on Mon, Nov 19, 2001 at 10:14:01AM -0800, georgemw@speakeasy.net (georgemw@speakeasy.net) wrote:
On 19 Nov 2001, at 2:54, Neil Johnson wrote:
There are still a lot people that believe the U.S. should return to the "Gold Standard" meaning the amount of money in circulation should equal the amount of gold held by the U.S. government. That's what Fort Knox was originally for.
It's amazing how many people assert this, even though it's clearly wrong. A gold standard does NOT mean that the amount of currency in circulation equals the amount of gold in the vaults, it means that the currency is exchangeable for gold at a fixed rate. Obviously, there can be more gold in the vaults than you need to actually exchange every dollar for the correct amount of gold. Less obviously, there can be less.
You can't have it both ways. You either have a gold standard, or you don't. A fixed exchange either means you have a government-retulated market for precious metals, or your currency floats against the current valuation of metal. Either option raises concerns. Any meaningful standard requires a linking of currency to gold. You've either got a standard or you don't. If the requirement is for minimum guaranteed reserves, then you can clearly hold more gold than is required for floating currency (but why would you?). However, as with margin calls, fluctuations on either side of the equation could result in a sudden harsh dealing with reality. Prior to the abandonment of the gold standard by the US, the price, and amount an individual could own, of gold were both set by the government. There are those who argue that the US dollar is backed not by gold, but by its real purchasing power. This is composed of several things, three among them being: - "The full faith and credit of the United States Government". Not in its direct backing of the value of a dollar, but its managment of both government and money supply. - Industrial power. Gold isn't itself directly useful (in most cases), it's an exchange medium. As is money. Backing one exchange medium with another seems like it perverts the principle of reducing intermediaries. Gold values themselves can be adjusted by multiple actors, introducing another area of possible instability (though holders of east Asian currencies in the late 1990s will tell you the same holds for currency). - Faith. Ultimately the value of an exchange medium is a widely-held faith that it is worth what it says it's worth, whatever that may be. This is one of the more difficult aspects of currency to replicate in another system. There are other rare and valuable things (metals, stones, grand-master paintings, stamps). There are localized networks in with other media are accepted: POs in a business context, checks, scrip, Mojo. But acceptence outside the small group is limited. There's also the nagging Art. 8, Sec. 8 powers. For a strong argument agaist the gold standard, see Brad DeLong's essay on the topic: http://www.j-bradford-delong.net/Politics/ Peace. -- Karsten M. Self <kmself@ix.netcom.com> http://kmself.home.netcom.com/ What part of "Gestalt" don't you understand? Home of the brave http://gestalt-system.sourceforge.net/ Land of the free Free Dmitry! Boycott Adobe! Repeal the DMCA! http://www.freesklyarov.org Geek for Hire http://kmself.home.netcom.com/resume.html