Explain to an idiot the benefits of going back to the Gold standard

[tolbiny]

Are any of these papers available online (for free)?

[ianlippert]

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i guess then the real issue is defining what is meant by the "gold standard."


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Wasnt the value of gold basically decided by governments?
I dont think its really a question of gold standard or not but how much government intervention in the money supply. So what you call a gold standard isnt what we call a gold standard. Its kind of hard to have an arguement when we have different definitions of what we are argueing about.

[DcifrThs]

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Are any of these papers available online (for free)?

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the main auther of about 60% of them are bernanke. the book where those major ones by him are collected and presented is called "essays on the great depression"

the others may or may not be free and i haven't cited them yet b/c i woul dthen (and will if you want) go back to the book and simply find the cites to the other papers.

an overview of why i like bernanke's (and the simple buying of the book) is because his includes a very good macro economic study of countries moving through time both monthly and annually from 1928 to 1945. mostly he concentrates on the period from 1929-1937 (or the last date when the last country left eh gold bloc- france and belgium held on the longest). the other papers before him concentralted solely on the USA rather than collecting more sample points to do a far more comprehensive study as the result of more robust regressions. those papers do a great job on the study of the USA, but not so good on the transmission of monetary policy throughout the world.

here is a quote from a britannica article that i'll cite after the quote. it basically discusses the major drivers (without proving as bernanke did via numerical studies and regressions of all kinds on many different variables of economic health) of the recovery and how fiscal policy played a small relative role compared to monetary expansion:

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Devaluation, however, did not increase output directly. Rather, it allowed countries to expand their money supplies without concern about gold movements and exchange rates. Countries that took greater advantage of this freedom saw greater recovery. The monetary expansion that began in the United States in early 1933 was particularly dramatic. The American money supply increased nearly 42 percent between 1933 and 1937. This monetary expansion stemmed largely from a substantial gold inflow to the United States, caused in part by the rising political tensions in Europe that eventually led to World War II. Monetary expansion stimulated spending by lowering interest rates and making credit more widely available. It also created expectations of inflation, rather than deflation, thereby giving potential borrowers greater confidence that their wages and profits would be sufficient to cover their loan payments if they chose to borrow. One sign that monetary expansion stimulated recovery in the United States by encouraging borrowing was that consumer and business spending on interest-sensitive items such as cars, trucks, and machinery rose well before consumer spending on services.
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Fiscal policy played a relatively small role in stimulating recovery in the United States. Indeed, the Revenue Act of 1932 increased American tax rates greatly in an attempt to balance the federal budget, and by doing so it dealt another contractionary blow to the economy by further discouraging spending. Franklin D. Roosevelt's New Deal, initiated in early 1933, did include a number of new federal programs aimed at generating recovery. For example, the Works Progress Administration (WPA) hired the unemployed to work on government building projects, and the Tennessee Valley Authority (TVA) constructed dams and power plants in a particularly depressed area. However, the actual increases in government spending and the government budget deficit were small relative to the size of the economy.

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Britanica Article on the Great Depression. Page 1 of 23 (i.e. the very beginning)

Britanica Article on the Great Depression. Page 6 of 23 (i.e. where the discussion about the role of the fed in tightening money to save the gold standard and how monetary expansion helped move us out of it begins)

to very shortly sum the mises (i.e. counter fed) argument (borodog correct me if i stray here or am incorrect in any way please. and also forgive the tilt of the statements. you can correct me if i've strayed from the facts though [img]/images/graemlins/tongue.gif[/img]): after 50 years of some kind of pushing, a cabal of bankers (i.e. the few) got together and convinced the legislature to draft and the president to sign a bill, after the banking panic of 1907 provided a precipitating cause, to create the federal reserve system (and its member banks) and allow it to control monetary policy of the US (ie. the many) to the benefit of the few who created it. In terms of the depression, the fed helped create the depression in 2 ways. indirectly by existing and preferring monetary expansion at every turn (by creating the business cycle and causing people to prefer to consume now rather than later, causing dislocations in the economy), and then directly by tightening to save the gold standard in late 1931. this tightening was a choice between the saving of the gold standard (and the currency peg to gold/foreign currencies) or providing liquidity to the banks that were clamoring for it.

hope this helps,
Barron

[volkin]

I think you might be misunderstanding Austrian Business Cycle theory a bit. Austrians believe that artificially lower interest distort the capital market by simultaneously decreasing the supply of savings while increasing the demand for investment. Austrians primarily focus on the investment side of this distortion. They believe that businessman will unwittingly take on debt to develop unprofitable capital projects during the boom phase. This "malinvestment" is what causes the bust phase which occurs during the time period when these projects are found to be unprofitable and then liquidated.

The argument in favor of the gold standard is that it limits the governments ability to meddle in the economy, assuming you find this preferable of course. I think that history shows that, unfortunately, the gold standard doesn't work well as a constraint and governments will meddle anyway. I am not familiar with Bernanke's book but I'd be very surprised if the governments who tried to maintain the gold standard weren't messing with the economy prior to the depression. Just because one government intervention, after it already created a problem, proves to be better than another at solving the problem, doesn't mean that government intervention is a good thing. I'd prefer it if governments didn't mess things up to begin with.

Free Banking >>>>>>>>>>>>&g t;>>>>> Gold Standard > The fed in my opinion.

[DcifrThs]

[ QUOTE ]
I think you might be misunderstanding Austrian Business Cycle theory a bit. Austrians believe that artificially lower interest distort the capital market by simultaneously decreasing the supply of savings while increasing the demand for investment. Austrians primarily focus on the investment side of this distortion. They believe that businessman will unwittingly take on debt to develop unprofitable capital projects during the boom phase. This "malinvestment" is what causes the bust phase which occurs during the time period when these projects are found to be unprofitable and then liquidated.

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i wasn't so clear about it, but this is what i meant by "dislocations"

Barron

[QuadsOverQuads]

The "gold standard" was abandoned because the gold supply does not grow at a fast enough pace to keep up with the growth of the economy. It is therefore inherently deflationary, and economically unsustainable.

It is also an article of near-religious faith among the far-right-wing, so expect the usual firestorm of spam and pre-cooked talking points.


q/q

[theseus51]

[ QUOTE ]

The "gold standard" was abandoned because the gold supply does not grow at a fast enough pace to keep up with the growth of the economy. It is therefore inherently deflationary, and economically unsustainable.

It is also an article of near-religious faith among the far-right-wing, so expect the usual firestorm of spam and pre-cooked talking points.


q/q

[/ QUOTE ]

Yeah exactly. Cause historically, before 1913, there was like no economic growth. Once we started printing that money out of thin air though, there was no stopping the economic growth, no stopping the inflation, and no stopping the slow road to eventual collapse of our currency due to the worthlessness of the dollar.

Money is just a way to facilitate a transaction. It's just hard to think of having converting all the money we have, into gold. I can't blame them, because the federal reserve prints out hundreds of billions of dollars out of thin air, so yeah, that'd be hard to imagine.

If you're a saver, you have to save and earn like 3-5% a year, just to break even, since your dollars are getting more and more worthless. If someone really wanted gold, they could offer a higher return on investment, but if they can't, why should your money and savings lose 3-5% value a year, every year? By printing money out of thin air to "stimulate the economy", you hurt a lot of people, savers, fixed income people and retirees.

And as far as I know, no country or society has lasted long under a system of paper money, created out of thin air, with nothing to back it. But there are a lot of places that lasted under sound money, backed by hard assets.

[John Kilduff]

[ QUOTE ]

The "gold standard" was abandoned because the gold supply does not grow at a fast enough pace to keep up with the growth of the economy. It is therefore inherently deflationary, and economically unsustainable.

q/q

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At this point I think I'd probably rather see deflation than inflation for a while. Why is deflation more evil than inflation?

[MidGe]

[ QUOTE ]

The "gold standard" was abandoned because the gold supply does not grow at a fast enough pace to keep up with the growth of the economy. It is therefore inherently deflationary, and economically unsustainable.

It is also an article of near-religious faith among the far-right-wing, so expect the usual firestorm of spam and pre-cooked talking points.


q/q

[/ QUOTE ]

Pragmatic and correct. The gold standard, or rather its re-introduction is silly and impossible.

To the OP I would say, think twice! Maybe Ron Paul isn't as intelligent as "some" on 2+2 think he is! [img]/images/graemlins/smile.gif[/img]

[superleeds]

Can you tell me why gold has value?