RobertJohnson

Should Objectivists Support the Gold Standard?

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Prolog

I have been an Objectivist for a very long time, although I have not been any sort of "activist" since I was much younger. I recently embarked on some "market research" to discover the origins of the recent run-up in the price of gold. I always knew that the Objectivist community has definite opinions on this, and in looking to that community I might find the origins of the "emotional driver" (using that term in the narrow context of investing) of the recent demand.

In discussing this online in a decidedly more salty setting, my discussion moved from simply talking about inflation and the like, to a deeper conversation about the Gold Standard in general. I think what I discovered is very interesting, so I thought it might be interesting to dip my hand back into activism, at least for a moment, to share this--and see whether this is an important advance, or whether I'm simply wrong about my conclusion, or whether I just re-invented the wheel.

My Conclusion About the Gold Standard

I define the "Gold Standard" here as the general idea of moving the US dollar to a system wherein it is backed by gold, or potentially some other mix of commodities, as determined by the government.

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--and important to reiterate here--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". As a stop-gap measure: 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. As an instrument of day-to-day trade, price inflation is simply a non-issue.

Further, the political climate in Washington is presently not in a state that should alarm anybody on this particular issue. The US has seen nearly 25 years of relative stability in its currency (again, in the context of it being viable as an instrument of day-to-day trade), and the current shift in Washington is decidedly away the factors that would lead to 1970s style inflation. There are many cans of gas in the living room, and books of matches on the coffee table, but the house is decidedly not on fire. We are not in a dire emergency with respect to our situation with the US dollar.

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

The Gold Standard, while not formally in Ayn Rand own words, is closely associated with the Objectivist movement. It has its place in official lexicon of Objectivism.

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

If my thesis here is correct, then the Gold Standard should be stricken from the Lexicon (or better yet, its definition should be changed to a refutation) and Objectivists should no longer consider works on the Gold Standard "friendly" to the cause.

Further, this particular issue is not merely bad like other issues that are simple falsehoods: it is insidious. It has tricked a lot of people, including Ayn Rand it seems, into accepting the premises of the statists. And minimally, it's an issue that is fraught with complicated technical objections (some of which are very valid) and creates a distraction that absorbs valuable time and burns valuable credibility in the marketplace of ideas.

On weighing in on the subject, the Objectivist stance should be, "The Gold Standard implies forced government ownership of the task of currency creation and maintenance, and as such is a violation of individual rights. A proper government has no business meddling in the area of trade, the US dollar should be abolished, and replaced with an open market of currencies that consumes are free to choose on their own. The US government itself should choose currency products to do its business in the same way it chooses the myriad of other private products today.".

Hopefully this will end all talk of the "gold standard" and put Objectivism on a firmer footing.

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Two questions:

1. What would prevent a privately-issued gold-backed currency? I didn't see any consideration of this in your statement.

2. What alternative do you propose? You say Objectivists might get behind a government-issued gold-backed currency temporarily. What would you recommend permanently? Financial and technological innovations might bring about alternatives, but this could at least be one of them.

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Welcome to OL.

I think you confound at least two ideas -- a gold standard and a government-imposed gold standard where government monopolizes money as a standard of value. As an example of the former, a private bank could operate on a "warehouse basis", issuing paper bank notes that are redeemable for a set amount of gold.

Probably many of those who advocate a government-imposed gold standard do so simply because they much prefer it to the current state of affairs and would not be against the sort of private money that you envision.

I am curious about the hypothetical state of affairs you describe -- an open market of currencies that consumers are free to choose on their own. Would there be any legal, i.e. government-imposed, restrictions on fractional-reserve banking? Would government ever intervene in cases where bank note issuers are charged with fraud? Would you oppose any measures the government might impose on banks to prevent such fraud?

Edited by Merlin Jetton

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Well, the government is merely the protector of the rights of the citizens of a particular area. In this case, you could call it a depository of that area's wealth where a location (federal reserve for example) is secured by an institution which has a monopoly of force. It does offer a practical advantage to have the community's valuables protected by a local bank, much more if that "bank" has in its disposal, the largest force to counter any and all those who steal.

Now, you are right in stating that there is no moral obligation imposed on any objectivist or man for that matter and instead, only rational ones should stand valid, true and worthy. However, it now begs the question, "Why Gold?" Historically and in fact, gold is a rare metal and rarity is the foundation, a rational foundation of value. It is the same as a man cherishing and protecting his wife or family because those people are rare and almost irreplaceable - just like gold. Here, look at this one: Gold Mining in Decline. Any country could, technically use anything for trade. Whether it would be barter to paper to precious stones or metals but Gold is so rare an element that 1. it can be easily formed into any shape or thinness as one prefers. 2. It resists destruction from very corrosive elements. (1 and 2 can be linked to its ability to be stored unlike other perishable products and elements) 3. It has the historic/mythic reverence for it (The Mayans called it blood of the gods as I recall) 4. The decline in output as I have linked. 4. It is thought to come from a huge meteor from way past and is therefore, not a naturally occurring element on earth and it gives backing to its rarity. 5. Very, very, extremely difficult to fake under testing whereas it is remarkably easy to test (Dump it in nitric? acid)

Paper money is simply easier to transport or carry and is used instead of Gold (Now we use e-cash/card) but these should still be backed by a tangible property since these are merely certificates that one has a certain amount of wealth stored in a national/community reserve. Along with the reasons mentioned above, Gold is widely recognized by most people and if not, they would still be amazed by its sheer brilliance and practical uses (electronics) if they so wish if they, hypothetically, never seen or heard of it before. You could always demonstrate its power!

Diamonds are not so rare (at least naturally) and so are shells except for a few tribes here and there. Their standards (cut/size) are almost always natural and rather laborious to change that their "value" to others are, I think, arbitrarily set by a chieftain or De Beers if you like.

So, yes, the Gold Standard is still the best standard to uphold for a rational and civilized economy such as and most especially for the United States. An objectivist might decline this offer but I tell him that, "It is the best one (rarest product) we have come up and seen so far. Do you not always aim for the best there is (in fact and in recognition by a fellow man)?"

Edited by David Lee

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Welcome to OL.

I think you confound at least two ideas -- a gold standard and a government-imposed gold standard where government monopolizes money as a standard of value. As an example of the former, a private bank could operate on a "warehouse basis", issuing paper bank notes that are redeemable for a set amount of gold.

I have simply never heard an advocacy of the gold standard to mean, "I wish to abolish the US dollar". I definitely don't think anybody used the term in any other way besides to mean, "improve the current government-sponsored system". It seems that if anybody wanted to use the term in this way, they would at least qualify their remarks as to disambiguate themselves from the normally accepted definition. But I've never heard that.

The "Gold Standard" means putting gold behind the US dollar. I can't imagine it being used any other way but I have heard that "objection" before so I was careful to define the term in the first sentence of my reasoning above.

Probably many of those who advocate a government-imposed gold standard do so simply because they much prefer it to the current state of affairs and would not be against the sort of private money that you envision.

Yes, I know. I am saying that such a thing is highly impractical, and the sneaky way this reinforces statism is not worth the trade-off in an environment that, while undesirable, is not a dire emergency.

I am curious about the hypothetical state of affairs you describe -- an open market of currencies that consumers are free to choose on their own. Would there be any legal, i.e. government-imposed, restrictions on fractional-reserve banking? Would government ever intervene in cases where bank note issuers are charged with fraud? Would you oppose any measures the government might impose on banks to prevent such fraud?

I won't weigh in on fractional reserve banking--I'm not sure what it has to do with the debate.

As to whether a government would try to prevent fraud, I would think that would be any proper government's primary charter. Now, should be the government be in the business of insuring citizens in the event of a crime? I don't think so--we have insurance companies for that.

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Objectivists should not do this and should not do that. That's not the way to independent, rational thinking. Now with a gold standard that's a government standard, no? That's central banking. Private banking is this, among other possibilities: It's a warehouse for gold deposits.You deposit your gold (silver, copper, corn?) and you get a paper or electronic receipt. This facilitates trade for gold is bulky and hard to transport around the world. The "bank" is not privileged to issue more than one receipt for x amount of gold by your contract with it for the storage of your gold, which presumably is a safer, more convenient place for it than, say, at your home or place of business. That would be one-type of completely private bank. Another type may pay you a fee for the privilege of using your gold in its custody as loan collateral. The first type of bank above would charge you a fee. Etc.

--Brant

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I have simply never heard an advocacy of the gold standard to mean, 'I wish to abolish the US dollar'.

Huh? Where did I say anything like that?

The Gold Standard means putting gold behind the US dollar. I can't imagine it being used any other way but I have heard that 'objection' before so I was careful to define the term in the first sentence of my reasoning above.

Your usage is unusual. "The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold" (link). Also, gold standards were used long before the U.S. dollar first existed (1792).

I won't weigh in on fractional reserve banking--I'm not sure what it has to do with the debate.

Banks are very important elements of a monetary system. How they operate is just as important. Fractional reserve banking is the main engine of inflation. So it has much to do with the topic.

I also suggest looking here.

Edited by Merlin Jetton

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Yes, you're reinventing the wheel, since I've said the same thing. I don't know whether I've reinvented the wheel or not.

A gold standard, when backed by government force, is just as much fiat money as is paper fiat money (I mention this in my book "For Individual Rights"). It's not what it's made out of that makes it fiat money, it's that you're forced to use it.

Some people like to argue that in a true free market we'd evolve to a non-coercive gold "standard", but I think that's nonsense, partly for reasons you indicate: we can't predict what entrepreneurs will come up with as useful kinds of money, particularly now when computers can do instant trades from one form of value to another.

Gold is useful when you have anarchy, when society falls apart, but is far less useful as money when you have a well-defended free market. This is because contracts (an important form of money in a healthy economy) cannot be counted on in an anarchic market, so people go for the form of value they can count on. The more you can count on a contract, which happens when a government does the right things, the less need you have for gold. Since our current US government is becoming more and more anarchic, the price of gold is rising, and the anarchists are cheering. They cheer both because the US government is anarchic (they don't call it that even though it is) and therefore self-destructing, and because the rise in gold price helps them with their propaganda about gold being a good form of money.

Shayne

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This is because contracts (an important form of money in a healthy economy) cannot be counted on in an anarchic market, so people go for the form of value they can count on. The more you can count on a contract, which happens when a government does the right things, the less need you have for gold. Since our current US government is becoming more and more anarchic, the price of gold is rising, and the anarchists are cheering. They cheer both because the US government is anarchic (they don't call it that even though it is) and therefore self-destructing, and because the rise in gold price helps them with their propaganda about gold being a good form of money.

Shayne:

I do not see how the above section is logically sustainable. Perhaps I am not understanding your argument.

Adam

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Perhaps I am not understanding your argument.

Adam

Sounds quite plausible.

Shayne

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First of all, if you go to the US Mint website, you will see that the US Mint sells gold and silver coins for approxmiately the market price of bullion - given marginal mark-ups, etc. Moreover, through a network of middlemen (who reduce inefficiencies) you buy all of whatever you want at a slightly better market price relative to the spot prices of gold and silver. In short, the US government does have a gold standard for the dollar. Any other assertion is ignorant.

Historically, the US government has issued interest-bearing small denomination bills, gold certificates, silver certificates, and other media against its "full faith and credit." They all circulated at margins that varied with time and place.

On my blog, I have two recent posts relevant to the topics here.

Numismatics informs Economics

Numismatics: the Standard of Proof in Economics

No one should presume to discuss economics - especially the nature of money - without knowledge of numismatics.

Whether the US government has a gold standard - as why should it not? - you can have any standard you want. Nothing compels you to accept Federal Reserve Notes. You can create your own money, as, for instance, these people have. (Many others have, as well. Look up Berkshares or Ithaca Time Dollars.)

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First of all, if you go to the US Mint website, you will see that the US Mint sells gold and silver coins for approxmiately the market price of bullion - given marginal mark-ups, etc. Moreover, through a network of middlemen (who reduce inefficiencies) you buy all of whatever you want at a slightly better market price relative to the spot prices of gold and silver. In short, the US government does have a gold standard for the dollar.

That's a huge stretch of the usual meaning of "gold standard", which is that a substitute for gold, like paper money, is redeemable by its issuer for a preset amount of gold, e.g. 1 troy ounce per $35.

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As I understand it Article 1 Section 8 of our Constitution says that the Congress has the power to coin money and regulate the value thereof. Article 1 Section 10 holds that States will use only gold and silver coin as tender for payment of debts. The Founders had lived through the debacle of the fiat paper currency called the Continental which was used to pay the men who volunteered to fight the British and Hessians in the American Revolution. They were promised that the Continental paper would be redeemable for gold in the future but that promise was never kept. The Treasury of the Revolution held $12M in 1775 but by 1787 $165M Continentals had been issued rendering them worthless.

In keeping with their grant of power to coin money the newly elected Congress passed the Coinage Act of 1792 which held that 371 grains and 4/16th of a grain of silver would constitute one dollar. That was the precise amount of silver in the foreign silver coins widely used in the colonies in America at the time. An amount of gold was also designated as well. Paragraph 19 of the document is instructive regarding the punishment to be carried out for anyone who debased the coinage. Bernanke comes to mind in this regard as the punishment would be considered a felony punishable by death.

Here is a link to one of many sources of the paragraph 19 of the Coinage Act of 1792:

http://www.dfwstangs.net/forums/archive/index.php/t-405370.html

And here is what it says:

Section 19. And be it further enacted, That

if any of the gold or silver coins which

shall be struck or coined at the said mint

shall be debased or made worse as to the

proportion of the fine gold or fine silver

therein contained, or shall be of less weight

or value than the same out to be pursuant to

the directions of this act, through the

default or with the connivance of any of the

officers or persons who shall be employed at

the said mint, for the purpose of profit or

gain, or otherwise with a fraudulent intent,

and if any of the said officers or persons

shall embezzle any of the metals which shall

at any time be committed to their charge for

the purpose of being coined, or any of the

coins which shall be struck or coined at the

said mint, every such officer or person who

shall commit any or either of the said

offenses, shall be deemed guilty of felony,

and shall suffer death.

There is no gold or silver in our coins anymore. Looks like The FEDERAL RESERVE is in direct violation of section 19 of the coinage act. Look at the penalty for this situation. The founders of this country knew what bankers would do to us, and here we are exactly where they tried to protect us from ending up.

Edited by gulch8

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First of all, if you go to the US Mint website, you will see that the US Mint sells gold and silver coins for approxmiately the market price of bullion - given marginal mark-ups, etc. ...

That's a huge stretch of the usual meaning of "gold standard", which is that a substitute for gold, like paper money, is redeemable by its issuer for a preset amount of gold, e.g. 1 troy ounce per $35.

See Gulch8's citations. I was going to include the same basic information from the Wikipedia on "Dollar" which cites the Coinage Act of 1794.

If you look at US Gold and SIlver notes from the 19th century, you will not find any such promise as you claim. They only promise to pay "one dollar in silver" or "twenty dollars in gold." If, in 1911, you went to the Treasury with 10 silver certificates and they gave you 40 brand new silver quarters, would that be right? (They weigh less than 10 silver dollars.)

The market price of silver fell ("Crime of '73; Sen. Richard "Silver Dick" Bland; etc.) and fluctuated. If, in 1911 when it was 55 cents an ounce, you asked for "a dollar's worth of silver" how much would you expect?

The problem does not disappear with gold.

Certainly, it is easy enough to create demand notes good for some specific quantity of gold, silver, etc. But that is not the historical reality of the so-called "gold standard" or "silver standard."

As I said, the US goverment freely and openly accepts Federal Reserve Notes (or promises for them) for their own Mint products in gold and silver, nominally close enough to the spot price of bullion. It is a gold standard.

(We have no other common currency. There are not Wells Fargo Reserve Notes. The Fed is a private bank and it holds a monopoly. It is not a perfect monopoly; but it is close enough. Here in Austin, signage is in English and Spanish; prices are always in dollars. I have been to Switzerland. There, signs were in several languages, and prices in several currencies. Just to say...)

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Certainly, it is easy enough to create demand notes good for some specific quantity of gold, silver, etc. But that is not the historical reality of the so-called "gold standard" or "silver standard."

As I said, the US goverment freely and openly accepts Federal Reserve Notes (or promises for them) for their own Mint products in gold and silver, nominally close enough to the spot price of bullion. It is a gold standard.

The gold standard being a monetary system in which the standard economic unit of account is a fixed mass of gold is certainly a part of the historical reality. Using "gold standard" the way you do here is an abuse of "standard." What you describe is an ordinary exchange. The US government also accepts Federal Reserve Notes for its postage stamps. So do you hold that the US government is on a "postage stamp standard"?

Edited by Merlin Jetton

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I agree that far too many Objectivists have uncritically accepted the idea that a gold standard monetary policy (being defined as a situation where the State has a monopoly legal tender currency backed by gold) is the Objectivist position exclusively.

As an Hayekian on monetary matters, I have always believed the ideal situation is the denationalization of the money supply and replacing State currency with private currencies. In order to make private currencies acceptable on the market, they would necessarily need to be commodity backed (and/or commodity-backed currencies would drive out 'private fiat' currencies). This would also be necessitated by the need to keep the value of currency relatively stable.

If the only proper role of the State is the protection of individual rights, I don't see why the State should get a monopoly on currency. Objectivists should support private currencies for the same reason we support private provision of all other goods.

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Studio, I, too, was impressed (and converted) by Hayek's monograph, The Denationalisation of Money. I wrote about it on my bloig here in addtion to the other two posts mentioned earlier (Numismatics informs Economics and Numismatics: the Standard of Proof in Economics).

I also understand and appreciate the value in commodity money. So did Karl Marx. Hayek's main point, however, was that as desireable as gold might be, until and unless banking is as politically free as the production of shoes, we cannot say for certain what forms will be found superior by different consumers in whatever places and times. Hayek theorized that the market impulse toward stable money would be incentive for banks to create and maintain strong currencies. That much is clear.

I point to a wide range of fiduciary instruments that are money. Merlin quipped that the US Government is not on a "postage stamp" standard Indeed, though, it is. It creates monetary media whose value is supported by the service. Phone cards are another example of the same thing. Often pre-paid, they can be issued gratis by the creators who stand behind them. As I point out in my posts, you can monetize beer with tokens.

That may seem trivial, but back in 2000 or so, I heard Alan Greenspan on NPR say that there were over a dozen kinds of money, but that the Fed cannot hope to identify them all, let alone track them all. He was not thinking of video game tokens, but of derivatives such as "Degree Heating/Cooling Days" which allow electrical power utilties to trade energy among themselves by hedging seasonal demands.

Hayek suggested that a bank could create its own notes backed by a market basket of other banks' currencies.

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If a corner bar can issue its own tokens, certainly, the government would be able to create its own coins and promissory notes to pay its emplioyees and suppliers. It need not. It could use other moneys. However, an agency this size - even limited as we imagine it - would benefit greatly from the utility. Should that be backed in gold, or silver, or Free Admission to See the Declaration of Independence is a different topic entirely.

For thousands of years, while gold was known and valued, silver was the standard. If you read Xenophon, for instance, you see that gold and electrum were valued in terms of silver. Even the looting of the Americas 2000 years later did not remove the silver standard,though continual silver strikes did, finally, impel the largest industrial nation-states to adopt a gold standard for their trans-national exchanges. But, no sooner had that happened then huge strikes in Australia, South Africa, and America flooded the world with gold. In those times, with trade and commerce nominally open and capitalistic, the influx from new mining operations fueled expansion, innovation, and invention.

As a result of advances in geology, we believe that we know how much gold (and silver) is in the Earth, in the oceans, and even in the solar system and beyond. But, realize, that similar estimates for petroleum (and its limits) have fallen short, repeatedly.

Therefore, the idea that gold is an "objective" standard for money because it is rare is at best provisionally true in the best empirical sense, not rationally true. As it is not rationally true, though it seems empirically true, it cannot be objectively true.

Myself, I'll accept gold in return for my labor. I just hestitate to design a currency for a continent ...

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The future of money is a debit card representing ownership of such as gold, silver, oil, sugar, wheat, corn, etc. (Paper money--fiat money--has value to retire debt denominated in itself, say US dollars, and because of legal tender laws.) The debit card will represent real-time bartering power. Go into a store and the goods will be priced in a multiplicity of commodities. Take your pick for your payment. 200 barrels of oil for a new car. Ten ounces of gold. That sort of thing. Or there may be a combined commodiy price representing a basket of them to tamp down the overall volatility.

--Brant

details at the future

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The future of money is a debit card representing ownership of such as gold, silver, oil, sugar, wheat, corn, etc. (Paper money--fiat money--has value to retire debt denominated in itself, say US dollars, and because of legal tender laws.) The debit card will represent real-time bartering power. Go into a store and the goods will be priced in a multiplicity of commodities. Take your pick for your payment. 200 barrels of oil for a new car. Ten ounces of gold. That sort of thing. Or there may be a combined commodiy price representing a basket of them to tamp down the overall volatility.

--Brant

details at the future

On the right track, but I don't think money will be limited to commodities, not by a long shot.

Shayne

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I point to a wide range of fiduciary instruments that are money. Merlin quipped that the US Government is not on a "postage stamp" standard Indeed, though, it is. It creates monetary media whose value is supported by the service. Phone cards are another example of the same thing. Often pre-paid, they can be issued gratis by the creators who stand behind them. As I point out in my posts, you can monetize beer with tokens.

That may seem trivial, but back in 2000 or so, I heard Alan Greenspan on NPR say that there were over a dozen kinds of money, but that the Fed cannot hope to identify them all, let alone track them all. He was not thinking of video game tokens, but of derivatives such as "Degree Heating/Cooling Days" which allow electrical power utilties to trade energy among themselves by hedging seasonal demands.

I see that Michael has wandered from using "gold standard" loosely to using "money" and "derivatives" loosely.

For more precision economists, e.g. Ludwig von Mises here, use other terms like "money substitutes." Checks, credit cards, tokens, gift cards, etc. are "money substitutes"; they aren't "money" more strictly because they are not used as units of account or stores of value (link).

Methinks Michael is trying to put words in Mr. Greenspan's mouth (link :smile:) . There are a few meanings of "money supply" here, but none include any kind of derivative. Also, "Degree Heating/Cooling Days" is not a derivative; it is a factor used in the design and pricing of some derivatives.

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Why is Merlin avoiding the issue of the rarity of gold as the basis of its value. It's not the government that dictated it upon people, the free market is simply using the government to protect their wealth (what they find to be of value). In lieu of gold, I should ask, what do you want to use as your "personal currency" Merlin?

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Why is Merlin avoiding the issue of the rarity of gold as the basis of its value. It's not the government that dictated it upon people, the free market is simply using the government to protect their wealth (what they find to be of value). In lieu of gold, I should ask, what do you want to use as your "personal currency" Merlin?

I have not been purposely avoiding it. Gold has been used as money for multiple reasons, its rarity being one. Regarding a standard for money, I believe a "basket" of commodities -- e.g. gold, oil, plain copy paper, etc. -- would work best.

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Sure. I won't argue against that but tell us, how would you store oil or copy paper for centuries? How would you be able to pass it on as wealth for your progeny? And since there is an abundance of paper or oil ( I've read somewhere they've been finding more sources albeit the cartels/governments are restricting it but basically, they can up the production).

Essentially, you are talking about the barter system but the problem is, such materials have a relatively short life span i.e. they degrade rather quickly not to mention problems in transporting huge amounts of it from one place to another or storage convenience. In any case, the premise of the barter system is the need of the moment - hand to mouth setup that opposes reason and long term planning for that matter.

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Replying to post #24:

The oil or copy paper need not be stored for centuries the way you probably mean. The supply held by the money issuer could be continually replenished -- sell the older stuff and replace it with the same amount of new stuff.

No, I'm not talking about a barter system. I'm talking about the backing of circulating money.

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