Gold Standard or Bust

JoeM's picture
Submitted by JoeM on Fri, 2007-08-24 04:22

How do you feel about the absence of a gold standard in today's economy?

"In the absence of the gold standard, there is no way to protect savings from consfiscation through inflation....This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector or property rights. If one grasps this, one has no difficulty in understanding the statist's antagonism toward the gold standard."

Alan Greenspan, "Gold and Economic Freedom," Capitalism the Unknown Ideal.

What is "wealth" really worth today without an objectivist standard, whether gold or some other commodity?


( categories: )

Money! Get back!*

JoeM's picture

An amusing video clip from the Pink Floyd concert footage that smartassly illustrates our current conversation.

Money

*(Not suitable for Lindsay Perigo. Eye)

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value of gold != price of gold

Rick Pasotto's picture

Would the value of gold vary under a gold commodity standard?

Yes, of course. Remember, the value of anything is what it can be exchanged for. So, while increases in the quantity of gold available (for whatever reason) would tend to decrease the quantity of other goods that could be exchanged for it, the quantity of those other goods would be even more likely to increase resulting in an increase in the quantity of those other goods that could be exchanged for a given quantity of gold.

This is standard quantity theory of money.

One difference between the current fiat money situation and a gold commodity standard is that fiat money is essentially whim based and essentially costless to produce. The quantity of gold available is objectively determined by the ability and the cost of extracting it from the earth.

What is the length of a meter?

Robert's picture

Today, a metre is defined by the International Bureau of Weights and Measures as the distance traveled by light in absolute vacuum in 1/299,792,458 of a second.

If people return to gold as a currency, a standard means of comparing items in terms of their worth in gold would arise naturally. I'd bet that the value would be established by trading in the same way that the value of different currencies are traded today.

Would the value of gold remain constant? I doubt it, for one thing, we're forever improving our ability to extract the stuff.

Measurement

Rick Giles's picture

What you need to understand, Elijah, is that measurement is referential.

Every measurement must be based on some immediate sensation, which possibly cannot be analysed further. Humans have sensations and perceptions, and conceptions, of many things. Distance, location, wealth, heat, cold, temperature, sweetness, brightness, love, hardness, and so on and on. It would take an entire essay concerning human understanding to explore such things. This is philosophy.

Science takes off where philosophy leaves off. Science requires quantification of these things, things like wealth- but this is a philosophical question.

It as meaningful, as Pasotto says, to inquire after the "price of gold" as the "length of a meter," or the "location of longitude," or "temperature of degrees Fahrenheit."

Every measurement must be based on some immediate sensation, which possibly cannot be analysed further. In physics, a far older, more established, science than economics, we have become satisfied that our sensation of temperature is represented by units in the scales of Kelvin, or celsius, or Fahrenheight.

In economic science this is an especially tricky, and young, undertaking. However, we have, as in physics, become satisfied that our sensation of wealth is represented by units in the scales of cigarettes, shells, salt, gold.

You gotta listen to Rick.

Mr Elliot,
Did someone else write that piece of sanctimonious bullshit for you?

Resume your uncouth mockery of Joe's delecate inquiry and normal service is bound to resume. Try me.

Did you read my subject line?

Rick Pasotto's picture

What is the length of a meter? What is the length of an inch?

Those questions have no more meaning than "What is the price of gold?"

I said nothing about banknotes.

I think you are confusing (real, ie, commodity) money with fiat currency.

Rick...

Ross Elliot's picture

..."Actually, Mr Elliot, the subject originally raised by Joe is far closer to the heart than your petty political considerations. As you "piss about" with base matters of violence and abuse he is undertaking an inquiry into the nature of man's moral values and intellectual capacity for framing its measured symmetry.

Without such groundwork the rude primitives you prefer to contemplate have nothing to bicker about. Matters politic absorb quite enough space on other threads. You ought to be encouraging Joe's delving into the sublime, or "pissing about" if you prefer."

Did someone else write that piece of sanctimonious bullshit for you? I ask because the spelling is perfect and the grammar correct, far exceeding your normal standards. Or did you just finally manage to pull your head out of your ass?

Rick Passotto

Elijah Lineberry's picture

The price of gold is the most important aspect!

If a banknote is worth 1/20 (or whatever) of an ounce of gold the gold needs to have a value.
The term 'backed by gold' logically meant the gold was valuable.

I think you are confusing fiat currency with a Gold standard.

Rick is Rick

Rick Giles's picture

Eye

Rick

JoeM's picture

Rick
"That methodology makes me feel uncomfortable because it is in contradiction with my principles. Specifically, I hold that reason is our tool in this matter not meditation. This is not an artistic or imaginative exercise it is a philosophical and scientific one.
Better to press your emotions about this subject matter to the side and look at only the facts. "

Of course, you're right. God, can't you let a guy simply make a poor excuse for his Objectivist faux-paux? But I already know the answer to that. Smiling

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And it was going so well

Rick Giles's picture

Rick, I disagree that Greenspan backs up his opener

Then we agree. (:

it may be better as a topic starter to start with one's feeling's and working out why they feel that way, to see if one's feelings are based on actual knowledge or aquired assumptions

That methodology makes me feel uncomfortable because it is in contradiction with my principles. Specifically, I hold that reason is our tool in this matter not meditation. This is not an artistic or imaginative exercise it is a philosophical and scientific one.

Better to press your emotions about this subject matter to the side and look at only the facts. The enterprise is, of course, finding a philosophical claim to value and a way to measure it so that we can embark upon a science of the subject matter.

Perceptions, sensations, emotions, become the subject matter itself. But they must not be the method, you'll agree.

...you guys can piss around a subject without getting to the heart of it.

Actually, Mr Elliot, the subject originally raised by Joe is far closer to the heart than your petty political considerations. As you "piss about" with base matters of violence and abuse he is undertaking an inquiry into the nature of man's moral values and intellectual capacity for framing its measured symmetry.

Without such groundwork the rude primitives you prefer to contemplate have nothing to bicker about. Matters politic absorb quite enough space on other threads. You ought to be encouraging Joe's delving into the sublime, or "pissing about" if you prefer.

I fear, however, that such divine philosophising has already died on this vine. Thanks a bunch!

What is the length of a meter?

Rick Pasotto's picture

Under a proper gold standard the monetary unit is defined as a certain quantity of gold. That is to say, one dollar is 1/20 or 1/35 or 1/200 of an ounce of gold. Prices are expressed in amounts of gold (ie, dollars).

The phrase "price of gold" makes absolutely no sense under a gold commodity standard.

You...

Ross Elliot's picture

...don't introduce anything on Monday morning, including a gold standard. You simply remove the regulations that prevent the private issuing of money.

Buyer beware. Eye

I

Elijah Lineberry's picture

support a Gold Standard as an ideal...(rather like abolishing Government, or voluntary taxation)...but I do not see how it could work in reality.

Feel free to explain how you would introduce a Gold Standard at 9 o'clock Monday morning, taking into account all the variables and conditions existing in New Zealand today. Smiling

*Intrigued*

Elijah

Ross Elliot's picture

None of that makes any difference. As I said, the issue is private money versus government monopoly money. And if you have private banks issuing currency on their own account they don't have the option of a gun to enforce its use and tax powers to finance shortfalls. So, given private money, something has to be behind it, that is, there has to be redeemability, in gold or something else.

Oh!

Elijah Lineberry's picture

I forgot to mention the other important point to take into consideration.

Who sets the price of Gold?

I have been a trader of gold for some years and find it great fun! Laughing out loud

Somebody would have to arbitrarily set the price...(and presumably it would be nowhere near its current level, which is based on speculation by people like me)...and who would that person be?

What would they base their "henceforth the price of gold forever more is $200 per ounce" declaration on? (and why not $201? or $477-38? or $899-53?)

One final point (sorry to be going on and on about this, my intention is not to bore anyone)...

The New Zealand Government does not own any Gold, nor does the British Government and if you went from Country to Country I suspect most would have little or none in reserve.

So, what happens then? the 4th largest economy (Britain) in the World ceases...immediately?
No economic transactions of any sort are undertaken in Britain until the British Government buys some gold? (and buys it with what? "Fiat" Government bonds?) Eye

What

Elijah Lineberry's picture

I was meaning, Ross, is that during the days of the Gold Standard the price of Gold was fixed, and it was all very simple and quaint.

If you returned to a Gold Standard tomorrow there is the problem of the balance hundreds of millions of people currently have in their bank accounts.

There is also the matter of loans which companies have, often to lenders in other Countries.

The reason it is a problem is that a Gold Standard means "We have a certain amount of gold in reserve, and the gold is worth X amount, therefore the total amount of money is Y".

This means that the total amount of money in 'existence' needs to 'balance' (ie the "Standard" part of Gold Standard)...but in reality there is considerably more money floating around.

If you start telling everyone that a certain percentage of the money in their bank account will cease to exist at 9 o'clock tomorrow morning, they may not be too happy about it. Sticking out tongue

Are you willing to pop down to the nearest ATM, right now, withdraw several hundred dollars, get out your cigarette lighter and set fire to the money? ...are you willing to be a volunteer, setting an example to everyone else as to what a Gold Standard means? Eye

Huh?

Ross Elliot's picture

"The problem with re-establishing a Gold Standard is that so much money (not backed by gold) "exists"...and you would need to, ummmmmmm, (abolish?) that money in order to have a Gold standard, which seems a very difficult thing to do."

Don't be ridiculous. All that would happen is the number of dollars needed to buy a given quantity of gold would increase.

Pissing around

JoeM's picture

"...you guys can piss around a subject without getting to the heart of it. It's not about gold per se, it's about private money versus state monopoly money. The state has a gun to back it's paper while private banks don't, or wouldn't."

Uh, I think I brought that up in my post on Ron Paul and Greenspan.
Wait, no, I didn't...but it was implied. Smiling

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Wow..

Ross Elliot's picture

...you guys can piss around a subject without getting to the heart of it. It's not about gold per se, it's about private money versus state monopoly money. The state has a gun to back it's paper while private banks don't, or wouldn't.

That being the case, ask yourself what a private bank would have to offer to the bearers of its notes in order that they would trust it.

Goldspan Today

JoeM's picture

Whether or not Greenspan believed gold was intrinsicially better than other options, I think the more telling issue is his stance now that a fiat dollar is NOT the disaster predicted:

From the Ron Paul archives, 2005:
"I had an opportunity to ask him about his change of heart when he appeared before the House Financial Services committee last week. Although Mr. Greenspan is a master of evasion, he was surprisingly forthright in his responses to me. In short, he claimed he was wrong about his predictions of calamity for the fiat U.S. dollar, that the Federal Reserve does a good job of essentially mimicking a gold standard, and that inflation is well under control. He even made the preposterous assertion that the Fed does not facilitate government expansion and deficit spending. In other words, he utterly repudiated the arguments he made 40 years ago. Yet this begs the question: If he was so wrong in the past, why should we listen to him now?"

I'm assuming that this means Greenspan doesn't believe in the necessity for ANY standard, whether gold or otherwise?

You can read the full article "The Maestro Changes His Tune"
here.

P.S. This is not an endorsement for Paul, by the way, I know little about him.
P.S.S. Given that many Objectivists consider Greenspan a "traitor" over this, I think "feel" may be the appropiate term!
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Ridpath

JoeM's picture

Speaking of rigorous, I wanted to check out Linz's claim about Ridpath's reaction to the loss of the gold standard. His KEYNESIANISM AND THE PHILOSOPHICAL OVERTHROW OF GOLD is available at the Ayn Rand Bookstore for a decen price, but I refuse to wait for a cassette to arrive in the mail (they're a poor commodity Eye.)Does anyone know if there is a transcript or download available?

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Quibbles and bits

JoeM's picture

Rick, I disagree that Greenspan backs up his opener, based on his qualifier later that I quoted. I'd have to say I'm being more charitable, then less rigorous, but have openly admitted that I don't know the full extent of his views beyond that essay. Not so much a matter of being less rigorous than still in the process of learning about it.

At any rate, I'm not looking to turn this into a character anaylsis, so I'm less interested in whether or not he's an intrinicist than the idea itself.

I have read Reisman's view on this earlier today, interesting that even Objectivists can't agree on this matter.

P.S.: Yup, "how do you feel?" Specifically wrote that because I have a "feeling" that those here who aren't as knowledgable (such as myself) about the subject probably have more of a feeling than actual thought out ideas on this, so it may be better as a topic starte to start with one's feeling's and working out why they feel that way, to see if one's feelings are based on actual knowledge or aquired assumptions. I know I was guilty of it.
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Leonid How do you FEEL about

Leonid's picture

Leonid
How do you FEEL about it?"

I feel bad.

"

How do you feel about the absence...

Rick Giles's picture

I've also found the same questionable intrinsicist sentiment in George Reisman re gold standard.

Next time I'm in California, as I will be in time, I've partly arranged to ask him in person- the Solo Pilot podcasting way. Then we'll see!

I took Greenspan to be saying not that gold qua gold is necessary, but gold as a symbol of an objective standard, gold just being an optimal choice..

Possibly you're more charatable or less logically rigorous than myself, young man.

Because, to the extent his arguments amount to nothing more than that ('gold is the optimal choice,') he fails to back up his opener that...

"..gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other." (I just noticed, there's a copy of CUI on the bookshelf here in Indianna!)

It's no petty quibble. He doesn't mean what he says, or failed to qualify it with a contemporary setting.

At any rate, I'm sure your interpretation of the essay is the correct one and I'm happy I was able to put your inquiry to rest.

ps feel? How do you FEEL about it? That's bad Objectivist vernacular!

Greenspan and options

JoeM's picture

"Arbitrarily declaring a certain commodity to be the one and only "objective" standard to which one can repair, as Objectivists did with gold, is intrinsicism."

This is not an official position among "Objectivists," is it? Are you just speaking loosely, or are you referring to ARI?

For Greenspan's part, he wrote in the same essay that "Whether the single medium is gold, silver, seashells, cattle or tobacco is optional, depending on the context and development of a given economy." Just based on that alone, I'm not seeing how the problem.

Rick wrote: "But to equate freedom with gold? Going too far."

This sentence was in the first paragraph of the essay. After reading the essay, I think it becomes clear that this sentence is qualified by the part I just quoted. I took Greenspan to be saying not that gold qua gold is necessary, but gold as a symbol of an objective standard, gold just being an optimal choice.

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I agree that this essay,

Rick Giles's picture

I agree that this essay, from the outset, smacks a little of intrinsicism. I don't have the quote, but my own notes..

Ricknotes™...(my own comment in brackets...)
- Statists seem to see more clearly even than defenders of laissez-faire that a gold standard and economic freedom mutually imply and require one another (rubbish. This is a metaphysical statement- but gold is entirely contingent)

- Such a commodity is a precondition of a division of labor economy (As opposed to other types. In your face Riesman!)
- Alternative would be primitive barter or self-sufficient farms- long range planning not possible

Sure, a commodity such as gold but to equate freedom with gold? Going too far.

What is "wealth" really worth today without an objectivist standard, whether gold or some other commodity?

You mean "economic wealth." But I think it's worth remarking that there are other kinds, as your punctuation indicates.

Your answer, Joe, is that wealth ultimately rests with human valuation. Our houses and tables and beds remain of worth to us without an "Objectivist standard." However, epistemologically, we may not be conscious of it and, economically, we may be unable to measure it.

Gold and deficits

Lindsay Perigo's picture

The NZ Govt has run surpluses since early on in the economic reforms, after the infamous Muldoon, who ran up huge deficits, cackled that "most people wouldn't know a deficit if they fell over one."

Point is, government deficits/surpluses and having a monolithic standard are two distinct issues. Arbitrarily declaring a certain commodity to be the one and only "objective" standard to which one can repair, as Objectivists did with gold, is intrinsicism. And it's a disastrous, stupid, artificial straitjacket economically.

The

Elijah Lineberry's picture

NZ Government has not run a budget deficit since 1993 (or was it 1994?) and we have a law against it...(our version of the 'Balanced Budget Amendment').

What we are able to do is raise finance for all manner of activities without being hamstrung by a Gold Standard.

The problem with re-establishing a Gold Standard is that so much money (not backed by gold) "exists"...and you would need to, ummmmmmm, (abolish?) that money in order to have a Gold standard, which seems a very difficult thing to do.

You also have so much money being spent by Governments, and they would have to take the lead and cut spending (fat chance) Eye

NZ standard

JoeM's picture

That was an enlightening example, as well. My understanding was that being freed from the Gold standard enabled NZ to use an alternative standard based on your country's resources, in a manner which Linz suggested. Does NZ have an alternative standard now, or is it deficit based, as in the U.S.?

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Funnily

Elijah Lineberry's picture

enough, Lindsay, Joe and I were discussing the Gold Standard earlier in the week.

I was saying that President Nixon was my greatest Hero because he abandoned the Gold Standard, and the resulting benefits to the New Zealand economy. Smiling

Objective versus deficit

JoeM's picture

Thanks, Linz.
What got me posting on this is the debate between a "gold" standard versus a debt based money. While I personally agree with you about the variations possible as money, I'm not sure why you call Greenspan an intrincist on this, given that in the same article, he addresses those variations, but simple makes the case that gold was just the best option based on its properties. But I'm not familiar with his ideas outside of that essay...

"Nixon took the American dollar off all ties to gold in 1971. John Ridpath, on behalf of Objectivism, denounced this as a day of infamy comparable to Pearl Harbour. It was nothing of the kind, of course. Just another example of orthodox Objectivists' distance from reality. Nothing exclusively, intrinsically magical about gold qua gold."

I would have thought that the "day of infamy" would refer to the disaster of deficit financing, the fractional reserve system that allows governments to print money out of thin air, so to speak (that thin air being OUR future production, of course.) Again, I don't know Ridpath's position, so I can't say, but isn't it fair to say that if there's NO current tangible object backing the money, and the government keeps "adjusting," the prediction of a crash will come true?
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Intrinsicism in economics

Lindsay Perigo's picture

This is a really good question Joe has asked here. It's obvious to me that the early Objectivist writings on this subject were steeped in intrinsicism. Greenspan's especially. Presumably why he didn't act on them whilst in charge of the Fed Fiat Money Reserve. Smiling

Fact is, folk in a free society can choose any medium of exchange—and any back-up—they wish. Gold is wonderful, beautiful, and scarce, but folk can opt for tobacco if they want to. Has been known.

Nixon took the American dollar off all ties to gold in 1971. John Ridpath, on behalf of Objectivism, denounced this as a day of infamy comparable to Pearl Harbour. It was nothing of the kind, of course. Just another example of orthodox Objectivists' distance from reality. Nothing exclusively, intrinsically magical about gold qua gold.

Linz

A

Elijah Lineberry's picture

Gold Standard is a good idea, and worked very well for a very long time.

To introduce it in the modern World would require a 90% cut in Government spending immediately, otherwise economic gridlock would develop.

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