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Fool's Gold (article)

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LeftistSpew
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http://american.com/archive/2011/march/fools-gold

This is a nice historically-based essay on the non-effectiveness of the gold standard in accomplishing anything useful.

***

On this anniversary of 9/11, I am reminded of one of the early debates about airline security in the post-9/11 world: whether pilots should be able to carry guns.

I recall plenty of arguments on both sides, and some had merit and some didn't. It was ultimately decided by the FAA that such a move would not improve security (I personally have no opinion on the matter).

I recall this debate only because of one argument in particular: that a pilot could "go nuts" and start shooting people. This is an obviously example of somebody not thinking the whole thing through: if the man flying the plane you were on "went nuts", then a mere gun would be the least of your worries.

This is a great analogy for the gold standard. Yes, without the gold standard, governments are free to inflate their currency and fuck over the population. However this is certainly not their only means of doing so, and arguably not even the most effective one.

In the last 20 years our currency here in the USA has been relatively stable. I defy anybody to show me somebody (an actual person, not a contrived example) who has been "wiped out by inflation" in the USA in the last 20 years. Inflation has been relatively low, and relatively predictable. It most certainly has not made any difference with respect to all of the bad things that have happened to cause the current Depression: all of that could have just as easily happened on the gold standard.

If you are fighting for a better government, then solve problems that are problems, not problems that are... not problems. The latter makes you sound like a crazy person and diminishes are ability to fight for anything.

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Since you seem to use "inflation" ambiguously to mean both increased Fed money-printing and rising US prices, I cannot make sense of your statements.

And besides that, you are not even arguing with anyone here. Certainly Objectivists are not simply in favor of returning to the gold standard that we had up until the '70s - i.e. a government-mandated one. The free market should decide what form our money should take. Gold certainly has ideal properties as money in certain contexts, so it would likely be popular in a free market.

Edited by brian0918
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Since the initiation of force is illegitimate in Objectivist ethics, and since all coercive government fiat monies owes its existence to institutionalized violations of property rights, it can't be considered, at least from the point of view of Objectivist ethics and politics, a "waste of time," or a "non-problem" that we should all ignore, to consider questions involving the ethics of money production: e.g. who has the right to produce money, what kinds of money production are legitimate or illegitimate, what should be the ideal form of currency, who has the right to modify the quantity of money, what rights and/or obligations do the owners of money have regarding its use and acquisition, and so forth. This is, after all, the entire point of philosophy: to ask questions, analyze problems, and seek to provide answers; and the problem of the use of money in society is not an entirely new one.

Coincidentally, if we look at the free society according to Objectivist ethics, the obvious answer is: all producers of money have the right to produce money, to produce as much of it as they see fit, and all owners of money have the right to use their property as they see fit. In a truly free society, the production of money is a matter of private initiative. Money is produced and sold just as any other commodity or service, with the only difference being that it is that commodity in society which is the most salable on the free market. Gold, silver, and copper has historically been chosen for this role, the reason for this being that their physical characteristics make them more suitable to serve as money than any other commodities. Therefore, it would likely be gold and silver prevailing on the unhampered market as money. It is only in this sense that we can call the Objectivist position a kind of "gold standard," but Objectivism does not dictate a priori what the natural money of the free society should be. Objectivists do not have some kind of obsession with the yellow metal discs, and having gold as money is not the highest goal of capitalism; ultimately, what the Objectivist aims for is a free market in money.

There is not merely one "gold standard." Seeing as how we don't have this state of affairs, including the so-called "classical gold standard" in the past which the article criticizes, and how Objectivist politics reaches this conclusion of applying the freedom principle to money, it would kind of makes sense that people from this point of view would consider this when advocating what from their position would be considered a better form of government.

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This is great news--I think you all agree with me. After I posted that I had the same thought as well: qua Objectivist, there's really no particular opinion about the the form of money a society should use, since a proper government shouldn't be in this business anyhow. This "decision" should, properly, belong in the realm of business decisions--and pontificating on "what people would decide on" is just speculation no different than guessing what sort of computer people will buy in 2046.

What is confusing, however, is that there is so much apparent linkage between Objectivism and "the gold standard". Clearly there was that article in CUI (a long long time ago obviously), but more recently, even this site has the occasional official-looking linkage to pro-GS articles. It seems that at least "some" people who are calling themselves "Objectivists" are also calling for a return to the Gold Standard.

But I agree, such an exercise has nothing to do with Objectivism. I'd also agree that even advocating such a thing is actually contrary to the advocacy of Objectivism since it muddies the issue of true economic freedom.

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This replies to just the initial post.

In the last 20 years our currency here in the USA has been relatively stable.

It’s a most peculiar stability where goods that twenty years ago took 100 dollar bills to purchase today take 170.

One could say relative stability, but it would be relative to an even worse performing currency, say one in South America.

I defy anybody to show me somebody (an actual person, not a contrived example) who has been “wiped out by inflation” in the USA in the last 20 years.

This is our standard of stability? If you aren’t wiped out – unadorned with Make-Light Of-It quotes – everything’s OK? Not having been completely wiped out, just robbed somewhat – a mere 40%.

From the linked-to article:

“As 17th-century Latin American silver production dropped, debtors flooded the Dutch economy with debased foreign silver coinage, creating a stagflation risk. The [Dutch] Bank experimented with a bullion standard, converting different coins to paper at fixed exchange rates, but it could never get the rates right for long, triggering Gresham’s Law events where bad money drove out good.”

First off it wasn’t the fault of gold or silver that some crooks debased it – meaning filing off the edges of coins or counterfeiting them using mostly tin or lead.

Second, comparing paper money to coins, paper money is no harder to debase, easier in fact per unit value.

Third, the Dutch Bank didn’t really experiment with gold as money because then there would have been no set rate of conversion to a quantity of paper money. Using gold as money means the users (buyers and sellers) decide how much of what goods an ounce buys, not a government bank.

A bank (or the bank, if it’s a government monopoly) can still issue paper money in this system, but the piece of paper saying “1” on it must mean there really is 1 ounce of gold in the bank’s vault payable to the bearer. (A bank – or the bank – issuing more paper than gold on hand, in this system, would be defrauding each bearer. His loss would be inflation.)

Fourth, only the author of the linked-to article knows what he meant by bad money drives out good when all the paper money is the same. Maybe he meant people abandoned the money in favor of gold, or vice versa. It’s hard to believe vice versa.

I didn’t read much more, so many hours in the day, just skimmed. The introduction is loaded with emotional, over-the-top phrases: “otherworldly purity,” “stomach-churning,” etc. The style of writing is obscure, the above quote about debased coinage is typical.

Just noticed: The article is published by the American Enterprise Institute, a hardcore neoconservative think-tank, if anti-Americanism masquerading as Americanism can be called thoughtful. John Yoo of torture infamy is there, and Michael Ledeen (author of Machiavelli on Modern Leadership: Why Machiavelli’s Iron Rules Are as Timely and Important Today as Five Centuries Ago – I’m not making this up) used to be. In 2003 they hosted a dinner celebrating Irving Kristol.

Now they’re debunking gold backed currency. Makes me want to buy more gold, at least in the short term. Even if gold’s a bubble it looks like it has a way to go before it bursts.

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This replies to just the initial post.

It’s a most peculiar stability where goods that twenty years ago took 100 dollar bills to purchase today take 170.

One could say relative stability, but it would be relative to an even worse performing currency, say one in South America.

This is our standard of stability? If you aren’t wiped out – unadorned with Make-Light Of-It quotes – everything’s OK? Not having been completely wiped out, just robbed somewhat – a mere 40%.

Yes, tell me a story. Tell me about somebody who put $1000 in the bank hid $1000 in cash under their mattress 20 years ago and now, tragically, only has the equivalent of $600.

I'm all ears. I want to hear the story of the devastation (or short of that, slight annoyance [or short of that, actual material harm]) that a 2.7% per year hit brought to some actual person.

(...)

Makes me want to buy more gold, at least in the short term. Even if gold’s a bubble it looks like it has a way to go before it bursts.

Careful with that.

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Yes, tell me a story. Tell me about somebody who hid $1000 in cash under their mattress 20 years ago and now, tragically, only has the equivalent of $600.

Certainly any parent who planned to save for his kid's college based on the prices of tuition back then has found out that that savings won't even cover the cost of books; they and/or their kids will have to leverage up and go deep into debt for the next 20+ years. The same goes for anyone who planned to save for a home, retirement, family, etc. Twenty years ago it was still nearly possible for a single person in a family to work and pay for everyone's livelihood. Now not only do both parents have to work, but so do the kids, just to make do. Fifty years ago, it was the norm to only need one person to work in the family.

And back to the people who wanted to save for college or homes - you may say "well that isn't the result of Fed money-printing", but it is certainly the result of government-mandated expansions of credit via continually low interest rates, Direct Loans, and Fannie Mae/Freddie Mac. Price inflation doesn't just occur via money-printing - it also occurs via credit expansion. Price inflation also doesn't necessarily occur equally across all products - some products may inflate while others deflate in price, depending on the whims of politicians and appointed officials at the Fed.

Edited by brian0918
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Regarding purchasing gold: we still have yet to pass the inflation-adjusted record high of around $2400/oz. You'll also find that not only do the folks who believe the Fed/government will rapidly devalue our currency (e.g. Peter Schiff) recommend buying gold, but so do the folks who believe that we will experience rapid deflation due to credit destruction (e.g. Bob Prechter). Either way, I wouldn't recommend going all-in. While gold may ultimately play a much bigger role as money in the long-term, the interim is uncertain. I would hold gold, silver, cash, guns, foodstuffs, and trade skills.

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Certainly any parent who planned to save for his kid's college based on the prices of tuition back then has found out that that savings won't even cover the cost of books; they and/or their kids will have to leverage up and go deep into debt for the next 20+ years. The same goes for anyone who planned to save for a home, retirement, family, etc. Twenty years ago it was still nearly possible for a single person in a family to work and pay for everyone's livelihood. Now not only do both parents have to work, but so do the kids, just to make do. Fifty years ago, it was the norm to only need one person to work in the family.

And back to the people who wanted to save for college or homes - you may say "well that isn't the result of Fed money-printing", but it is certainly the result of government-mandated expansions of credit via continually low interest rates, Direct Loans, and Fannie Mae/Freddie Mac. Price inflation doesn't just occur via money-printing - it also occurs via credit expansion. Price inflation also doesn't necessarily occur equally across all products - some products may inflate while others deflate in price, depending on the whims of politicians and appointed officials at the Fed.

As I emphasized in my previous post, in order for your savings to be diminished by inflation, you CANNOT make use of a "bank", or "investments", which will pay some kind of interest that will beat the 2.7% you need to stay stable. No, you need to get a bunch of cash (US paper dollars) and hide them somewhere in order for inflation to make you go actually backwards in value. I don't know a lot of people who do this. Actually, I don't know anybody who does this.

And yes, you are right: I may say that this isn't the result of fed money printing. I may even say that my original post underscored the fact that this particular device is not the only tool that Congress has at its disposal to screw up the economy, and nowhere near the most powerful one.

Since the 80s, the Fed itself has been virtually benign, whereas Congress has lead us directly into the second great depression by what amounted to covert stimulus spending in the form of artificial housing credit expansion. The Fed's interest rates had nothing to do with the housing Bubble unless you imagine that it should have been acting as a counterweight to Congress' shenanigans. The Fed was just acting mechanically based on it's goal of keeping overall inflation relatively low--and it did that brilliantly.

I'm not saying we shouldn't eliminate the Fed at our earliest convenience, but it's certainly the least of our worries at this point in time.

Edited by LeftistSpew
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As I emphasized in my previous post, in order for your savings to be diminished by inflation, you CANNOT make use of a "bank", or "investments", which will pay some kind of interest that will beat the 2.7% you need to stay stable.

This assumes the government-adjusted CPI is accurate, which it is not. You can check out ShadowStats for a more historically-accurate estimate of CPI. You can also read up on the assumptions, algorithms, and hedonics used to concoct a stable, low CPI. (e.g. this CPA)

I will also note that even IF you assume the CPI is accurate (which it isn't), one couldn't even keep up with inflation just by putting one's money in a bank savings account, due to the Fed's continued ZIRP.

Edited by brian0918
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This assumes the government-adjusted CPI is accurate, which it is not. You can check out ShadowStats for a more historically-accurate estimate of CPI. You can also read up on the assumptions, algorithms, and hedonics used to concoct a stable, low CPI.

I will also note that even IF you assume the CPI is accurate (which it isn't), one cannot even keep up with inflation just by putting one's money in a bank savings account, due to the Fed's continued ZIRP.

I don't believe the ShadowStats numbers a bit, personally. I personally have used the Toyota Camry test for an anecdotal but pretty diverse basket of goods (if you consider what goes into making a single car these days). On that account I don't see much inflation in the last 10 years. There's also good old reality: it just hasn't been visible in anybody's life outside of rhetorical conversations on Internet forums. And then there's the fact that housing (the biggest single expense for all but the very rich) has gone drastically down in the last five years.

Meanwhile, the Fed is responding to a DEflation threat by keeping interest rates down to zero. In this environment, you mattress actually DOES grow the value of your US dollars.

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You quoted the stable 2.7% number, and I have explained why it is not accurate. You've avoided rebutting that, by switching to anecdotal personal feelings. So do you now agree that the 2.7% number is not accurate?

There's also good old reality: it just hasn't been visible in anybody's life outside of rhetorical conversations on Internet forums.

Who is this "anybody"? Certainly nobody in foreign countries with ties to the dollar, who have seen rampant food/energy price inflation these last couple years. And certainly nobody who was planning to go to college or buy a house in the last couple decades - even recently, housing prices are still relatively high in most areas. And prices for grain and grain-fed meats have been skyrocketing these last couple years.

As I said, prices do not necessarily inflate equally across the board. The fact that prices have been going down for iPads and going up for food does not mean that nobody is affected.

Edited by brian0918
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Who is this "anybody"? Certainly nobody in foreign countries with ties to the dollar, who have seen rampant food/energy price inflation these last couple years.

Who said anything about foreign countries? I personally do not know ANYTHING about those markets, but if you're saying that THEY experienced rampant inflation when we here in the US have not, I would, without research the matter much myself, minimally find that very strange.

And certainly nobody who was planning to go to college or buy a house in the last couple decades - even recently, housing prices are still relatively high in most areas. And prices for grain and grain-fed meats have been skyrocketing these last couple years.

As I said, prices do not necessarily inflate equally across the board. The fact that they've been going down for iPads and going up for food does not mean that nobody is affected.

You quoted the stable 2.7% number, and I have explained why it is not accurate. You've avoided rebutting that, by switching to anecdotal personal feelings. So do you now agree that the 2.7% number is not accurate?

I was talking about average prices, yes. The price of many commodities and specific goods is all over the map due to supply and demand issues. It has nothing to do with "dollar debasement", because if it did, then ALL prices would go up, not just a few. Housing, in aggregate, has lost something like 1/3 of its value here in the US from peak. The keyword here is "in aggregate" as that is all that matters in this context. Recall that housing and transportation typically makes up over 60% of an average household budget--food, about 15%.

Citing a specific, very common example of a very big household purchase, while anecdotal, is not a "personal feeling" since it's based on very concrete facts you can go look up. While I haven't done the extensive research, I suspect that the Camry is similar to every other common car on the road. I also suspect that it's true for clothing, and the other stuff that makes up the remaining few percent.

And no, I don't have the time and the posting space to do an exhaustive compilation of inflation here--and nobody has time to read it here either. I think any honest person who has lived in the USA for the last 10 years cannot say that they have been effected by it. Prices have been relatively stable to the point were inflation is not noticeable.

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.

And no, I don't have the time and the posting space to do an exhaustive compilation of inflation here--and nobody has time to read it here either. I think any honest person who has lived in the USA for the last 10 years cannot say that they have been effected by it. Prices have been relatively stable to the point were inflation is not noticeable.

Giving your numbers the benefit of the doubt, don't you think it dangerous to come to a conclusion on the effects of fed policy by analyzing 1 cherry picked, 10 or 20 year period? If you were to go back a mere 25 years you find a world where a nice, average home in orange county, Ca could be bought for 60k and a new Toyota for 2 grand. This with only a %50 decrease in minimum wage. The differences are more stark as you go back. In the 1940's my grandfather payed .09/gallon for gas and bought running, used cars for $25.

And of course, as usual for defenders of inflation, you ignore the the massive value gained by a technologically advancing civilization. Even if there was 0% perceived inflation on all goods and services, there still remains a massive transfer of value, from everyone else, directly to the owners of the printing press when the world is increasing its productivity through technological advance. When a washing machine is invented, the hours of labor required to perform that work is reduced by maybe 90% versus a washboard in the river? If the price to have clothes washed remains unchanged, where did the extra value of that labor go? The theft is even more magnificent when you consider the value created for all businesses when industrial geniuses like Al Gore in vent the internet for us. What more is produced by the use of computers? 10, 20, 50% of the US economy in terms of true labor? A lack of deflation alone, is a sign of theft on a grand scale in our current world. Inflation is just their refusal to even give us a reach around.

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Giving your numbers the benefit of the doubt, don't you think it dangerous to come to a conclusion on the effects of fed policy by analyzing 1 cherry picked, 10 or 20 year period? If you were to go back a mere 25 years you find a world where a nice, average home in orange county, Ca could be bought for 60k and a new Toyota for 2 grand. This with only a %50 decrease in minimum wage. The differences are more stark as you go back. In the 1940's my grandfather payed .09/gallon for gas and bought running, used cars for $25.

Yes, if you back into 70s hyperinflation, you definitely get a different picture. You get an even different picture if you back into the 40s. But why stop there? And why stop at economics? Should I be afraid, if I am a black person, that they will reinstate slavery here in the US? Why or why not?

Meanwhile, here on Earth, the Fed has been fighting--and winning--the battle against inflation for the last 25 years and there is absolutely no sign of any policy change ANYWHERE on the horizon. A potentiality is not an actuality, so just because inflation is "possible" does not mean it must occur or even that it's likely to occur.

And of course, as usual for defenders of inflation, you ignore the the massive value gained by a technologically advancing civilization. Even if there was 0% perceived inflation on all goods and services, there still remains a massive transfer of value, from everyone else, directly to the owners of the printing press when the world is increasing its productivity through technological advance. When a washing machine is invented, the hours of labor required to perform that work is reduced by maybe 90% versus a washboard in the river? If the price to have clothes washed remains unchanged, where did the extra value of that labor go? The theft is even more magnificent when you consider the value created for all businesses when industrial geniuses like Al Gore in vent the internet for us. What more is produced by the use of computers? 10, 20, 50% of the US economy in terms of true labor? A lack of deflation alone, is a sign of theft on a grand scale in our current world. Inflation is just their refusal to even give us a reach around.

Ah, I'm a "defender of inflation" now? Very nice.

But let me get this straight: all of the inflation in the USA, including the absorbed deflation goes... where? Who has all this money? What do they want? What are they going to do with it all?

Edited by LeftistSpew
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A fake gold standard is bad. A fake gold standard is where the government has the power to specify that its own fiat currency supported by legal tender laws has a particular fixed exchange ratio to the underlying commodity (gold for a gold standard). It is a form of price control. The economic arguments made against such policies are epistemological (the government can never know what the price should be) and moral (economic moral hazard).

Governments have debased their gold-backed currencies in the past simply by changing the exchange rate, including putting less of the underlying metal into same face value coins. Gold standards don't prevent government currency debasement.

What we have now is less bad: fiat dollars and legal tender laws but with a floating exchange rate to any and all possible commodities. At least you can shield your own personal finances to a large extent from deliberate inflation by holding real goods and commodities, or even inflation indexed dollar-denominated instruments.

I am not certain what the best arrangement would be. The government needs some way to manage its finances. Perhaps a government can have its own bank and own currency but not a monopoly on issuing paper currencies. No government has a total monopoly anymore due to the existence of large foreign currency exchange markets.

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Yes, if you back into 70s hyperinflation, you definitely get a different picture. You get an even different picture if you back into the 40s. But why stop there? And why stop at economics? Should I be afraid, if I am a black person, that they will reinstate slavery here in the US? Why or why not?

I'm really not certain what you're getting at here. I haven't heard of anyone advocating slavery, but growing the currency supply is a given and has been for quite some time. Sooo...our currency losing value relative to goods and services is a legitamate concern while slavery is not. Unless there is some context that I am missing which you would like to explain about this comment, i am left to assume that your daft, or, and more likely, you want to paint me as such.

Meanwhile, here on Earth, the Fed has been fighting--and winning--the battle against inflation for the last 25 years and there is absolutely no sign of any policy change ANYWHERE on the horizon. A potentiality is not an actuality, so just because inflation is "possible" does not mean it must occur or even that it's likely to occur.

Ah, I'm a "defender of inflation" now? Very nice.

But let me get this straight: all of the inflation in the USA, including the absorbed deflation goes... where? Who has all this money? What do they want? What are they going to do with it all?

It is an actuality that the money supply rose in any measure you care to use. I don't buy into, pardon the pun, any measure of prices, anecdotal or otherwise. That's useful information about the Earth. On Venus, where I reside, a symbol A that represents a quantity B, which is then increased in amount, decreases the value of B relative to its self. Even if B is growing in such a way that it is disguised. Of course....there's a lot of sulfuric acid here, so maybe that affects it.

I thought you would agree with the title I bestowed. Is there some part of this thread where you are opposed to an entity whose job it is to manipulate the money supply? Maybe I missed that.

As far as your implication that I'm advocating a conspiracy theory of some sort, I regret to inform you that you are mistaken. The way this works is that the closer you are to the source the more your money is worth when you spend it. They are able to buy today's goods at yesterday's prices because "todays" prices are created by the act of money creation whether through credit or M1. If you wanted a break down it goes something like this...Federal reserve banks->Federal Government->Federal employees and state governments->Smaller banks and state employes->County governments->County employees and Cities-city employees-local banks-> Ass raped private sector business owners->Even more ass raped private sector 1040ez employees->taxes to federal,state,and local governments who collect what's left of the new yesterdays prices to move on to the next round of pillaging.

So more simply, large banks and the government mostly. It's not sitting anywhere since it trickles down to all the appropriate political connections needed to maintain the corruption. It does make sure that 50% of the millionaires in the US live within 100 miles of DC wile the other 50% who actually are producers in spite of the graft, regulation and weight that ties them down are spread out a little more.

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(...)

So more simply, large banks and the government mostly. It's not sitting anywhere since it trickles down to all the appropriate political connections needed to maintain the corruption. It does make sure that 50% of the millionaires in the US live within 100 miles of DC wile the other 50% who actually are producers in spite of the graft, regulation and weight that ties them down are spread out a little more.

Well now that's simply fascinating.

Assuming you agree with the ShadowStats number (I don't but I assume you do), which has us running an annual inflation rate of about 12%, and you add in the contra-deflation, which runs... another 5%? This would portend that these government-paid millionaires are absconding with approximately $2.6T per year--enough to pay 2,600,000 of them an annual salary of a million dollars, or 2,600 of them a cool billion.

Who knew? The most impressive thing is how well all of these latter day Orren Boyles are able to keep this a secret from the rest of the population.

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Leftistspew defends 2.7% inflation as follows:

... in order for your savings to be diminished by [such] inflation, you CANNOT make use of a "bank", or "investments", which will pay some kind of interest that will beat the 2.7% you need to stay stable. No, you need to get a bunch of cash (US paper dollars) and hide them somewhere in order for inflation to make you go actually backwards in value.

In other words: Invest your savings in something that yields an interest rate as high (or higher) than the inflation rate and your savings won’t lose value. Only if you fail to invest it wisely, say by stuffing the cash in your mattress, will it lose value.

As others have pointed out, you have a right to dispose of your property – in this case your savings – as you wish. Mattress-stuffing, also known as instant liquidity for a rainy day, being an innocent activity, you might expect to engage in it without being punished.

If you put your money in a mattress you are robbed. If you invest it you are robbed of the interest you would have made. In the first case you lose real value. In the second, if the investment is conservative, you stagnate.

Lefistspew’s attitude towards the man who fails to invest per above appears to be that he’s a fool and deserves the loss he suffers. Somehow inflation is the base line, the natural state, a pickpocket who will always be with us. Yes, only a fool would complain.

If, as I maintain, inflation is robbery, who benefits and how?

A general rise in costs and prices and wages and fees and salaries is caused by an increase in the money supply, whether paper bills or computer blips. This would be harmless if it were predictable and happened all at once everywhere to everyone.

But it doesn’t. Consider the elements of time and population. The bank (the government), untethered by the requirement that a bill must be a receipt for something of real value, creates a number of bills (or computer blips) and lends it to its friend Mr. A.

Mr. A looks about him and sees physical objects and real services offered by Misters B, C and D at a certain price and buys them at that price with his new bills. Misters B, C and D in turn spend these bills. The bills in time percolate throughout the population in ever widening circles.

Those in the inner circle pay the going price at "time zero." But as time goes by, the extra demand created by the extra money – a demand that likewise occurs in ever widening circles – causes prices (costs, wages, etc) to increase, again not uniformly and all at once, but first at the center around Mr. A, then further removed.

Mr. A got his goods at the time zero price, whereas those further removed pay higher prices. All in all Mr. A benefits at the expense of all those at the periphery, as do those close to him. Misters B, C and D for example, benefit in that they make their expected profit, while merchants more at the periphery, not realizing that their costs will soon increase, make less profit in real value.

All of which is to point out the obvious: The cronies of a fiat money bank rob everyone else at 2.7% per annum.

And all’s right with the world?

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Well now that's simply fascinating.

Assuming you agree with the ShadowStats number (I don't but I assume you do), which has us running an annual inflation rate of about 12%, and you add in the contra-deflation, which runs... another 5%? This would portend that these government-paid millionaires are absconding with approximately $2.6T per year--enough to pay 2,600,000 of them an annual salary of a million dollars, or 2,600 of them a cool billion.

Who knew? The most impressive thing is how well all of these latter day Orren Boyles are able to keep this a secret from the rest of the population.

I can see that you're still trying to paint me as a conspiracy theorist by putting words and ideas in my mouth. Not sure if you're trolling or just unaccustomed to honest disagreement on the subject, but I'll give you the benefit of the doubt.

There is no conspiracy to be covered up. None that, I'm aware of, leastwise. I never said it all went to those 70k or so millionaires. It gets spent along the way by various levels of governments. Remember all of the public employees I mentioned at the state, local, and federal levels? Federal contracts for politically connected folks account for a lot. Public employees unions and pension plans. All those people have a vested interest in maintaining this system. You don't need a conspiracy as long as enough people in enough positions of power, from a voter on up, benefit by the system. There doesn't have to be a conspiracy for two wolves to decide to eat a lamb. The evil is built into the system. It's immoral, top to bottom, which is why objectivism opposes it.

My point was, once again, the closer you are to the source of origin, the more of a beneficiary you are, at the expense of the actually productive people at the end of the line. Mostly that's governments and large banks.

I am getting the impression that you are looking at this from a pragmatic or utilitarian stance? Is that the case?

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This is a nice historically-based essay on the non-effectiveness of the gold standard in accomplishing anything useful.

... Yes, without the gold standard, governments are free to inflate their currency and fuck over the population. However this is certainly not their only means of doing so, and arguably not even the most effective one.

In the last 20 years our currency here in the USA has been relatively stable...

If you are fighting for a better government, then solve problems that are problems, not problems that are... not problems.

I'm still not clear about the point you're trying to make. Are you arguing that fiat currency is (just as good as / better than / not much worse that) as the gold standard? Or, are you saying that it simply is not the most important issue of the times?
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I'm still not clear about the point you're trying to make. Are you arguing that fiat currency is (just as good as / better than / not much worse that) as the gold standard? Or, are you saying that it simply is not the most important issue of the times?

The original topic (and thanks for reeling this back in as the thread slid off the rails about six or eight posts ago) was that the Gold Standard is not something that Objectivists should be interested in supporting.

The original point was that gold in particular has various practical problems, AND that qua the primary usefulness of a currency, the US dollar is perfectly fine for now, and that yes, we all probably have much bigger fish to fry. I also tried to make the point that making a big deal out of something that is in fact a small deal diminishes your credibility.

Others here pointed out something that I started to write myself in a separate follow-on thread: that Objectivism cannot and should not have any particular opinion around what is essentially a business decision. Moreover, advocacy of the gold standard is actually harmful as it muddies the entire issue of the proper role of government. It's like arguing for more objective, more rational forms of income taxes.

At that point, I thought the thread would end, as my point had been made. I even received a genuine Green Square of approval, a first for me as I had only collected red boxes before. (And now technology has made the green square / red box currency worthless don't ya know).

So in summary, I'm saying the current situation with our fiat currency is not a particularly pressing issue, and that advocacy of the gold standard is not only fraught with practical issues, it's quite harmful.

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For starters, the "cross of gold" arguments have been made for a while. While I haven't read the article you linked to, the typical complaint against the gold standard is that it does not allow for short-term nominal expansion of money supply, and thus (supposedly) holds the economy back at times when such an expansion could help get it out of a short-term downturn. These arguments are simply not true. The gold standard has an excellent historical record.

One the other side, the problems with fiat currencies have been clear across the decades since the world went off it -- around the end of WW-I. Roosevelt literally stole millions from creditors by killing the gold standard. (And, do not reply that he did not kill the gold standard, because if you do, we're not talking about the same thing.)

Yes, to talk about a gold standard is narrow. One could broaden it slightly by advocating a metallic standard. One can broaden that further by saying that we should have a real-value standard. And, yes, one can broaden that still further and point out that people should be left to decide what commodity, basket of commodities (or widget of whatever type) they will value as being money. However, arguing for a gold standard is not quite like arguing for more rational taxation. It is more like arguing for a specific instance of some rational way the world should be organized if government force were to be withdrawn in the area of currency. It one is going to make the argument concrete, it makes sense to talk of the standard that people often chose when left free to choose.

Even if it is like arguing for more rational taxation, that does not automatically make such an argument bad. It is not wrong to argue for the teaching of (say) phonics in public schools. In principle, it is not unprincipled to argue for a step in the right direction, even if it does not reach perfection. The important thing is to be clear on the underlying larger picture, broader principles, and more-perfect direction.

Yes, when time one argues for any radical position, one will often find oneself in the company of kooks. The reason is that there is a small minority of nut-jobs who are drawn to miscellaneous radical viewpoints simply because those viewpoints are radical. (A bit like the "pseudo-independence" of rebellion for rebellion's sake.) They end up holding a mix of radical views, conspiracy theories and so on. This ought not deter people from making arguments that are radical. One must make sure one makes one's arguments using the right reasoning and principles. One must sometimes draw a contrast to the kooks, and point out why one is making a different argument. Importantly, issues like this are very long-term (usually multi-generational) intellectual arguments. As positions go, the gold-standard -- having been used all over the world for centuries -- is hardly the most radical one for free-market advocates.

Finally, just like it is easy to fight last year's wars, it is also easy to be beguiled by last year's peace.

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But arguing for the gold standard is not like arguing for (better teaching methodologies) in schools for several important reasons.

First, bad teaching methodologies which will have adverse effects "here and now". The US dollar is not creating any problem "here and now" as it's a perfectly viable and stable instrument of trade at the present time--and I simply don't buy that our current government is itching to debase our currency and basically end civilization as we know it which is what would happen in today's context (which is very different than say the 70s). Yes, it still has a small amount of inflation associated with it, and yes, this is "wrong", but compared to say, income tax or capital gains tax, this is a non-issue--especially when you consider that unlike income taxes, it's fairly easy to invest around the problem.

I'm personally in control of significant money [in my work shall we say]. The "inflation problem" is not on my radar. Not even remotely. The people freaking out about pending inflation right now are chasing shadows and making up all sorts of problems that aren't problems to any normal investor.

So in short, whereas if we continued bad teaching methodologies in schools there would be immediate and irreparable harm to children. If we continue to live with a US dollar that inflates at a rate of about 2% per year, then there will be very minimal harm to the economy--especially when compared to the massive harm caused by other things.

Second, there is no force here, at least at the margin. Anybody in the USA is free to trade in gold, silver, Pesos, Euros, Linden Dollars, or whatever--and they very much do every day. There is a perfectly free market here in the trade of currencies. The open markets are choosing dollars right now, but they could change their minds at any time. This would be true of any currency in the future.

Third, unlike changing the curriculum in schools, which would require some new books and training for teachers (my local public schools already teach phonics fwiw), actually moving the USA to a gold standard today would be a massive undertaking that would be incredibly disruptive to the world economy. It's almost impossible to imagine how, practically, you would even do it. For that reason, and the reasons above, this is an event that will simply never happen even in a completely Objectivist-controlled world because it's not worth the trouble.

Fourth, teaching phonics in public schools is something that people can agree that we immediately, specifically need. The technical argument is "simple" compared to the massively complicated business question of currency. As you mentioned, if we abolished the US dollar, markets would probably choose different baskets of goods, or move from one commodity to another, and so forth.

So the gold standard doesn't belong in Utopia where there would be no government-advocated currency at all, and it doesn't belong in the "here and now" world because it's practically not the right solution, doesn't solve any real problem, and is not at all "easy" to do.

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The problems with allowing the government to unilaterally determine interest rates and the money supply go far beyond chronic inflation. The roots of the problem are the general issues associated with central planning of any variety. The interest rate is, at root, a price, the price of intertemporal trading. Allowing the government to dictate this price suffers from the same problems as all price-fixing: the severe lack of information on the part of the central planners, market distortions, inefficiencies, etc. Advocating a commodity standard and a free market in money is simply a result of the more general stance of supporting utilization of the market mechanism to organize economic activity, rather than central planners.

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