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My final word on the Gold Standard

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Gold Standard -- Good Idea?  

35 members have voted

  1. 1. Do you think Objectivists should advocate an immediate return to the Gold Standard?

  2. 2. Elaborate on the government's proper role, please (added by softwareNerd)

    • The government should play the same role it does today -- fiat money, "managed" by central bank
      0
    • A Monetarist style fiat money -- which grows steadily at a low % each year, with objective rules?
      0
    • Should decide on money based on a single commodity (maybe gold, but maybe something else)
      0
    • Same as #3, but Gold-only standard
      0
    • Should decide on money based on one or more commodities
      0
    • Should let the market figure out what will be use as money
    • Other (feel free to post your ideas)
      0


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Prologue

I want to thank those here who--intentionally or not--moved my knowledge forward on an important subject. Whereas I started my investigation trying to answer the question, "why on Earth is the price of gold going through the roof?", our conversations took an interesting turn to the currencies, the Gold Standard, macro economics, activist tactics and finally politics and morality.

I have certainly answered all of the questions in my mind about the present-day spike in the price of gold. The discussion about the Gold Standard, however, has been particularly interesting.

My Conclusion About the Gold Standard

The Gold Standard is immoral. Advocating it is not only immoral, but impractical in the USA today from an activist standpoint. Objectivists should not advocate the Gold Standard any more than they should advocate increased spending for public schools.

The insidious way in which the Gold Standard muddies the concept of true liberty should make it a mortal enemy of Objectivists. The logical foundation of the Gold Standard is government control over the currency businesses and individuals use to trade. A proper government has no moral right to meddle in the area of trade. Nobody has a right to shove any currency, backed by anything down my throat. The Gold Standard presupposes the opposite.

It is said that every government program starts with the "best intentions". While I wouldn't say "every program" it's fair to say that many are started by smart, well-meaning people who think they are doing the most scientifically intelligent thing at the time. Clearly the foundation of this--that you have a right to impose your conclusions on others--is immoral.

More subtle, however, is that these people are bad for business. No matter how "perfect" something seems in the present, there is simply no way of knowing what creative entrepreneurs will think of in the future. No matter how practical anything in the realm of business might look in the present, it's bound to be reversed later and if it's enforced as a matter of law, it's bound to restrain trade in unnatural ways. Matters of business are not like those of philosophy, they are not axiomatic and unchanging.

Thus the only possible rationale for Objectivists to advocate the Gold Standard is on "temporary practical grounds". That perhaps we should advocate something that we know is ultimately immoral and incorrect because this will "push things in the right direction". To be clear, in narrow cases, I am all for that, and most decidedly live in the "real world" in this regard.

But the Gold Standard falls down by this measure for two inter-connected reasons.

First, the "house is not on fire". There is no "emergency" with respect to our situation with the US dollar. It is not in immediate danger of being significantly devalued, and even it were, the current legal situation in the US makes this situation non-lethal: we are all currently free to protect ourselves from any marginal issues with our currency, such as buying and using other currencies, and making hedging investments.

Second, as a policy move, this is not an easy one. An actual shift to the Gold Standard would be extremely disruptive to world-wide trade if it were done all at once, and it would be extremely difficult to engineer a long-term, less disruptive path. None of the advocates of the Gold Standard that I have seen have written anything along the lines of a paper titled, "Here's How the US Can Painlessly Move to the Gold Standard". My impression is that these advocates actually don't care about such practical details.

This is not to say that advocates of philosophical theory should always be concerned with practical implementations--there's work two do in both areas--but in this case, the only moral foundation of the Gold Standard is it's current, here-and-now practical implementation within the current laws of the USA, the current political climate in Washington and one's assessment of the current appetite to make a change like this.

But the advocates of the Gold Standard that I have read have not concerned themselves with anything "current". They are "idealists" (as I would consider myself for instance) advocating an "ideal".

There's nothing wrong with advocating an ideal as apart from current practical realities. Advocating a temporary stop-gap as an ideal, however, is a perversion.

The Objectivist Advocacy of the Gold Standard

One of my favorite anecdotes of Ayn Rand's was the story of Aquinas' Angel. The anecdote (I recall from memory) went something like this:

Angels, according to Aquinas, are "perfect" in many ways. In particular, one of the amazing things about angels is that they instantly know all of the conclusions of their basic premises. They instantly know what follows, and does not follow from the basic teachings of God, etc.

Ayn Rand found this construct important because this is exactly what human beings are not. We are not Aquinas' Angel. It is not enough to simply learn all of the basic philosophical premises there are to learn and assume that you will draw all of the logical conclusions from those premises correctly. You can make mistakes anywhere along the way.

The Gold Standard, while not formally in Ayn Rand own words, is closely associated with the Objectivist movement. It is a cause célèbre as it were of virtually all major voices of Objectivism today. It has its place in official lexicon of Objectivism.

I would submit that the origins of this fixation--kicked-off perhaps by none other than the famous Alan Greenspan--were wrong. That Greenspan, and those around him, incorrectly applied the premises of the proper role of government.

Badly formed concepts are bound to drag in all sorts of riffraff. It's a veritable secret handshake of the anti-conceptual mentality. Objectivism is, on a daily basis, under siege by those whom would understand only a smattering of its tenants and move freely between perfectly correct ideas and perfectly terrible ones without knowing the difference. In the marketplace of ideas, however, a specialty store does not compete with Walmart by being more like Walmart. Not only would "selling out" be a shame for Objectivism, it plainly would not work.

I once asked Leonard Peikoff what he thought of Alan Greenspan (this was when he first became Fed chairman). His response was, "I don't know, but he's in Washington and I'm in Laguna Hills". Which was to say (to summarize the context) that maybe he was doing good even though it was unclear he was a "consistent Objectivist".

The deeper meaning was also clear: it's hard to argue with success. But however hard, Leonard Peikoff and the rest of the movement should have taken up the challenge.

Bad premises always come back to bite you. That the advocacy of the Gold Standard associates Objectivism with all sorts of dodgy characters is no accident. The word should be removed from the Lexicon and removed from the generally accepted list of topics that official voices of Objectivism officially care about.

Such a move will serve to puzzle and amaze a lot of people. There will be a lot of talk about it, and many will be forced to check their premises deeper than they have for a long time. Many will reject Objectivism altogether because of this one issue.

And all of that, my friends, is a good thing.

Edited by softwareNerd

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This isn't your last word, this is your original word. You didn't adequately address the principled arguments made against yours in the other thread. These arguments of yours are pragmatic.

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Just a few thoughts at large, as I cannot fully state my position in full, cogently.

1. A division point in politics is capitalism vs. statism, which is to say between freedom and slavery, which is essentially a life and death distinction.

2. Freedom and economic freedom are inseparable in my mind.

Lapsing into metaphor here, money is like a lubricant in a complex economic machine. Honest money would be likened unto a clean lubricant, dishonest money a contaminated lubricant.

That being said, money is a complex derivative concept. It entail many relationships which move both up and down many conceptual chains. Those relationships entail measurements. Measurements require standards.

Back to the metaphor. Honest money would be that which those relationships can be identified and quantified. Dishonest money often sidesteps and evades that requirement especially in the areas where the appropriate standards and methods of measurement are not as easily apparent.

While I lean toward a gold standard or even a bi- or tri-metallic standard, the essential in the arena of money is to determine the requirements necessary in the areas where the appropriate standards and methods of measurement are not as easily apparent. You appeared to be moving somewhat in this direction in the other thread which merited you a green square in my opinion.

As to which of the many other inter-related areas of focus to which might be attended from government managed education, taxation, media lap-dogs, etc, all stem from the predominant philosophic ideology which resists identifying the principles required and/or their relationship to the various effects which manifest themselves as poverty and crime, just to mention a couple. To use another metaphor here, are you seeking to just prune a few branches, or identify the trunk and determine the most effective means of chopping through it?

[edited to add comma between full and cogently]

Edited by dream_weaver

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Let's boil your argument to its essence:

The logical foundation of the Gold Standard is government control over the currency

So aside from misunderstanding the point of the gold standard, your foundational premise is wrong. In fact, it has it precisely backwards, so let me restate it correctly and you can work out the logical progression from there:

The logical foundation of the Gold Standard is the prevention of government control over the [value of] currency.

Edited by agrippa1

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I'm sorry after reading all of that.. I never really saw a point..

I felt like you did an interpretive dance where you literally circled around a point without ever getting to it.

Could you please, in one or two sentences explain why a gold standard is bad? You made a lot of (as far as I can tell.. unfounded claims).

While I find gold to be a somewhat silly unit of currency... at least with the gold standard there is a given amount of value to a dollar.. a direct worth to the money.

Then again, I personally believe bullets and antibiotics are the only real unit of currency that matter.

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Then again, I personally believe bullets and antibiotics are the only real unit of currency that matter.

Please explain.

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Please explain.

He is saying that things with value are valid stores of value. Your question implies the question: "Valuable, to whom?"

The gold standard has an inherent problem.

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The gold standard only has a problem if we're talking post-civilization and his statement was cynical if he really meant it. Why are we discussing types of currency if the civilization that supports any currency at all doesn't even exist.

Unless I read him wrong and he's advocating a fight to reestablish civilized society.

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I'm kind of suprised that Objectivists, of all people, are voting only 13-7 in favour of the gold standard. I can't image why this would be.

Sure, ultimately Objectivists may wish for eventual 'monetary neutrality', i.e. the government does not efforce the use of any particular thing as being 'money'. But claiming the Gold Standard is 'immoral' is unbelievable.

Prior to the (worst president in America's history) FDR, Fed notes were debts denominated in Gold. Prior to the Fed, banks issued debts (bank notes, deposits etc) denominated in gold (or silver), and the 'dollar' was defined as unit weight of gold. Incidently, prior to that, the 'dollar' was defined as a unit of silver (based on the Spanish Milled Dollar).

Now, bank notes were, prior to the Fed, debt contracts. When the Fed was established, banks were banned from issuing bank notes, and instead had to use notes issued by the Fed. Those notes, were also, debt contracts (denominated in dollars, which were a unit weight of gold).

Now, FDR effectively enforced (in 1933 I believe) a general contractual default - that is, you can no longer demand settlement of your Fed notes (for the gold the indicate you are owed). Not only that, but he made it illegal to own gold. He was pretty much one of the worst men to have found his way into power in America, ever.

The logical stance of Objectivism should be to follow the the interventions backwards, to rectify the violations of the contractual obligations and the government interventions in the market, to the greatest extent that can be done. Namely:

  1. Return the term 'dollar' to a gold weight based definition
  2. Reinstitute the status of Fed notes as demand debts as per (1). Incidently, Fed notes are still counted on the Fed balance sheet as 'liabilities', something I always find amusing.
  3. Remove the 'legal tender' status of Fed notes.
  4. Annihalate the Fed.

The hardest bit would be re-establishing redeemabilty (1 & 2). Obviously $35/oz is impossible, so the government would have to determine a rate which could be reliably redeemed, given the size of the current monetary base, Fed gold reserves, and likely reserve ratios of banks as they started to receive the gold and issuing their own bank notes. Unfortunately, this (final) 'central planning' step would be needed to eradicate the current central planning of the money supply.

Thoughts?

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I'm kind of suprised that Objectivists, of all people, are voting only 13-7 in favour of the gold standard. I can't image why this would be.
The question is very specific and does not reveal much behind the reasons people answered the way they did. For instance, I favor a move away from fiat money and toward whatever form of money and near-money the free-market will move on its own accord. However, the word "immediate" in the question was the main reason I did not vote, and might have voted either "yes" or "no" depending on the amount I thought the OP was stressing immediacy. So, one has to take the results of such question with a pinch of salt. A poll that sought to understand what people thought about money would have a few more questions. Maybe I'll create one. I've added a second question to the topic's poll.

But claiming the Gold Standard is 'immoral' is unbelievable.
Just as an FYI, the OP is not an Objectivist. Edited by softwareNerd

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Unfortunately, the person who started this thread seems to have wiped out their profile information. I'm almost positive though that this person's profile used to contain a statement from them that they do not contend to be or consider themself to be an Objectivist.

Edited by bluecherry

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As you all can tell, I'm new here, but I'll jump right in.

My only issue with a gold standard is that if a central authority guarantees a backing of a standard currency with gold or other commodity, couldn't the situation arise wherein the finite amout of commodity used to back the currency is surpassed by the demand for backed currency? To put it simply, couldn't the economy which requires 'backed money' grow beyond the limit of what gold can back? And perhaps even beyond what gold + silver + diamonds + ... can back? In a sense, isn't there a finite amount of material that can be used to back currency, which seems incompatible with the fact that "the economy" can be infinite in size?

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In a sense, isn't there a finite amount of material that can be used to back currency, which seems incompatible with the fact that "the economy" can be infinite in size?
I think a supporter of the gold-standard would say that even though the supply of gold is finite, this is not a constraint on "real" values of trade. If no new gold is available, and everything else doubles, then the prices of things -- expressed in gold -- will plummet. In other words, the price of gold -- expressed in other stuff -- will sky-rocket. Another way to say the same thing is: the quantity of gold acts to keep the nominal value of goods within a certain limit, but does not limit the real value of goods.

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But then wouldn't the "real" value of trade be determined thus by the amount of the gold, which is uknown (but finitite), yet also subject to spontaneous "creation" through discovery? I believe you answered my question, but it leads me to another; if I buy a piece of property and find out it has a large gold deposit on it, doesn't that allow me to manipulate the nominal and real value of money?

Now that I've read some of the comments about the gold standard, I've notice that many supporters of it claim that the opponents make the "objectivist logical error" of pragmatism, yet I might argue that the supporters make the pure logical error of moving to a particular (the gold standard) from a general (some sort of system of currency backed by something containing objective value).

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But then wouldn't the "real" value of trade be determined thus by the amount of the gold, ...
The real value of goods comes from the nature of the goods, and -- in a sense -- would be present even if gold did not exist. So, I'm not sure in what sense you mean this.

...I might argue that the supporters make the pure logical error of moving to a particular (the gold standard) from a general (some sort of system of currency backed by something containing objective value).
This is true of some supporters of the gold standard, but I assume that most sensible people who support the gold standard see it as the best implementation of the wider principle, and do not mistake it for being the principle. One might list out the properties that make something a good material for use as money, and then one might point out that gold fits the bill very well.

If the government did not get excessively involved in the process, people would reach some type of standard on their own.

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The real value of goods comes from the nature of the goods, and -- in a sense -- would be present even if gold did not exist. So, I'm not sure in what sense you mean this.

I've always been under the impression nomial value is the currency price, real value is the currency price adjusted for inflation, deflation, etc., and intrinsic value is an item's utility value to an individual.

I believe any system other than a barter system requires a third party to act as a clearing house, and that this ultimately sets up a situation where either the currency must be backed by 'trust' or some commodity, both containing inherent limitations.

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I have said this before, and I'll say it here: our notions of the "gold standard" and "honest money" and so forth as they were written in decades past are dated. These notions were based on the idea of one's savings being stacks of paper money hidden somewhere. This just plain isn't the case anymore in any practical way. Most currencies across the globe are tradeable with one another and can be done so instantly, and information and transfers now move at the speed of light.

A great new example of this is a "technology demo" I saw (somewhere) in which the user pays for everything with their smart phone, which instantly calculates the most advantageous way for you to pay for the given good or service based on a number of available instruments.

You can imagine this being done to your savings: your money being moved around actively to maximize its value (which is pretty much already happening). I also have heard stories of people living in other countries more recently when they country's currency was in trouble: they would call their bank (this was 15 years ago) and move money instantly to an account in-country to pay for some groceries ten minutes before they paid for them. The bulk of their money, meanwhile, is safely stored all over the world.

I'm sure somebody way better than I (with a lot more time on their hands) can blow this whole idea out into a doctoral thesis or a Nobel-winning economics study, but I'd wager that this new way of looking at money has significant political ramifications. As a savvy investor, my own interest in the "gold standard" and the Fed and our government has been, "so what". Instruments are instruments and they are valued and re-valued in real-time. US dollars are just another instrument. Whether they are backed by gold or not a direct concern: it might speak to your own guess at the perception of the instrument's long-term value, but at the end of the day all you really care about is the value.

Politically, the calls for ending the Fed and going to the gold standard and that entire Libertarian/Bircherite shtick are... a useless diversion.

Cleaning up the financial system and making it more transparent and stamping out fraud in every form (including government-aided fraud) is all that is necessary (but easier said than done). If you do this then the market will take care of itself, including US dollars.

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I have said this before, and I'll say it here: our notions of the "gold standard" and "honest money" and so forth as they were written in decades past are dated. These notions were based on the idea of one's savings being stacks of paper money hidden somewhere. This just plain isn't the case anymore in any practical way. Most currencies across the globe are tradeable with one another and can be done so instantly, and information and transfers now move at the speed of light.

A great new example of this is a "technology demo" I saw (somewhere) in which the user pays for everything with their smart phone, which instantly calculates the most advantageous way for you to pay for the given good or service based on a number of available instruments.

You can imagine this being done to your savings: your money being moved around actively to maximize its value (which is pretty much already happening). I also have heard stories of people living in other countries more recently when they country's currency was in trouble: they would call their bank (this was 15 years ago) and move money instantly to an account in-country to pay for some groceries ten minutes before they paid for them. The bulk of their money, meanwhile, is safely stored all over the world.

Imagining your savings being moved around actively to maximize its value? This sounds like trying to play the arbitrage game. The relative trading ratios between the instruments being analyzed for what is deemed the most advantageous positioning at the moment. If you perform this evaluation yourself, you are rewarded/penalized for the accuracy of your assessment. If you delegate it to another to do for you, you are still being rewarded/penalized for the accuracy of your assessment of the individual/organization selected to handle it.

In the end, it comes down to quantifying it. Money is the abstraction. What can money be objectively reduced to? Dollars, euros, yen, in the case of fiat systems, commodities such as corn, wheat, gold and silver have been used to assess various aspects dealing with this very inquiry. Without a standard, determining an accurate measurement of maximized value or worth with money amounts to comparing the results taken from rulers that expand and contract while you use them to determine a specific length.

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There is no "ultimate ruler" which does not itself expand and contract while you use it. That is impossible. Value is contextual, and the context in a global marketplace changes every microsecond. The only thing you can hope for is reasonably stable ways of measuring things, but ultimately whatever you use to measure is itself subject to speculation, etc.

I suspect that "currency" will evolve into shares of mutual funds which are in turn combinations of many, many instruments all hedged against each other.

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There is no "ultimate ruler" which does not itself expand and contract while you use it. That is impossible. Value is contextual, and the context in a global marketplace changes every microsecond. The only thing you can hope for is reasonably stable ways of measuring things, but ultimately whatever you use to measure is itself subject to speculation, etc.

So the desire to understand something, ultimately relate it back to reality via an objective process can only leave you with the hope for a reasonably stable way of measuring things? Reality, as it relates to money, is itself subject to speculation?

Are you suggesting that the context of a global marketplace which changes every microsecond may be akin to being unable to step into the same river twice?

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So the desire to understand something, ultimately relate it back to reality via an objective process can only leave you with the hope for a reasonably stable way of measuring things? Reality, as it relates to money, is itself subject to speculation?

Are you suggesting that the context of a global marketplace which changes every microsecond may be akin to being unable to step into the same river twice?

I'm not exactly sure what you are trying to say, but Heraclitus' river is very much akin to the "dollar" or an "ounce of gold" or a "share of FB". All of these things have a definite identity (unlike what Heraclitus implied) yet have attributes (viz. their value) which constantly change...

Actually, I'm not really sure where you were going with that... :-)

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