney keep printing. This is America and that's what makes this country great."

Wed, 08/29/2012 - 19:39 | 2748288 Arcturus
Arcturus's picture

a gold standard today would not have gold currency, though I do undrstand your sarcasm.

Wed, 08/29/2012 - 18:43 | 2748167 Radical Marijuana
Radical Marijuana's picture

I repeat my mantras:

Money is based on robbery, backed by murder.

The debt controls depend on the death controls.

Private property does not exist outside of some system of public violence.

While the original meaning of "money" was gold and silver coins, and the "ring of truth" in those coins was the measure of their value, the possession of that gold or silver always depended upon maintaining an organized force, i.e. robbery. All voluntary contracts were inside of contexts of involuntary contracts.

The evolution of society that made War King then morphed to make Fraud King. Progress in science and technology astronomically amplified that until we now have a global fiat money electronic fraud, backed by atomic weapons.

Necessarily, our primary ideology is militarism. That is profoundly paradoxical, because successful militarism is based on deceits.

The essential problem is that we should have a "truth standard" in our money system. That is superficially believed to be possible IF the money is not fiat, but rather based on commodities which obey the law of the conservation of matter, which is a special case of the law of the conservation of energy.

However, a deeper truth standard in our money system should be based on a broader understanding of energy laws and general systems theories.

The problem is that returns us to the original dilemmas of militarism!  Money depends upon murder, and murder depends upon deceits.

Sorry folks, but there is no way out of that dilemma but for us to continue to muddle through that madness.

Going back to commodity based money is NOT enough. Understanding that we always have had, and must have, a murder based money is necessary.

Wed, 08/29/2012 - 19:48 | 2748306 Arcturus
Arcturus's picture

Going back to commodity based money is NOT enough. Understanding that we always have had, and must have, a murder based money is necessary.


You are right, the only way to get some kind of an honest monetary system today is for a LARGE basket of differing currencies and commodities included but not limited to oil, gold, silver, corn, wheat, meat etc. and that would become the world reserve currency. 


I disagree that all money is backed by murder as is quite obvious it is backed by debt.


Wed, 08/29/2012 - 21:46 | 2748512 Radical Marijuana
Radical Marijuana's picture

Yes, there is no doubt that we have a debt based "money system" at the present time. The Orwellian triumphs inside of our Bizarro Mirror World "reality" have inverted the meaning of the word "money!"  Money that was once gold and silver coins with inherent value has been transformed to become credit, through the process of paper taking the place of those coins, then more and more of that paper money printed, (older fractional reserve banking history) beyond the existence of that metal ... then runaway fiat money, not related or depending on any material substances in which that "money" was redeemable (more recent fractional reserve banking history).

However, what made all that fiat money REAL was that it was deemed legal tender, and people were FORCED to pay their taxes using it. Thus, the sovereign power to rob (tax, backed by murder, if resisted) was transferred to the fiat "money" which was only paper, and thence to now nothing but bursts of encrypted electricity.

That is why I said the world system today is global fiat money which is electronic, backed by weapons that are atomic. That system morphed from the previous systems of gold and swords, to paper and gunpowder, to the present electronic code, backed by weapons of mass destruction!

Therefore, you are correct that our current "money" supply is actually a debt supply. Therefore, superfically, at present our money is backed by debt. However, I repeat one of my mantras that I already posted above: The debt controls depend on the death controls.

What has become quite surreal, after the development of weapons of mass destruction, is the way that the triumph of deceits is what directs who murders whom.  That murder system governs the money system. The international banksters were the supreme organized crime gang. Anyone who studies the history of money will recognize that the privatization of fiat money supplies was due to the triumph of the methods of organized crime:

"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling the money and its issuance."

--- James Madison (1751-1836), 4th US President, and one of the main authors of the Bill of Rights.

Collectively, the international banksters are a group of trillionaire mass murders. The currently established systems are quadrillions of units of money, which far exceed the physical world, backed by an equally astronomical ability to kill many more people than actually exist. We have "money" in the quadrillions, backed by threats of murders by the quadrillions.

However, I caution against then collapsing back to the same old bullshit when proposing solutions. We are stuck with money ALWAYS being based on murder, and with the payments of debts being backed by death controls. We need deep paradigm shifts in the way that we understand money and murder systems. We should think in very different ways about the purposes of death controls, which then might make it possible to have different debt controls.

It is impossible for money to be based on any basket of commodities, unless murder is also a commodity. In fact, money practically IS already, but that gets done through the maximum possible deceits. Civilization is controlled by the people who were the best at being dishonest, and their immaculate hypocrisy and impossible ideals almost totally dominates the public space. They benefit from running the established social systems of robbery, and they must do so by lying about that as much as they possibly can. Meanwhile, most other people adapt to live within those established systems, by accepting the huge lies, or by accepting that they can do nothing practical to change them.

The real world already is operating according to energy laws and general systems theory! However, there are necessarily infinite tunnels of deceits through that!


I have been amusing myself, and passing the time by developing my ideas about money here:

However,  my ton after ton of bla, bla, blah about the money system, etc., makes no difference to lies backed by violence. Our civilization is committed to going crazy, as the triumph of lies, backed by violence, drives itself through psychotic breakdowns. Since the violence can never make the lies become true, but can continue to control in each short-term increment, we are evolving according to the standard model of punctuated equilibriua, with the next big punctution mark not too far away now ...

Wed, 08/29/2012 - 20:13 | 2748350 tony bonn
tony bonn's picture

methinks the atlantic whore doth protest too much

thank you for an absolutely fabulous article dahlinkk

Wed, 08/29/2012 - 20:15 | 2748351 laomei
laomei's picture

I really don't quite understand their reasoning in all of this.  Gold, Silver, Copper. There, done deal.  The idea that there's not enough gold in the world to back the economy is ludacris, all it means is that currency is revalued.  $10k becomes $1k of gold backed currency, and consequently prices are brought in line with that.  Nothing changes, apart from money becoming more valuable.  It also has nothing to do with the government.  Sure, government can issue currency backed by it, but a lump of gold is worth just as much if it has a pretty face and a logo on it as it is if it is just a lump of gold.  It gets assayed and that's it.


To be honest, that's precisely what they don't like about it, it has nothing to do with the specifics of how it works, but rather the fact that they no longer have absolute control over the process.  It also pretty much kills off the notion of ludacris interest rates and other bullshit.  No reason to confiscate gold, no reason to peg gold at a value.  It is what it is.  If the government wants to stamp pretty pictures on slugs of it to act as an assayers mark, then so be it  It's not a very difficult concept to understand, and it's just retarded that they seem to think that the only functioning system is a system that they have full control over.  

There's nothing mysterious or magical about it at all.  The essence of the system is "you no longer get to invent money just because you want to.", you see it in the US as states are not allowed to invent their own money, and you see it with the Euro, as members of the EU no longer have control over their own currency.  The only reason it goes to shit is when people try to cheat and game the system.  In this respect, nothing would change, apart from there simply not being "bailouts".  If it fails, it fails.  And if it fails it's because it wasn't meant to succeed in the form it was in.  How hard is this to understand?

Obviously, the change would have to be a gradual one, and it would not be painless.  Flipping a switch and instituting it over night would essentially result in feudalism, as a core of gold hoarders would overnight become the rulers of all.  If you're worried about the hoarding of gold, it ain't hard to place annual caps on how much gold-backed whatevers can be converted to physical.  Regulate the crap out of speculation to prevent market fuckery, kill the mega banks and there, done.

Wed, 08/29/2012 - 20:34 | 2748382 Titan Uranus
Titan Uranus's picture

That's it.  An ounce is an ounce.  If you want to mint some ounce rounds and stamp 1oz on them, you can.  And it's on the person who accepts them to verify purity and weight.  Won't be long before certain ones emerge as trusted and genuine.  Won't be long before there are regulations calling for government minting and oversight.  Won't be long before the government produced stuff, IF IT IS HONEST AND GENUINE, emerges as the most sought-after and becomes the standard.  Do this with silver and gold and LET THE MARKET DECIDE WHAT THE G/S RATIO SHOULD BE.  Print some paper that has FULL CONVERTIBILITY with the coins, with STRICT OVERSIGHT over the amount printed.  Mandatory death penalty for violation of the regs.  Hmmm...   

Wed, 08/29/2012 - 23:00 | 2748645 OneTinSoldier66
OneTinSoldier66's picture

It's not only fiat that's been debased, coinage has been debased as well since 1965.


If that isn't enough to convince people that Governments and Bankers do not like the spending and credit restraint PM's require of them, I don't know what will.

Wed, 08/29/2012 - 23:20 | 2748670 TwoShortPlanks
TwoShortPlanks's picture

If nobody's taking a Gold Standard seriously, well-then, can someone please explain as to why so many Strong Hands are scooping it up in such a hurry?

I don't think many people on this forum have the slightest fucking idea as to what Gold represents within a monetary system, and I don't think the Banks or Wall Street have a fucking clue either...hell, a 'Gold Standard' is merely one of a thousand possible Functions/Protocols this metal can perform.

I haven't heard one blog, not one utterance, of the possibility of using Gold as a buffer (an accumulator of sorts) in Bonds, Balance of Trades and Primary Capital where Gold works in with currency...everyone talks about Gold in opposition to currency.

And what about the limited usage of Gold within the confines of bridging Base Money to Bank Assets.

Or what about a sliding scale for Gold reserves as Primary Capital; as banks leverage-up higher so their position of Gold reserves must also. If a collapse happens it behaves the banking system to force Gold prices higher, not to sell it off as a commodity, but to accumlate it...self imposed recapitalization. In this way Gold acts like a counter balance and dampener at the same time (more than just a hedge it can absorb shocks).

And what about bank deposits and mortgage deposits in Gold?

I can think of dozens of ways Gold can be brought back into the system, to help the system, besides an all-out fucking 'Gold Standard'.

Thu, 08/30/2012 - 00:29 | 2748751 AurorusBorealus
AurorusBorealus's picture

"The only way of disproving tenets of economic theory is by means of causal-rational deductive reasoning."

This statement is just plain wrong and bull-headed.  See... here is the thing... Newtonian physics is causal... rational... deductive reasoning- i.e. for every action there is an equal and opposite reaction.  Unfortunately, Newton's physics was and is wrong in the "real" world.  How do we know this?  Because we observe that light, gravity, high-speed particles do not abide by Newton's "laws."  Lamarck was wrong when he stated that parents pass on traits that they acquired in life to their offspring.  How do we know this?  We cut the tails off of rats and observe the FACT that their children have tails.  If you do not wish to live in a world of fact... that is your prerogative... you are no different than Bernanke and Monti; you are just in your own fantasyland.

Sat, 09/08/2012 - 12:00 | 2774622 neutrinoman
neutrinoman's picture

The gold standard is not that hard to figure out, and the classical gold standard worked quite well. The Keynesians and others who say otherwise don't know what they're talking about.

From about 1870 until 1914, the world's major economies -- whether they had central banks or not -- converted gold and currency back and forth, freely, upon demand. In this system, the Mundell theorem (about currencies, interest rates, and capital flows) was satisfied by: fixing the currency values to gold, and allowing the other two to float freely. Recessions were typically short, violent, and ended quickly. People took losses! Bankruptcy law was applied! Quickly! For everyone! Even the high and mighty. No bailouts in those days. Central banks, where and when they existed, were simply fire departments. They had some spare capital to lend in case of emergency. They had no power to create money or to set interest rates economy-wide. Since capital was scarce, and during an emergency expensive, they charged -- not ultralow rates -- but a high rate. They lent only to illiquid but solvent institutions for a short time. Insolvent institutions went to bankruptcy. As a result, banks were run far more conservatively, with lower leverage ratios than today. Bank stockholders were completely liable for the banks they owned.

When the Keynesian witch doctors claim that the gold standard is evil and deflationary, they're being deceptive, because they're not talking about the classical gold standard. The world went off that in 1914. It tried to go back on in 1919, but ended up instead on something called the "gold-exchange" standard. This messed-up monstrosity featured key currencies misvalued, both absolutely w.r.t. gold, and relatively w.r.t. each other. Because central banks had created so much credit during the war unbacked by new gold, the currencies of all combatant states (and many others) were overvalued. Something had to give, and it did, in the 1929-33 Great Contraction. The cure was to go off the gold standard, devalue, then go back on. Remaining war debts were implicitly monetized.

Under the subsequent Bretton Woods system, interest rates, currency values, and capital flows were controlled. However, because most governments after World War II got their fiscal situations under control, there was no major new inflationary pressure for a while. Most currencies were fixed to the dollar, and the dollar was fixed to gold at $35/ounce. This system should have led back to a classical gold or gold/silver standard, after the wartime emergency was over. Instead, the Keynesian witch doctors of the 1960s screwed the pooch, as we say here in America -- they promised to abolish the business cycle, "fine-tune" economic growth, and find the non-existent sweet spot on the alleged Phillips curve. Instead, they created (through spending both domestic and military, unsupported by taxes or savings) massive new inflationary pressures that forced the US off even the limited "gold-exchange" standard, to a system where currencies and capital float relatively freely (with one big important exception, China) and interest rates are manipulated, usually to serve powerful debtors, starting with governments and big banks.

Only in the 1980s and part of the 90s, when central banks roughly followed monetary rules of various kinds, did this system produce reasonable, low-inflation growth. Most of the time, since the creation of modern central banks after 1919, with the power to create money from nothing and (later) the power to set interest rates, monetary policy has been either mildly or completely insane. Periods like the late 1920s, 30s and 40s, or the late 1960s, 70s, and early 80s were the result.

The Keynesians and others today who argue against the gold standard only do so in their usual way, by looking at the Great Depression *A*-symmetrically, concentrating on the contraction, paying no attention to the bubble that preceded it in the late 1920s, the first modern financial bubble. It was the first time that both the central banks and the commercial banks were partially freed from the gold standard constraint and were able to create credit arbitarily. The subsequent bust was inevitable, and made more severe, by the remaining gold convertibility constraint, with the dollar overvalued. That's all you every hear about from these people. You rarely hear the FULL story, which is that the classical gold standard was already dead, and that the 1929-33 contraction was the inevitable bust that follows any credit bubble when credit expands rapidly in a way unconnected to existing savings and outstripping nominal growth.

The real reason why the gold standard is a non-starter today (although the price of gold will continue to rise, until some real solutions are at hand) is that it would force governments to pay their way with taxes now, or with debt that can be realistically repaid. Also, all the world's major economies would have to adopt it, including the repressive ones, like China, that have currency and captial controls. It would require allowing capital markets and free trade to set interest rates and capital flows. The end of a business cycle would see interest rates rise, sharply, as default risk jumped and debts had to be repaid. Savings would rise commensurately, and then interest rates would fall. That's how the business cycle worked until the late 1920s. But it required a certain discipline that is long gone today. Instead, we look to central banks to keep lowering interest rates, even to zero, destroying savings and choking off lending (except to governments and big banks). The monetary system today, after the financial crisis, is focused, not on growth or equilibrium between saving and investment, but on bailing out insolvent actors, including governments, leading to zombies everywhere: zombie banks, zombie governments, whole zombie societies.

The gold standard could be adopted slowly, with a free exchange mechanism set up, to move toward an equilibrium of money and gold. We're already part of the way there now. But the next step, fixing currency values, would be too radical for too many powerful interests. It would spell bankruptcy for many govenrments and large banks. Is there a political class, and a financier class, today strong enough to stomach this? I think not.

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