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How did the gold standard work?
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Re: How did the gold standard work?
#92For a good history of the use of gold as money see The power of gold: the history of an obsession by Peter Bernstein:
* https://www.goodreads.com/book/show/249245.The_Power_of_Gold
* https://en.wikipedia.org/wiki/Peter_L._Bernstein
Also good are Money : the true story of a made-up thing by Jacob Goldstein (also of NPR's Planey Money) and Debt: The First 5000 Years by Graeber:
Re: How did the gold standard work?
#93Earlier quoted context omitted.
The thought has crossed my mind that the answer is, it is impossible to have a long-term gold-backed system (or any other commodity), for all the various reasons that doesn't work, and it's impossible to have a long-term system not based on gold or some other set of commodities, because it is impossible for a government to be given the power to print arbitrarily without eventually using it, unto the death of that cur…
> it's impossible to have a long-term system not based on gold or some other set of commodities, because it is impossible for a government to be given the power to print arbitrarily without eventually using it, unto the death of that currency. And this is why the US government isn't directly involved in the process, nor is it given the power to print money arbitrarily. Money is "printed" via a combination of loans an…
> Money is "printed" via a combination of loans and fractional reserve banking
Fractional reserve banking is not a thing. Tobin called that "The Old View" in 1963:
* https://cowles.yale.edu/sites/default/files/files/pub/d01/d0...
It is a convenient crutch to get a '101' level understanding, but people end up continue to think it's real and so the teaching of money multiplier should really be stopped:
* https://research.stlouisfed.org/publications/page1-econ/2021...
Several countries haven't even had reserve requirements for decades:
* https://en.wikipedia.org/wiki/Reserve_requirement#Canada
Roche published a good intro to how the modern monetary system works:
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625
Re: How did the gold standard work?
#94There are real practical problems with gold and changing economies. What happens when your population goes up - you need more gold. Or economic growth. Similarly if gold is discovered like Spain's Latin American winnings it causes inflation.
An increasing population wouldn’t need more gold, gold (and money backed by it) would just become more valuable, right? Or, in other words, prices would drop and there would be deflation, for better or for worse.
> […] prices would drop and there would be deflation, for better or for worse.
I have yet to see an historical example of "good" deflation:
* https://en.wikipedia.org/wiki/Deflation#Deflationary_spiral
Re: How did the gold standard work?
#95There are real practical problems with gold and changing economies. What happens when your population goes up - you need more gold. Or economic growth. Similarly if gold is discovered like Spain's Latin American winnings it causes inflation.
When I first read up on economics, I had similar doubts about the gold standards. It doesn't help that most modern day advocators of a gold standard have but a dim understanding of history and economics. So, first: if the population in one country goes up, they can import more gold from elsewhere. It's a commodity after all. Similar for one country digging up a lot of gold. (The global economy wasn't quite as integra…
> So, first: if the population in one country goes up, they can import more gold from elsewhere. It's a commodity after all.
Unless governments ban the exporting of gold, which has historical precedent.
It is possible to run out of gold on which to run an economy. We know this because it has happened:
* https://en.wikipedia.org/wiki/Great_Bullion_Famine
For a good history of the topic see The Power of Gold: The History of an Obsession by Bernstein:
* https://www.goodreads.com/book/show/249245.The_Power_of_Gold
We've used/tried gold and the world has moved on for good reason. There's no reason to regress (unless you want to relearn the painful lessons of the past).
> Luckily, we have and had the technology to make the gold standard work: fractional reserve banking and privately issued bank notes.
It's interesting that you bring up fractional reserve banking and Canada in the same paragraph, as Canada hasn't had reserve requirements for about thirty years now:
Re: How did the gold standard work?
#96I don't get what's so confusing about gold. It's limited because it was created by the universe and it can be easily stored. If we had some gold-backed system, a real one, then where's the inflation ? Where's the problem for the average person ?
> It's limited because it was created by the universe and it can be easily stored. If we had some gold-backed system, a real one, then where's the inflation ? Where's the problem for the average person ?
Being on the gold standard does not help with inflation specifically, or with monetary stability generally, as the historical record in the US shows; see the first chart:
* https://www.theatlantic.com/business/archive/2012/08/why-the...
Further a monetary system based on fixed currency often leads make deflation a problem for the average person. Look at the history of the Great Depression: the longer a country stayed on the gold standard, the longer it's economy stalled. Countries who left the gold standard sooner started to recover sooner.
It's been used / tried and we've moved on for a reason:
* https://www.vox.com/2014/7/16/5900297/case-against-gold-stan...
Re: How did the gold standard work?
#97Earlier quoted context omitted.
An increasing population wouldn’t need more gold, gold (and money backed by it) would just become more valuable, right? Or, in other words, prices would drop and there would be deflation, for better or for worse.
> […] prices would drop and there would be deflation, for better or for worse. I have yet to see an historical example of "good" deflation: * https://en.wikipedia.org/wiki/Deflation#Deflationary_spiral
I think most of the poorer people would be happy with deflation right now. Between housing and fuel inflation hasn't been kind to people either.
Re: How did the gold standard work?
#98Earlier quoted context omitted.
> […] prices would drop and there would be deflation, for better or for worse. I have yet to see an historical example of "good" deflation: * https://en.wikipedia.org/wiki/Deflation#Deflationary_spiral
I think most of the poorer people would be happy with deflation right now. Between housing and fuel inflation hasn't been kind to people either.
A lot of poorer people have debts, which would be made worse by deflation. Even the not-poor people who have mortgages are helped by inflation.
Re: How did the gold standard work?
#99I don't get what's so confusing about gold. It's limited because it was created by the universe and it can be easily stored. If we had some gold-backed system, a real one, then where's the inflation ? Where's the problem for the average person ?
> It's limited because it was created by the universe and it can be easily stored. If we had some gold-backed system, a real one, then where's the inflation ? Where's the problem for the average person ? Being on the gold standard does not help with inflation specifically, or with monetary stability generally, as the historical record in the US shows; see the first chart: * https://www.theatlantic.com/business/archiv…
> as the historical record in the US shows; see the first chart.
The Greeks didn't print money out of paper. But let's be us-centric and focus on a short span of history to keep your point.
> a monetary system based on fixed currency often leads make deflation a problem for the average person
Why is this a problem? The problems arise from rising prices not the contrary.
Yeah we've moved on for a reason : to print more "money".
After years in finance/economics, I've never heard a real argument against deflation. It all comes down to : trust me it's better. And that's why we use fiat currencies, "trust".
Re: How did the gold standard work?
#100Earlier quoted context omitted.
> it's impossible to have a long-term system not based on gold or some other set of commodities, because it is impossible for a government to be given the power to print arbitrarily without eventually using it, unto the death of that currency. And this is why the US government isn't directly involved in the process, nor is it given the power to print money arbitrarily. Money is "printed" via a combination of loans an…
> Money is "printed" via a combination of loans and fractional reserve banking Fractional reserve banking is not a thing. Tobin called that "The Old View" in 1963 : * https://cowles.yale.edu/sites/default/files/files/pub/d01/d0... It is a convenient crutch to get a '101' level understanding, but people end up continue to think it's real and so the teaching of money multiplier should really be stopped: * https://resea…
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