The Crypto Winter

[Karsten M. Self]

on Mon, Nov 19, 2001 at 10:14:01AM -0800, georgemw at speakeasy.net (georgemw at 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 at 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
-------------- next part --------------
A non-text attachment was scrubbed...
Name: not available
Type: application/pgp-signature
Size: 232 bytes
Desc: not available
URL: <https://lists.cpunks.org/pipermail/cypherpunks-legacy/attachments/20011119/01101229/attachment.sig>