A Flawed Money System

This entry is part 25 of 31 in the series 2011B

Objection 2
Just look at the fiat money system we have now. It just doesn’t work. Every year the dollar is worth less than it was the year before and there are recessions and boom and bust cycles.

Answer: The money system that we now have is far from perfect and is not the one I advocate. There are three major problems with it.

First, all money placed into circulation is through loans at interest. If one borrows $100 and pays back $100 plus $10 in interest then $110 is taken out of circulation. To maintain the status quo the banks have to then loan out not $100 but $110. This system of creating money through interest bearing loans and then destroying it when the loans are paid forces the banking system to always be seeking new ways to create more money making for an unstable system that is difficult to control and predict.

Secondly, there are no controls placed on the amount of money that will be placed into circulation. If the money supply contracts, as it did with the Great Depression, then there is deflation. Money is not available for expansion and the people suffer greatly. If there is too much money added to the system there is inflation and the savings of the people lose value. Then there is always the possibility of hyperinflation that could destroy the value of money completely.

Thirdly, the money supply is controlled by the privately owned Federal Reserve, which loans money to our government at interest. Currently, interest from all sources amounts to around a half trillion dollars. It would make a lot more sense to merely create our own money with no interest. Then, if desired, we could use that half trillion to send every man, woman and child a rebate check of over $1500 a year. I say this as something that could be done not something I would recommend.

The current money system does bear a lot of responsibility for the inflation we have had but it is far from being the only factor in our various financial problems. Even with the best possible money system the economy can be challenged by speculators and outright crooks. There is a lot more to creating a stable economy than having a good money base.

Let me give just one example.
In September 1869 Jay Gould and Jim Fisk had a plan to make a killing on the gold market. Here’s how it went. They figured out that the amount of actual gold that was available in the whole country for investors to purchase was only about $5 million even though much more than that was traded on paper and also stored at Fort Knox. If they could buy a good portion of that circulating gold and hold on to it, creating a demand for more gold than would be available, they could drive its price up to $1000 or more an ounce. They moved ahead with their plan by buying large amounts of gold and holding on to it. Within weeks they drove the price of gold from $120 an ounce to $165.50.

There was just one potential problem and that was President Grant. As the price rose he could dip into the $100 billion worth of gold at Fort Knox and put it in circulation. They had people on the inside influencing Grant to not do this so they thought they had their bases covered. Grant, however, caught on to their scheme and decided to put $4 million worth of gold into immediate circulation. This move by Grant created what is called “Black Friday” (Sept 24th, 1869) when the price of gold dropped from $165.50 to $135 in one day. Since many people were buying on a margin they lost everything they had and many brokers went out of business.

Ironically, one guy who came out on top was Jay Gould who caught wind of Grant’s move and sold at around $165. This wasn’t the $1000 per ounce or more he had hoped for if Grant cooperated but he was happy to come out ahead in the end. His partner Fisk, and most gold investors, were not so lucky and lost everything.

If gold, the most stable of all metals, can be so easily manipulated by just two guys – with a great disaster only being prevented through the creation of a lesser disaster – then where is the hope of a stable economy with any currency?

Our current economic system is far from perfect. Almost everyone is not happy with it and has criticized it. Gold standard advocates are its harshest critics but they are far from being alone.

Where few have looked objectively is in comparing the current system to the systems of the past. Let’s take a brief look with an attempt to be objective.

The largest change in the money system occurred in 1913 with the creation of the Federal Reserve. For many this is seen as the year of infamy where the economic devil became incarnate.

Now the Federal Reserve System is not something I would create or endorse but neither am I that excited about returning to any system we had before 1913.
As I write this it has been 98 years after the creation of the Fed. 98 years before the Fed takes us back to 1815.

It is true that we made a lot of progress and innovation between 1815-1913 – more than at any time in the history of the world.

On the other hand, the progress since 1913 has been much more dynamic still, again more than anytime in the history of the world. Just compare life in 1869 with 98 years later to 1967 or 1913 to 2011. They are two different worlds indeed and the latter, despite the imperfections, would be picked by the vast majority as most desirable.

True we’ve had inflation, but there have been adjustments to inflation. There’s also been deflation as well as inflation.

In 1913 a dollar was worth $22.82 of 2011 dollars. This value stayed fairly stable until World War I. Then it went down in value to $11.30 by 1920. In other words, the dollar lost half of its value. This effect on currency is pretty normal during war.

After 1920 instead of inflation we had deflation and the dollar increased in value. It was 1947, or 27 years later, before inflation could sink the value of the dollar below the 1920 value. That’s a stretch of time rarely equaled by the gold standard of history. Since then we have had a fairly steady rate of inflation until the dollar is now worth about 4.4% of what it was in 1913, or 8.8% of the 1920 dollar.

The average wage in 1914 was $627.00. That equals $14,167 in 2011. But the 2011 the median household income is around $50,000, which means we have achieved over three and a half times the income we had in 1914 through this imperfect Federal Reserve fiat system. If we go back to 1861 the contrast is even more pronounced. The income at that time was only $140 per year. That would buy about seven ounces of gold. In 2011 where gold is at an all time high of over $1500 per ounce seven ounces only equals $10,500. In 2001 you could buy seven ounces of gold for a mere $1897.

It is interesting to note other quality of life improvements. The average lifespan in 1913 was only 52.5 years. Now it is 77 years. Maybe they worked themselves to death – the average workweek was over 55 hours for much less money than is made today.

Over 60 times the number of babies died at birth and the hospitals were so bad that people were afraid to go there.

The three leading causes of death were: pneumonia and influenza, tuberculosis and diarrhea. These are now way down the list and have been replaced by heart disease, cancer and strokes.

Yes, our journey of progress has not been perfect but few would want to go back to the good old days.

If we have made such progress as improved standard of living, sending men to the moon, developing sophisticated computers, the internet and many time saving advances with a very flawed financial system just imagine what we could have done with a really good one.

Perhaps the major flaw blamed on the current money system is inflation, but most of our inflation has not been caused by the fiat system, but by government borrowing. If our Congress had the common sense of the average family they would stay within a budget and there would be little or no inflation.

“But,” says the fundamentalist, “if we were on the gold standard Congress would not be able to borrow like they do with fiat money.”

Bad argument. As soon as there was any major problem when on the gold standard they threw it out the window and borrowed bundles of money. This happened during the Civil war and World War I. The are also so many ways to create simulated money today that no possible gold standard could keep us out of debt. The only way to control our debt is to control Congress. If we have a perfect money system mixed with a drunken spending Congress there will be deficits.

Conclusion: Yes, the Federal Reserve fiat banking system is far from perfect, but neither has it been as bad as believed by many. It has served us as well as money systems in the past which also were far from perfect.

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The Gold Standard, Part 5

This entry is part 40 of 50 in the series 2011A

One of the main reasons gold standard advocates want us to return to gold as a backing for money is its stability.  Gold has always been a stable valuable metal, they say.  Some go so far as to claim that gold has always kept its same value over the ages.  For instance, some claim an ounce of gold bought a new suit of clothes in the days of the Roman Empire, in the 1920s and even today.

Overlooked by them is the variables in the cost of clothes.  As of this writing one can buy a high end suit for the price of an ounce of gold (around $1350) but a consumer can get a nice suit at the Men’s Warehouse for around $200 and less than that in some discount stores.  This means you can get seven suits today for what it cost a Roman to buy one.

On the other hand, a decent suit cost $30 or more in the 1920s, which was equal to one and a half ounces of gold, valued at $20.67 and ounce.1

So instead of gold maintaining the same purchasing power for a suit of clothes over the centuries, in relation to this one item, it lost 50% of its it’s value by 1920 but gained by almost 700% by 2011.

Just as gold varies in value compared to a man’s suit of clothes even so did we illustrate great fluctuations in relations to the other monetary mental – silver.

How about other items? Would the value of gold fluctuate over the decades and centuries compared with wheat, beef, land, diamonds, seasonings and other items?

Yes it would and in many cases the variation of value is quite profound.

But what if we don’t single out the value of one commodity in relation to gold but take an average as is done with the wholesale or consumer price index?

We have illustrated the fact that deflation of value can occur during a depression, but how about inflation?  Can this occur while relying on a gold standard?

It is common knowledge that pumping too much money into the financial system will cause inflation.  Has this happened in the past when large amounts of gold was added to the supply?

Adam Smith points out that the value of gold is not always stable using Spain as an example.

“Gold and silver, however, like every other commodity, vary in their value, are sometimes cheaper and sometimes dearer, sometimes of easier and sometimes of more difficult purchase. The quantity of labor which any particular quantity of them can purchase or command, or the quantity of other goods which it will exchange for, depends always upon the fertility or barrenness of the mines which happen to be known about the time when such exchanges are made. The discovery of the abundant mines of America reduced, in the sixteenth century, the value of gold and silver in Europe to about a third of what it had been before. As it cost less labor to bring those metals from the mine to the market, so when they were brought thither they could purchase or command less labor; and this revolution in their value, though perhaps the greatest, is by no means the only one of which history gives some account. But as a measure of quantity, such as the natural foot, fathom, or handful, which is continually varying in its own quantity, can never be an accurate measure of the quantity of other things; so a commodity which is itself continually varying in its own value can never be an accurate measure of the value of other commodities.”2

Spain thought it had hit a huge bonanza when it began to rob the New World of its gold and silver. It plundered 1,230 tons of gold and 60,440 tons of silver from 1493 to 1690 but all that inflow of precious metal not only led to high inflation but to its undoing as a world power.3

A major problem was that their attention and labor was directed toward plundering as much gold and silver as possible instead of manufacturing at home.  Why produce anything when they could just buy it from other nations with all that gold and silver?

Consequently their true base of power and wealth – productive labor – declined and they fell off the stage as a world power.

The period of the California gold rush was another famous example.  Australia also had its own gold rush about the same time.  From 1851 to 1861 the world’s gold supply increased 161% accompanied by inflation of around 5% per year.4

In the gold rush communities inflation was much worse. It cost an ounce of gold (worth $1350 in today’s money) to just hire someone to wash and iron a dozen shirts.  Good food and supplies were also outrageously inflated.5

Not only did gold discoveries increase money supply and inflation but so did technological advances in mining and processing.  These caused an increase gold supply and inflation.  From 1897 to 1914 the U. S. gold supply increased 7.5% per year and prices rose about 50% during this period.

This led to a tremendous increase in our leveraged money supply.  “From June 1896 to June 1914, total bank deposits rose from $3.43 billion to $14.32 billion, or an increase of 317.5 percent or an annual rise of 17.6 percent…”6

Variations in gold supply has influenced its value since then but the next big change in the purchasing power of gold came not from supply but by presidential decree from FDR in 1934 that instantly changed the value of gold from $20.67 an ounce to $35.

Then when Nixon took us off the gold standard in 1971 it went from the decreed value of $35 to over $500 an ounce in 1980 and then down to $288 an ounce in 1998, then up to $1350 by 2011.7

Conclusion:  Truly it is established by history that, even though gold is one of the more stable commodities, it is susceptible to value fluxuations up and down just like everything else.  Gold and silver have been used for money, not because they are the ideal, but because they are the most practical of metals

Concerning gold, even the hero of the gold standard philosophy, Ludwig von Mises, said:

“But even if the 100 per cent reserve plan were to be adopted on the basis of the unadulterated gold standard, it would not entirely remove the drawbacks inherent in every kind of government interference with banking.”8

“The gold standard is certainly not a perfect or ideal standard. There is no such thing as perfection in human things. But nobody is in a position to tell us how something more satisfactory could be put in place of the gold standard. The purchasing power of gold is not stable. But the very notions of stability and unchangeability of purchasing power are absurd.”9

Friedrich Hayek, another gold standard hero stated:

“The gold standard, even if it were nominally adopted now (1992), would never work because people are not willing to play by the rules of the game.”10

If gold, the most practical of metals for money, is far from an ideal standard then are we doomed to be held hostage to a very fallible money system?  We  will consider this question and explore the alternatives.


1. http://www.thepeoplehistory.com/20sclothes.html

2. Adam Smith; Wealth of Nations, Part 1

3. Lost Science of Money By Stephen Zarlenga; Page 102-3

4. A History of Money by Glyn Davies, 1994, Pages 481-482

5. California Gold Rush Cooking; Lisa Golden, 2001 Schroeder, page 18

6. The Case for Gold by Ron Paul and Lewis Lehrman, Pg 120

7. http://www.goldinmind.com/gold-basics/how-much-can-you-lose-by-investing-in-gold.html

8. Human Action; Fourth Revised Edition; Fox and Wilkes, 1996, , Ludwig von Mises, Page 440

9. Ibid, page 473

10. Interview with Thomas W. Hazlett from the July 1992 issue of Reason  http://reason.com/archives/1992/07/01/the-road-from-serfdom/print


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The Gold Standard, Part 4

This entry is part 30 of 50 in the series 2011A

Einstein’s Greatest Error

“But,” says the gold standard advocate, “you can’t have indefinite expansion. After any period of inflation, expansion and prosperity we have to pay the piper and a period of contraction must take hold. This is the big advantage of the gold standard. Even though, it is painful it causes necessary cycles of contraction.”

But why should a period of contraction even be necessary? Does such an idea correspond to nature? Well, let us look at our universe. It has not only been constantly expanding since its creation over 14 billion years ago, but at the present time the rate of expansion is increasing! Some scientists predicted an expanding universe, but not one expected to find that it is increasing its speed of expansion.

Einstein’s original calculations predicted an expanding universe but this idea went against his belief system so he altered his equations to get the answer he wanted. Later when Edwin Hubble’s observations proved the universe was indeed expanding Einstein admitted that his rejection of an expanding universe was the biggest mistake of his life.

And what caused Einstein’s greatest error?

It was not his logic for his original math and reason told him the universe would be expanding. The cause of his error was his belief system got in the way and prevented him from looking at the math without filters.

Are economists making the same mistake? Many of them are telling us that we can only expand for so long and then we must have a depression or recession. Is their belief that all good things must end interfering with the wonderful truth that we can increase and economically expand indefinitely just as the universe itself is doing?

“But how can the economy expand indefinitely? If we overspend then a correction has to come,” says the skeptic.

The problem is that solid economic expansion does not involve wild overspending as many seem to think. What is overlooked is there are two types of economic expansion. Let us illustrate.

Example One: The Smith Family has been working hard and has been struggling to make ends meet. They’ve wanted to get a new car as well as vacation in Europe but the money to do so never seems to show up. Finally, they decided they deserved some of the better things in life and took out a substantial loan against the equity in their house. This loan was like a windfall and they began spending liberally.

In the eyes of their friends it appeared that the Smiths were experiencing an economic boom.

Then the time came the money ran out and the Smith’s expenditures were more than their income. Instead of taking belt-tightening measures they decided they didn’t want to give up their new lifestyle and borrowed to the max on every credit card they had.

For the next two years their friends thought the Smiths were having a continuing economic boom.

Finally the day of reckoning came and the Smith’s couldn’t borrow enough to pay their bills. At that time their economic world collapsed and they lost everything.

Yes, the Smith’s had to pay the piper for their apparent economic boom, but do all expansions have to end this way?


Example Two:

The Jones family started out in the same situation. They also wanted some of the nicer things in life. They realized they could take out an extra mortgage on their home but decided against it because if this was all they did they would have difficulty in paying it back. They also didn’t like the idea of their hard earned money going into interest payments that merely financed luxuries.

Mr. Jones tells the family, “If we want some luxuries and do not want to suffer the burden of loans we cannot pay back then the only solution is to increase our income. Any suggestions?”

Mrs. Jones spoke up. “I have one. I will go back to work and this will give us the money we need to pay back the loan we are going to take out.”

“But we didn’t want to take out a loan for luxuries,” he said.

“I’m not talking about a loan for luxuries, but for seed money to start that internet business you’ve been thinking of for years. The money from my job can pay back the loan so even if your business fails miserably we will be no worse off financially than we are now. On the other hand, if you succeed then we can not only pay back the loan but we can buy a lot of things we have dreamed of for years.”

The family thought this was a good idea and moved forward with the plan. After two years the business proved a success, they paid back the loan and both Mr. and Mrs. Jones quit their day jobs to work their new business full time.

“Shall we buy some of those luxuries now?” asked Mrs. Smith.

“We could,” said her husband but I have some new ideas for the business that could pay off big time. If we take our extra money and invest in expansion there is a good chance that in a couple more years that we can buy any luxury we want.”

Mrs. Jones was reluctant but agreed and the family continued focusing on expanding and two years later the business and money supply grew just as anticipated.

At that time the Jones took some of their extra money and bought a few things they had wanted over the years. But most important they learned the rules of true expansion and only put money at risk that they could afford to lose.

They continued to apply these lessons and expanded their business, income and savings until they retired. Then they turned their business over to their kids who continued to apply the same common sense approach and the business continued to expand.

Now some may wonder why I am giving simplistic stories illustrating the obvious.

First, I might note that the truth behind these stories must be far from obvious.


Because our best and brightest that we hire (elect) and send to Congress seem oblivious to the common sense of the Jones family and, instead, act like the inept Smiths.

Secondly, many who are considered the best and brightest in the economic world believe we are eternally doomed to the fate of the Smith family. They tell us that any continued expansion of the money supply is like borrowing money on a credit card and must be followed by either collapse or deflation.

They overlook the fact that there are two ways to increase the money supply.

The first is to copy the Smiths and borrow the money with no sensible way to pay it back. Unfortunately this insane path is supported by the most intelligent people we can manage to vote into office.

Overlooked is the fact that there is a second way. If we increase our money supply using common sense principles, as did the Jones, then the economy never needs to contract but the money supply and economic growth can continue indefinitely just as happened in the story of the Jones and illustrated in the expansion of the universe itself.

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The Gold Standard, Part 3

This entry is part 29 of 50 in the series 2011A

The Problem of Deflation

There are a number of arguments made for returning to a gold standard. One of them is that the economy will be more stable. Unfortunately, as we have just illustrated, this has not been historically the case.

It is true that one can find other reasons than problems with gold and silver for many of the crises during the metallic years, but one can do the same thing concerning fiat money since 1933 or 1972 when we were taken off the gold standard.

The fact is that we have had monetary problems with or without the gold/silver standard including the Great Depression during the standard and the Great Recession starting 2008 without it. It is a sad fact that there is a factor involved much more dangerous than what is the basis for our money and that is the human frailties of those who control or have access to the nation’s wealth. We not only need a sound money system but something needs put in place that will limit the damage our fearless leaders can do to it.

So, two things need to be in place if we are to have a consistently good economy. First a sound money system and secondly sound management over the money.

That said; let us continue examining the pros and cons of possible foundations of our money supply, the first half of any monetary solution.

Those who support the gold standard make a number of additional arguments in its favor. Right up there with the belief that it makes for a more stable economy is that it puts overspending in check and thus limits inflation.

Now it is true that if we had a pure gold standard (which we have never had) where each dollar spent was backed up 100% with gold and fully redeemable in gold then deficit spending would be very difficult but not impossible. They would most likely create some I.O.U. or promissory note system that would evolve into fiat money like we have today. Then as soon as there was a major crisis what’s left of the gold standard would be thrown out the window as it has been so many times in the past.

Before we had the graduated income tax the gold standard helped to reign in spending but now that it is in place our leaders have the power of unlimited taxation. If a gold standard limited the government’s ability to create inflationary dollars then they would just seek to tax us more and after they drained the last possible dollar from all taxpayers, rich and poor, they would find a way to negate the discipline of the gold standard so they could borrow and spend even more.

All governments are like addicts. They are addicted to spending and will do anything to get their fix. This tells us that a logical money system only supplies us with part of the solution. The other part has to come from the citizens. They must control their employees – our government representatives. This means that any monetary system by itself is not a magic bullet. Even so, the basis of money is the foundation of our economy and all possible solutions must be examined.

We must create the best possible foundation for money and the people must make sure the contractors creating the rest of the building remain honest and do the job we hired them to accomplish.

While it is true that the economies of the nations of the world have had their problems on and off the gold standard it is true that historically a gold or gold-silver standard does hold inflation in check better than pure fiat money. Some gold standard advocates go so far as to insist that and ounce of gold has always been worth the same amount over the centuries – which is an ounce of gold.

This is not logical thinking and is like saying an ounce of silver is worth the same now as it always has been just because it’s an ounce of silver, or a gallon of oil equals a gallon of oil. If gold and silver are always worth the same amount then their ratio of value should be fairly stable. Since there is 17.5 times more silver in the earth’s crust than gold in 1792 the Congress originally set the ratio value at 15:1, very close to the natural ratio. This ratio was problematic so they raised it to 16:1 in 1834. Since going off the artificial bimetallic standard the ratio has fluctuated from about 12:1 to 100:1.

Some of the fluctuations have occurred over a fairly short period of time. For instance, in 1980 the ratio was 17:1 and then in 1991 jut leaped to 100:1. Around the 2008 meltdown it was 80:1 and by 2011 it hovered around 50:1.

So, if a metallic money is always has the same intrinsic value then why the huge fluctuations in ratio? There’s no reason to believe that an ounce of gold always has the same value any more than an ounce of silver.

The fact is that even though gold and silver have held a high basic value over the centuries their value has fluctuated quite a lot. Whereas the fluctuation of fiat money is almost always toward inflation the precious metals go both ways. Sometimes their value is inflated and other times they suffer deflation. This is proclaimed to be a good thing, but is it?

A drastically overlooked fact by gold standard advocates is that, while too much inflation is admittedly a problem, any equal amount of deflation is much worse.

Let us take the deflation and inflation of the housing market before and after 2008. Before the housing meltdown it often took only a year or two for a home to increase in value 20%. Was there a big crises when this happened? No. Were homeowners complaining? Not really. Instead, they were bragging about their increased assets.

Was there a problem for anyone? There was some problem for buyers but because the interest rate was low, and they felt their purchase was a good investment, few were complaining.

Then as we approached the meltdown of 2008 home prices began to fall. Depending on the area of the country it did not take long before a corresponding 20% drop in prices was witnessed.

Was the problem of a 20% deflation equal in severity to a 20% inflation?

Not by a long shot.

Whereas most people saw the last 20% inflation as a minor annoyance the deflation of our real estate has caused untold grief and stimulated an economic collapse that has diminished all areas of our financial lives.

The same goes for inflation and deflation of money in general. A measured inflation decreases the purchasing power of our money, but because wages also go up most people deal with it as a minor inconvenience.

On the other hand, even a small amount of deflation can spell disaster for people in a number of ways not seen with normal inflation. Here are some.

(1) Those with high mortgages will see the amount they owe become more than the value of their house. This gives them incentive to not pay the loan and let the property go to foreclosure.

(2) Overall deflation is particularly hard on those who are in debt of any kind and have to use loans to finance their business. Agriculture always suffers with deflation. The price of commodities sinks whereas debt rises.

(3) In times of deflation money supply is tight, financing is difficult, investment is down, unemployment is high and overall life is miserable for those affected.

The most famous period of extended deflation was The Great Depression. Between 1929-1933 the money supply decreased by about 33% followed by the money income falling by a whopping 53%. In addition the velocity of money fell by about a third – this is the number of times existing money changes hands.

The wholesale price index decreased by 32%, the consumer price index dropped 23% and farmers received 52% less for their products. In addition, the value of global imports and exports decreased by almost 60%.

Then to top it all off unemployment went from 3.2% in 1929 to 25.2% in 1933.

You get the picture. The greatest contraction corresponded to the greatest depression.

Data taken from:
Monetary Central Planning and the State, Part 11: The Great Depression and the Crisis of Government Intervention by Richard M. Ebeling, November 1997. online book at:http://www.fff.org/freedom/1197b.asp

A Monetary History of the United States, 1867-1960; Milton Friedman & Anna Jacobson Schwartz, Pages 301-302

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Golden Thoughts

This entry is part 23 of 62 in the series 2010

Posted Aug 9, 2010
Which is also why I do not advocate a gold standard. I advocate a free market on currency. This is also not what is being advocated even by those who want a pure gold standard.

If I recall on our last discussion on this you were for a strict gold standard so it appears your views have changed somewhat.

Actually then we seem to be close to the system you advocate as one can now turn his fiat money into gold silver, copper or whatever and then exchange that for what he wants. There are many merchants on the internet now that accept gold and silver for merchandise.

I support your competing money idea to a degree, but think we need a universal money system that is accepted by all. Without this we could have a thousand currencies all having different exchange rates making normal transactions a nightmare. This was one of the problems we had with early currencies that would be exacerbated in this age.

Today we have a general currency and still have the freedom to exchange in gold and silver. This is good. To his we could allow people to experiment with other paper currencies, which are now illegal. These currencies could be backed by a number of different commodities or services and if one or two prove successful it would force the government to adjust its own currency to make it more desirable and stable.

As I have said the safest IMO to simply repeal legal tender laws, end the monopoly, and let the market decide if it wants sound money or fiat currency.

I think we need to keep the law making the main currency legal but loosen the laws to allow citizens to print their own money to compete with it.

If the US did go on a gold standard and the rest of the world did not, we would soon be the economic powerhouse and more we once were as all the nations of earth would store their wealth with us and invest with us because they know the stability it would bring.

It looks to me that the opposite would happen. If China, Japan, Saudi Arabia, Taiwan etc could redeem their dollars for gold then all our gold would be gone in about two days and then there would be no gold standard for us because there would be no gold.

what is that scripture where all the nations of the earth would bring their gold and silver up to Zion or something to that effect?

But we want the nations to bring us their gold, not cart all our gold away. This can only happen when prosperity and unlimited expansion is produced. Just as the universe itself expands in nature even so must our creations have the power to expand with an expanding money supply, not a contracting one. This statement does not support the current system of excessive debt, however.

JJ Quote If a true adjustment was made then the price of gold would be so high that a $20 gold piece might be as small as a grain of sand like I said.

Blayne Only in terms of the current astronomically inflated currency but not necessarily.

The current inflation has no bearing on this whatsoever. $20 worth of goods and services is what it is. If you buy a watch for $20 then it is worth what it is. If we switched to gold, all things being equal the watch still maintains it’s value and if gold coinage were adjusted to the demand of goods and services you could then buy the watch for a very small piece of gold. This would happen because a universal gold standard would make the price of gold artificially high.

JJ If we somehow agreed that a $20 gold piece would be equal to one ounce of gold then in the adjusted world you could buy a car for $20. How would you go about buying an ice cream cone in such a system?

Blayne That is what you have silver, copper, and nickel etc for.

Then we’d have the problem of taking valuable metals out of the manufacturing system creating shortages and causing metal prices to artificially skyrocket.. Carrying around tiny metal coins to use in all exchanges does not sound practical to me.

I forgot to address this part. It is still apples and oranges, why does the current fiat bubble have to be the measuring rod?

That is the only one available. There is no other. We have to deal with reality and use what is, not what is not. Despite its flaws the value of the current monetary system still depends on goods and services which does have intrinsic value.

The answer is it doesn’t it is irrelevant to what gold is worth today in terms of inflated fiat currency.

Why??? I see no reasoning here, just a declaration of belief..

The real price is probably 5-10 thousand an ounce due to manipulation of the metals markets.

If we had a crash this could happen but I see no evidence that your statement applies in today’s market. The value of gold is determined by supply and demand. There is always some manipulation in all money throughout all history.

If we wanted to use puca shells for a currency we could and they would be more stable then fiat money because they can’t be printed, then how would you measure the value in terms of current fiat money? You can’t because there is no value assigned to in current fiat currency. Point is the idea we have to adhere to the current illusions of price and wealth and equal it even scaled down somehow is not necessarily so.

And how would you assign a value to the puca shells? If you did this and then the production suddenly doubled that value would go out the window.

A person could live very well on $2400 a year if that currency was a “hard currency” and had sufficient purchasing power.

But I was talking about $2400 in the value today’s dollars so your point is moot.

Again purchasing power is not some magical number but the objective result of supply and demand. The “supply” of currency represents the total demand and if somehow we could wipe out 90% of the currency the demand would not change – rather the purchasing power of every dollar would increase to balance the supply/demand equation.

Agreed. This supports my point that switching to a 100% gold standard, (or several metals) would change the value of gold so $20 of current purchasing power may only require a piece of gold the size of a grain of sand making it impractical to use as gold coins and causing technology that uses gold, silver and copper to rise to obscene prices.
Copyright 2010 by J J Dewey