NationStates Jolt Archive

I have heard a return to the gold standard advocated, but I am not sure I understand it. Most websites I see on it are a tad difficult to understand, and after seeing some recent threads mention it, I figured that maybe someone here will be able to explain it a bit better.

I have a few questions:

What is it, exactly, that makes money based on the gold standard so different from others? Isn't gold valued merely because people want it, and wouldn't the same hold up for money not backed by gold? (Yes, I know that that is quite a bit simplistic, but I'm still trying to come up with a better way to describe it.)

Hasn't gold's value fluctuated a bit? Might the resulting fluctuation in currency value have a negative impact of some sort on the economy?

I will offer a quick and simple answer.

The difference is basically that the government, or whatever institution that controls the supply of money, will not be able to determine the money supply. If you have a gold standard then intitution X will only be able to set as much money as it has gold.

The price of gold does change, but the point isn't making the value of money totally stable but making it less arbitrary.

The "Gold Standard" means your paper money in circulation must be backed by gold reserves. This stops governments buying their way into peoples hearts by simply printing more money.

However, it really only works is most of the countries you deal with are also on the gold standard.

See http://en.wikipedia.org/wiki/Gold_standard for more information.

I have heard a return to the gold standard advocated, but I am not sure I understand it. Most websites I see on it are a tad difficult to understand, and after seeing some recent threads mention it, I figured that maybe someone here will be able to explain it a bit better.

I have a few questions:

What is it, exactly, that makes money based on the gold standard so different from others? Isn't gold valued merely because people want it, and wouldn't the same hold up for money not backed by gold? (Yes, I know that that is quite a bit simplistic, but I'm still trying to come up with a better way to describe it.)

Hasn't gold's value fluctuated a bit? Might the resulting fluctuation in currency value have a negative impact of some sort on the economy?
As a lot of people have pointed out already the advantage of the goldstandard is that no one can just print a lot of money without consequences to themselves.

As for the stability, yes, the value of gold varies a bit. But most of the fluctuations you'll see if you look at a graph of the gold price is fluctuations in whatever fiat currency you are using to measure the gold price. The price of other things is more stable in terms of gold than in terms of any given fiat currency. Which, again, is part of the point.

The thing with the gold standard is that one can have only as much money as there is gold to back it up. Considering that there is only a limited amount of gold in existence, there is only so much money that one could have under such a system. Considering the price of some things, they would exceed the amount of money available under a gold standard and could not be paid for or finanaced.

I have heard a return to the gold standard advocated, but I am not sure I understand it. Most websites I see on it are a tad difficult to understand, and after seeing some recent threads mention it, I figured that maybe someone here will be able to explain it a bit better.

I have a few questions:

What is it, exactly, that makes money based on the gold standard so different from others? Isn't gold valued merely because people want it, and wouldn't the same hold up for money not backed by gold? (Yes, I know that that is quite a bit simplistic, but I'm still trying to come up with a better way to describe it.)

Hasn't gold's value fluctuated a bit? Might the resulting fluctuation in currency value have a negative impact of some sort on the economy?

You're somewhat correct, and the "gold-standard" issue is one Libertarians raise; though sometimes not explicitly, and there is not total agreement of the backdrop of the issue...

In truth, the "gold-standard" revolved around the concept of valuing money upon a "commodity"; in the concept of the "gold-standard" the "Value" of the currency is measured by it's value in state-held or bank-held "gold"... In some cases, the standard can be built around other "commodities"; such as other precious medals (Silver or Platinum); theoretically ANY Commodity can be used as a concept of basis for valuing currency... Which is a concept of the original invention of currency to begin with; as a system of "easy trade" for various people....

Thanks, everybody who replied.

I think I get the basic idea of it now.

To paraphrase Noam Chomsky's view, the purpose of returning to the gold standard would be to cut down on speculative money transfers, and speculation in money. If money is simply a commodity in and of itself, it is much more in danger of speculation (and therefore of collapse) than it is if it's tied to the price of gold. Furthermore, as has been touched on by other posters, if you limit the total amount of money, it becomes difficult for people to engage in speculative trading, especially stocks. Of course this did happen during the '20s, but it happens to an exponential degree more so now.

Paper money - Reserve bank of country controls money supply.

Gold standard - People with mining equipment control money supply.

Also check out severity of depressions and recessions before central banks started controling interest rates, which can't be done with a gold standard. Much worse.

I'm with William Jennings Bryan (in this one instance):

Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests and the toilers everywhere, we will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.

Linky (http://douglassarchives.org/brya_a26.htm)