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

[ianlippert]

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Here is a pretty good link summarizing the downside of a gold standard.

There's gold in them thar standards!

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I particularly like this quote from the article

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In short, you don't get anything out of a gold standard that you didn't bring with you. If your government is a credible steward of the money supply, you don't need it; and if it isn't, it won't be able to stay on it long anyway.

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I think the hard money arguement is more for the privatization of the money supply. Its just that most libertarians tend to believe that a free market money system will eventually end up as a gold standard.

[Felz]

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How so

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M * v = Y * p

thus

^M + ^v = ^Y + ^p

thus

^p = ^M + ^v - ^Y

thus

^p = ^M only if ^v = ^Y

quantity theory of money

[4 High]

Do we know how much gold the US GOVT currently has? What would happen if we just switched tomorrow and for arguments sake we had 100 Trillion in paper money but only 1 Trillion in gold.

[gonebroke2]

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Do we know how much gold the US GOVT currently has? What would happen if we just switched tomorrow and for arguments sake we had 100 Trillion in paper money but only 1 Trillion in gold.

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Per the usmint.gov website:
Amount of present gold holdings: 147.3 million ounces.

[Copernicus]

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Do we know how much gold the US GOVT currently has? What would happen if we just switched tomorrow and for arguments sake we had 100 Trillion in paper money but only 1 Trillion in gold.

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On this question, without a gold standard gold is just an investment. The quantity that can be sold it is constrained by treaty though. As noted above you cant unilaterally move to a gold standard.

Re the equation above, you dont really need to go the log version of the equations. It should be obvious from p=M*v/Y that for a constant velocity of money, price increases only when M/Y increases, thus if the money supply grows in concert with productivity there is no upward pressure on price. Note also that Y=M*v/p. If M is relatively fixed (as under a gold standard), and v is relatively fixed, then if Y grows, price has to decline..ie deflation. There are other threads on the risks that deflation carries.

Re the comment that "toothpaste" could be used as backing for currency, this is incorrect. It is essential for any commodity based currency that the commodity be scarce (if anyone can produce toothpaste from baking soda and a few other non-scarce chemicals then the exchange rate is impossible to maintain as governments or individuals can flood the market with toothpaste), difficult to increase in supply (same as above), and consumed in relatively small proportions to the total supply (if the large amounts of the commodity are consumed it reduces the supply which carries the deflation risk).

[DcifrThs]

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There's a strong correlation, for example, between how long a country hewed to the gold standard, and how badly it suffered from the Great Depression.

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I think this sums it up by this mischaracterization.

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it isn't a mischaracterization. it is some of the best research i've seen on an economic theory in a while ( interms of academic papers).

those countries who stayed on gold for longer exacerbated the negative impact of the great depression.

i challange you to disprove that statement and have your theory hold up to the facts.

Barron

[PLOlover]

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it isn't a mischaracterization. it is some of the best research i've seen on an economic theory in a while ( interms of academic papers).

those countries who stayed on gold for longer exacerbated the negative impact of the great depression.

i challange you to disprove that statement and have your theory hold up to the facts.

Barron

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well the thing is the US wasn't really on the gold standard. twenty years earlier the US got a central bank, and they increased/decreased the money supply independently of gold. basically there was a fiat money supply and a gold money supply and obviously the gold got squeezed out pretty quickyly (20 years).

obviously if I have a choice of paying you in gold or in fiat and I choose to pay you in gold, then I am an idiot.

[tolbiny]

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There's a strong correlation, for example, between how long a country hewed to the gold standard, and how badly it suffered from the Great Depression.

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I think this sums it up by this mischaracterization.

[/ QUOTE ]

it isn't a mischaracterization. it is some of the best research i've seen on an economic theory in a while ( interms of academic papers).

those countries who stayed on gold for longer exacerbated the negative impact of the great depression.

i challange you to disprove that statement and have your theory hold up to the facts.

Barron

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There are huge impediments to having this discussion. Basically you have to agree on so many underlying themes to begin with
1. What constitutes a gold standard
2. When did the depression begin/end for each country in question
3. How do you normalize for other interference in the economy?

[pvn]

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There's a strong correlation, for example, between how long a country hewed to the gold standard, and how badly it suffered from the Great Depression.

[/ QUOTE ]

I think this sums it up by this mischaracterization.

[/ QUOTE ]

it isn't a mischaracterization. it is some of the best research i've seen on an economic theory in a while ( interms of academic papers).

those countries who stayed on gold for longer exacerbated the negative impact of the great depression.

i challange you to disprove that statement and have your theory hold up to the facts.

Barron

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1) flip the burden of proof
2) bait and switch

The parties making this claim need to prove causation exists where we observe the corellation. And define what constitutes a "gold standard" while you're at it, since I'm pretty sure what you're talking about isn't what proponents of it are talking about.

[DcifrThs]

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There's a strong correlation, for example, between how long a country hewed to the gold standard, and how badly it suffered from the Great Depression.

[/ QUOTE ]

I think this sums it up by this mischaracterization.

[/ QUOTE ]

it isn't a mischaracterization. it is some of the best research i've seen on an economic theory in a while ( interms of academic papers).

those countries who stayed on gold for longer exacerbated the negative impact of the great depression.

i challange you to disprove that statement and have your theory hold up to the facts.

Barron

[/ QUOTE ]

1) flip the burden of proof
2) bait and switch

The parties making this claim need to prove causation exists where we observe the corellation. And define what constitutes a "gold standard" while you're at it, since I'm pretty sure what you're talking about isn't what proponents of it are talking about.

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

if by "gold standard" you mean a literal and unchanging 1:X ratio of gold to your currency, then nobody stayed on the gold standard at all since the US and other countries devauled that ratio.

the point that i (aka, me speaking for the researchers) made that i feel is strongly proven (though nothing is absolute) is that keeping the currency tied to gold at a price exacerbated the problems caused by higher rates when they shoudl have been lower and exacerbated the problems caused by the banking panic to the marcro economy of those countries that stayed on a currency tied to gold.

Barron

EDIT: since i knew this in advance due to my own reading / research, it is obviously seen by you as a "bait and switch" whereas to me it is a "this has been proven to a very strong degree and, barring the definition of gold standard, i require you to prove to me that it isn't hte case."