Should Objectivists Support the Gold Standard?

[psychoanaleesis]

You mean the government is endorsing or forcing people to accept the gold standard?! Oh noes! That's funny because the last time I checked, one can still be paid by any agreed means but money or gold (ooh, shiny, shiny metal) was just another form of currency that certifies that one has worked for or produced something of value and this is easily recognized by other people who may not want your oil or plain copy paper.

Paying gold/money means you recognize that another person may want something else apart what was originally agreed upon or in another portion or what have you. Again, the government or national reserve is really just another bank that keeps the wealth of the productive individuals i.e. those that think far beyond the present from looters. Now, if you think of it, these individuals cannot force another man into accepting their standards and one could still strike a deal with their respective employers about the currency or mode in which they are to be remunerated.

If you used paper or oil to back up paper money, it simply comes back to the issue of these things being perishable and who would you entrust to hold them for you? Speaking of which, your thesis comes in the form of stock bonds, yes? Some people do prefer that but then again, it's most people one has to keep in mind in trading. It takes less effort to explain what gold means to a child than oil. Convenience is the key factor in choosing gold while its rarity would back itself up in any rational market lest there would be wars between civilized countries.

PS

I got confused with the names. I meant my arguments for the starter of this thread.

Edited September 20, 2011 by David Lee

[sjw]

If you used paper or oil to back up paper money, it simply comes back to the issue of these things being perishable and who would you entrust to hold them for you?

Everything is "perishable" in the relevant sense, even gold. Supposing you want your gold reliably secured, you are going to have to pay some kind of storage/security fee, and you are subject to the political winds (yes, they will break into your safe deposit boxes and take your gold). You could try to store the gold yourself, but there is a risk that someone finds your special hiding place and steals your gold. These risks are a cost. So, no matter what you do, your gold will, over time, be whittled down to nothing. It is, in effect, perishable.

What is the rate by which gold perishes as compared to other things? That is a highly variable thing, depending on technology and political context. One can't assert that oil is more perishable than gold in the relevant sense without doing a complicated analysis.

Shayne

[Brant Gaede]

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.

For long life span use gold.

--Brant

avoid fruit

[sjw]

For long life span use gold.

--Brant

avoid fruit

Sell 1-year-old copy paper for brand new copy paper. Rinse and repeat.

Shayne

- Everything has a cost of ownership, and everything gets old and falls apart, in one sense or another.

[sjw]

People want immortality, so they pretend it exists. The result is a wasted mind. They want their wealth not to degrade, so they pretend it doesn't. The result is wasted wealth -- financial bubbles popping. Economic value bubbles, and hopes of immortality after death, share in the same kind of mental method: wishing makes it so. The only difference is that the popping of the immortality bubble is coincident with a loss of consciousness.

Shayne

- Austrian economics has it wrong.

[psychoanaleesis]

If you used paper or oil to back up paper money, it simply comes back to the issue of these things being perishable and who would you entrust to hold them for you?

Everything is "perishable" in the relevant sense, even gold. Supposing you want your gold reliably secured, you are going to have to pay some kind of storage/security fee, and you are subject to the political winds (yes, they will break into your safe deposit boxes and take your gold). You could try to store the gold yourself, but there is a risk that someone finds your special hiding place and steals your gold. These risks are a cost. So, no matter what you do, your gold will, over time, be whittled down to nothing. It is, in effect, perishable.

What is the rate by which gold perishes as compared to other things? That is a highly variable thing, depending on technology and political context. One can't assert that oil is more perishable than gold in the relevant sense without doing a complicated analysis.

Shayne

I don't think mental gymnastics is necessary here. Can one bring back the gasoline that has been used as a fuel? Because gold can be recovered from the things that used it quite easily I hear but that is not the case with other things such as oil or copy paper or corn.

Sell 1-year-old copy paper for brand new copy paper. Rinse and repeat.

So you mean to say that a moldy paper is as good as one that is fresh from the presses? Hardly. But an ounce of gold today would still be an ounce of gold 50 years from now albeit their purchasing power might be different. Oil would degrade after decades of not being used but is not the case for gold.

Are you implying also that people are traitors by nature since they will break the deal we have made - eventually? My fellow cannot be trusted? That even in a rational society, the government established by reason will turn its back and wreak havoc? Revealing much?

I'd gladly pay security fees same as I pay for everything else. The beauty of life is knowing you can afford it.

[sjw]

I don't think mental gymnastics is necessary here.

To the handicapped, a walk in the park is gymnastics. Are you a moron?

Sell 1-year-old copy paper for brand new copy paper. Rinse and repeat.

So you mean to say that a moldy paper is as good as one that is fresh from the presses? Hardly.

OK, so you are a moron.

Shayne

[psychoanaleesis]

I don't think mental gymnastics is necessary here.

To the handicapped, a walk in the park is gymnastics. Are you a moron?

Sell 1-year-old copy paper for brand new copy paper. Rinse and repeat.

So you mean to say that a moldy paper is as good as one that is fresh from the presses? Hardly.

OK, so you are a moron.

Shayne

Sorry. I assumed you're cognitively sophisticated.

Oh you clever boy...how'd you gather my intelligence from clarifying your proposition? If I was wrong, explain. If I was right, agree.

you said, "Sell 1-year-old copy paper for brand new copy paper." (emphasis mine) so I take it as an old highly perishable material still holds an equal value to a new one.

Edited September 20, 2011 by David Lee

[sjw]

Sorry. I assumed you're cognitively sophisticated.

Most of what you assume is wrong, in this case you're not sophisticated enough to tell one way or another.

Oh you clever boy...how'd you gather my intelligence from clarifying your proposition? If I was wrong, explain. If I was right, agree.

You insulted my argument, while at the same time failing to actually address it. So it is safe to assume that you're an obnoxious nitwit, particularly given that you think that copy paper gets moldy after a year; it's not "highly perishable." Fruit is "highly perishable." Paper stores for a long time. Please explain why I must point this out to you.

Shayne

[psychoanaleesis]

Sorry. I assumed you're cognitively sophisticated.

Most of what you assume is wrong, in this case you're not sophisticated enough to tell one way or another.

Oh you clever boy...how'd you gather my intelligence from clarifying your proposition? If I was wrong, explain. If I was right, agree.

You insulted my argument, while at the same time failing to actually address it. So it is safe to assume that you're an obnoxious nitwit, particularly given that you think that copy paper gets moldy after a year; it's not "highly perishable." Fruit is "highly perishable." Paper stores for a long time. Please explain why I must point this out to you.

Shayne

Your argument when you quoted me basically boiled down to this: It is better to consume now than store it because there are risks and the universe is malevolent or unpredictable ergo it is not worth storing things that endure and are hard to come by and is universally recognizable as such.

and you are subject to the political winds (yes, they will break into your safe deposit boxes and take your gold).

Is this the kind of metaphysics you subscribe to?

Gold has been used as a standard of currency because it is as rare as cowry shells are used by a tribe somewhere. But independently, in almost every civilization, men held it as a value and used their governments to spread the news or "back it up" and store it - for a fee - against groups who wish or try to loot. In a rational society, the best bank and holder of any standard the society - its individual citizens - believes to be righteous is the government.

Are we still talking about concretes? Sigh... Copy paper already has notable changes in quality after a year - even if it didn't get moldy and would not be of equal value as a new one. If I had new copy paper, what use would I have for your old one? But let's exchange an ounce of 24k gold, one mined this year and one mined last century - barring sentimental value and use- I'd raise an eyebrow, shrug and say, OK.

I insult your argument? You insult the reason and ability to plan long-term since according to your argument, there can be no certificate of his achievements to be shown save for a day or a week.

So, no matter what you do, your gold will, over time, be whittled down to nothing.

Whether or not the government endorses your currency, the fact remains that your fellow values it because you both know its rarity and other properties which make it objectively valuable. In a land where gold cannot be found or hasn't been discovered, the principle applies: rarity, permanency and use make something of value.

[syrakusos]

Just to preview a later post, both Brant and Shayne made important points, though they disagreed on specifics. The wider truth that encompasses those both is that whatever "money" becomes the new forms ant formats will be inventions, different from what we know now.

We know that the English word "fee" is cognate to the German "das Vieh" (cattle), that the Latin for "head of ivestock - cattle" is "pecu" the root for pecuniary, that the word "yield" is cognate with "yellow" and "gold" and the German "das Geld" (money in general). Those were ancient forms of money. But wheat and cows continue. And not just in primitive societies. Go to the Chicago Mercantile Exchange. You can still trade cows for wheat.

But the unit of account there is "dollars."

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).

I am working on a formal, academic presentation in which I separate the usual triad into its constiuents. I have written about this before informally here and on RoR. We say that money is (1) a medium of indirect barter (2) a store of value and (3) a unit of account. In fact, gold is a store of value. We argue here for (or against) a gold standard. But even when the US dollar was backed in gold and silver, the unit of account was the dollar, not the ounce, gram or grain.

Fiduciary tokens are media of indirect exchange. Mises calls them "money substitutes" but they are money per se because they are media of indirect barter - and you can save and hold them. An example of that is the punch cards from coffee bistros. You can turn yours in when you get 10 punches or save two cards and treat a frend to a cup of joe. I placed an educational exhibit on coffee cards at an MSNS convention after an incident in East Lansing. As I rifflled through my incomplete cards from several shops, the barista said, "I'll give you a cup now, for all those cards." Seemed like a deal at the time.

Thanks, though for clarifying the definition of Degree Days. It does not change the basic line of reasoning, however. At an Libertarian Party convention in Michigan about 1975 or so, I traded an ounce of silver for a six-pack of homebrewed beer. Is silver money? Or is beer? Economics teaches that all freely engaged transactions are asymmetrically profitable to both parties.

Come to a numismatic convention and see people exchange the "worthless" money of failed institutions for different kinds of "worthless" money from failed institutions. You can get a stack of German Notgeld for a common Confederate States of America $100 bill. Money is what people who use it say it is, not what some textbook claims it should be.

Everything is "perishable" in the relevant sense, even gold.

So you mean to say that a moldy paper is as good as ...

Shayne is right in that paper does not become mouldy in a year (usually). But that is irrelevant to the discussion. I just enjoyed a History Channel DVD about the Smithsonian. DVDs and CDs themselves have been made of a variety of materials and they are not all stable. The scientists at the Smithsonian would wring their hands at the claim that paper can be stored like gold. They have climate controlled rooms - and at that, they can extend the lifetime only some theoretica century or so. Why we have Gutenberg Bibles and other ancient documents is not entirely clear. Why we have ancient gold is.

But Shayne's point is cogent. If your business is coffee, then coffee is your money of issue: you exchange out coffee for what you want. You might take in tons of US dollars, commonly enough.

Finally, many multinational corporations keep their books in dollars. It is convenient to do so, regardless of where their legal headquarters might be. Harmony Mines of South Africa is the largest producer of gold in the world. They report in both Rands and Dollars in the same document, though, of course, what they are reporting is kilograms and ounces.

[sjw]

Shayne is right in that paper does not become mouldy in a year (usually). But that is irrelevant to the discussion. ... The scientists at the Smithsonian would wring their hands at the claim that paper can be stored like gold.

I did not claim that paper can be stored like gold, and my point is perfectly relevant: paper is a store of value. And it lasts at least several years. All you have to do is rotate your stock, sell the old, buy new. That creates overhead, which eats into your stock, making the savings value of paper have a certain measure of efficiency. Gold has a different measure of efficiency, but it's not a perfect efficiency regardless of how long the actual metal lasts. What matters is what you have left after 10 years, not whether the metal that you've lost to inefficiency still exists.

Is gold more efficient than (say) rotated paper as a store of value? Probably. But paper is far more bulky than other possible stores of value. Taking into account 1933 and some other factors, I doubt anyone can conclusively demonstrate that gold is the best store of value.

I think all this obsessing about gold is silly, what we really need is 1) a stable system of government that supports a strong system of true free-market contracts; 2) the ability to create technological solutions that facilitate trade and accounting of a wide variety of things (just what Brant was pointing to, but extended to anything humans consider valuable, including stocks, bonds, and contracts of various sorts). But both 1 & 2 are completely illegal at present, if you tried to implement them you'd definitely be thrown in jail.

Shayne

[sjw]

In other words, "money" is precisely I and my trading partner say it is, nothing more, nothing less. It is nice when a lot of people agree that such and such will be a medium of exchange, but there's nothing else to money than that they've agreed, and it is definitely the case that different people can and will decide differently at different times and places, and I would say that's especially true for a free people who are not indoctrinated, and who have the technological means to efficiently keep track of their trades.

Shayne

[syrakusos]

Taking into account 1933 and some other factors, I doubt anyone can conclusively demonstrate that gold is the best store of value.

See Roger Bissell's recent blog about why Objectivists disagree. I think that part of the problem - if it is a problem - is that we perceive by contrasts and also by evolutionary selection we take warnings seriously. So, in your post above, I agree with all of it, except the note here. Perhaps different creatures could reinforce their common claims and let disagreements evaporate without comment.

Be that as it may, the situation in 1933 was not as commonly believed.

Gold Was Never Illegal

© Copyright 2001 by Michael E. Marotta

Despite numerous claims by coin dealers and conservative patriots (sometimes the same people), it was never illegal for Americans to own gold. It is true that ownership of gold was closely defined. It is also true that zealous government agents took gold from people under the guise of law. However, for most people -- including coin dealers -- there was never any practical limit on the ownership of gold.

Presidential Executive Order 6102, April 5, 1933, made it illegal to "hoard" gold. The order exempted anyone whose "usual and customary" business required gold. (Dentists and jewelers come to mind. Electronic fabricators would come under this once electronics was invented.) Anyone could own up to $100 in gold coin. In 1933, $100 was two or three months wages for the average worker, about $6000 to $10,000 in today's money.

Numismatic Scrapbook magazine was founded three years after this executive order. In the pages of that publication, the London Spot Price for Gold was often published along with the London fix for Silver. Gold coins such as the U.S. $3, $10, and $20 were offered for sale by dealers to the public in display ads at prices within a few cents of the London fix.

On the other hand, numismatist Tom DeLorey recounts a story told to him by Abe Kosoff. "Abe Kosoff once told me how he had arranged, on behalf of a few wealthy clients, to have bags of U.S. $20s shipped to a European bank PRIOR to the Gold Surrender Act, in anticipation of it and in the expectation that the price of gold would be raised. It was. He was then visited by a U.S. Treasury agent AFTER the Gold Surrender Act who told him that they had been examining bank records to see who had been withdrawing gold coins in the six months prior to the Act, and that according to the records he had withdrawn x number of bags of $20s. He was given a fixed amount of time to return the coins to the Treasury, or face prosecution. He got them back and returned them."

In addition, another individual (Frederick Barber Campbell) lost a large holding of gold bullion stored in the Chase Manhattan Bank in 1933. It is true that in 1963, federal agents seized gold coins from the Witte Museum in San Antonio. However, it is also true that the Thomas Elder catalog of April 14-15, 1933, carried a letter from William H. Woodin assuring collectors that they could own gold coins -- both rare examples and souvenirs. Furthermore, in 1954, the Federal Reserve Bank of Cleveland sent a letter to its members telling them not accept gold coins from depositors, but to direct people to take their gold coins to coin dealers.

Therefore, the bottom line is that like all bad laws, this executive order was unevenly enforced. However, in the main, gold was not prohibited to the average person. Yet, from the Great Depression right up to Y2K, dealers and collectors were able to profit from the general ignorance of the public. Smart numismatists bought gold objects for a pittance and sold "rare pre-1933 gold coins" at ahealthy mark-up.

Even today, some numismatists remain mystified by the Executive Orders of 1933 that moved gold from local banks to the Federal Reserve. Collectors who know only second-hand tales easily make flawed statements about the ownership of gold -- or the ability or desire of the government to seize it.

The bottom line is that except for undifferentiable gold bars almost any numismatic item -- British Sovereign, U.S. $10 Eagle, Western Assay Bar, or California 50 Cent piece -- was always exempt from this law and common gold bars could be owned by any jeweler, dentist, or industrial fabricator.

[sjw]

Perhaps different creatures could reinforce their common claims and let disagreements evaporate without comment.

I'm not too interested in the question. I'm not obsessed with gold, I'm "obsessed" with individual rights. If a free market contradicts me, so be it. Just let it actually be free.

Shayne

[merjet]

This article is critical of the gold standard, but I believe it's worth reading for the history.

Bullion-based systems have two major problems. First, supply is ordinarily fixed in the short term, creating deflationary pressure when economic activity expands: there is not enough coin to go around.

.........

Bullion production was uneven, creating a second major problem: huge swings in the monetary base unrelated to the rate of economic growth and the size of economies. Large discoveries triggered massive expansion and inflation, but when mines played out, sudden production drop-offs caused contractions—the opposite of Milton Friedman's prescription for a constant rate of monetary base growth.

This really is one problem -- the amount of gold used as money versus the amount of economic activity. In my opinion a basket of commodities as the monetary base alleviates this problem. The money supply then relies on a variety of commodities commonly used in the economy. Like it or not, credit expansion/contraction will play a role in expanding/contracting the money supply (broadly construed) partly untied to the monetary base.

[syrakusos]

Thanks, Merlin! I archived that. It is arguable at many points. (I challenge the claim that Newton "accidentally" over-valued gold. Capable of error, as are we all, Newton did nothing accidentally.) In the main, however, even the questionable claims raise important considerations.

I agree with you on general principles that an investment bank should diversify. Its bills would be backed by a market basket, not only of commodities, but of fiduciary nstruments, as well. Also, "commodities" would include agricultural products, which are not physically fixed. That said, as neither of us is actually an investment banker, certanily on theoretical grounds, a bank could put all of its egg futures in one market basket, so to speak, and be just a gold bank or just a coffee bank.

Do you agree that the problems with a gold standard come from the monopoly nature of government finance? Only in the modern world since the 19th century, have we had a plethora of businesses economically larger than most nation-states. Sheer size aside, governments, of course have force of arms, which actually blinds them to their true limits. They can punish you for selling 5 1/3 pennyweights of gold for 80 dwt of silver, but they will not stop the flows in and/or out, depending on the world prices of those commodities.

We both agree with the original poster that a gold standard for US Govt Money is not a matter of objective truth.

BTW, the US Mint sells directly to about a dozen Approved Purchasers according to these standards:

http://www.usmint.gov/consumer/GoldAPRequirements.pdf

Those firms are:

A-Mark Precious Metals, Los Angeles, CA - www.amark.com

American Precious Metals Exchange - Oklahoma City, OK - www.apmex.com

Coins 'N Things, Bridgewater, MA - atb.cntofma.com

Commerzbank - Frankfurt-am-Main - https://www.commerzbank.com/

Dillon Gage Inc. Dallas, TX - www.dillongage.com

FideliTrade Inc., Wilmington, DE - www.fidelitrade.com

The Gold Center, Springfield, IL - (217)793-8002

Jack Hunt Coin Broker, Buffalo, NY - www.jackhunt.com

MTB, New York City, NY - www.mtbcoins.com

Prudential Securities Inc., New York City, NY - (212)778-6667

ScotiaMocatta - Toronto - http://www.scotiamocatta.com/

[syrakusos]

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."

This claim is both logically inconsistent and contrary to observed fact.

Logically inconsistent:

If the government chooses currency products to do its business, then it is meddling in the area of free trade. Whose products should it prefer? On what standard? Expecting a future expenditure - say to paint the hallways of the Senate - should the government engage in futures trading in those currencies? (On paying for upkeep and maintenance as well as guns, uniforms, and food for the army, see my two blog entries on Unlimited Constitutional Government here and here.) Seeing a chance to profit from currency trading, is that proper? Who pays for the losses in currency trading?

Contrary to Fact

Granted that it is convenient for the government to create its own fiduciary instruments - including gold coins, etc. - historically, many of these have been successful and are supported by unregulated markets today. The UK Sovereign of the 19th and 20th centuries sells for a small retail mark-up over the spot price of gold. The gold coins of the United States bring somewhat better margins in the United States. Gold (and silver) coins from the USA, Britain, Germany, France, and other nations similarly sell well day to day, even though nominally they are no longer legal tender. (The USA is an exception, but the Kaiser is gone, though his coins remain.)

Interestingly, the UK Sovereign in particular stands out because it is not "money of account." The coins have no declared value. "One Pound" they are not, though "Five Dollars" the analogous US coin claimed to be.

Fiduciary paper from governments is less stable. I have a bond from the Kingdom of Roumania (sic) that promised to pay interest in gold coin in London in pounds or in New York in dollars. The last coupon cashed in was prior to the German invasion of 1940; and the other coupons remained unredeemed. On the other hand, even the copper coins from the Kingdom of Roumania are still good copper.

It is objectively true that as economic actors, governments can issue their own money.

Edited September 25, 2011 by Michael E. Marotta

[merjet]

I agree with you on general principles that an investment bank should diversify. Its bills would be backed by a market basket, not only of commodities, but of fiduciary nstruments, as well. Also, "commodities" would include agricultural products, which are not physically fixed. That said, as neither of us is actually an investment banker, certanily on theoretical grounds, a bank could put all of its egg futures in one market basket, so to speak, and be just a gold bank or just a coffee bank.

I meant any bank that issues certificates redeemable in some commodity(ies), not merely an investment bank.

Also, I want to clarify what I meant by "basket." I meant, for example, that a dollar is worth a1 amount of gold plus a2 amount of silver plus a3 amount of oil etc., not a1 amount of gold or a2 amount of silver or a3 amount of oil etc. (a1, a2, a3, etc. constant). The "or" kind is too subject to variations in the money supply depending on the supply and demand of the particular commodity, e.g. gold independent of anything else. It also requires many conversions of one kind of money into another when there is more than one kind. These problems are far less with the "plus" kind. With the "plus" kind each commodity in the basket would have a market exchange value, not at a fixed rate. The rate would vary with supply and demand.

Do you agree that the problems with a gold standard come from the monopoly nature of government finance?

That might be true historically, but not only that. Any monetary system that involves issuing certificates redeemable in some commodity(ies) can result in some issuers debasing the integrity of the certificates.

[syrakusos]

I agree with you on general principles that an investment bank should diversify. Its bills would be backed by a market basket, ,,,

I meant any bank that issues certificates redeemable in some commodity(ies), not merely an investment bank.

Also, I want to clarify what I meant by "basket." I meant, for example, that a dollar is worth a1 amount of gold plus a2 amount of silver plus a3 amount of oil etc., not a1 amount of gold or a2 amount of silver or a3 amount of oil etc.

Well, that is interesting and you are free to establish your "Gold Plus" bank on that basis and see how it fares in the market. Before the euro, the ECU was calculated according to that: X% of 1 plus Y% of 2, ... So, it has merit. My "This or That" bank may or may not draw customers with deposits. We will have to see the action on Banker's Row to know the outcome.

Do you agree that the problems with a gold standard come from the monopoly nature of government finance?

That might be true historically, but not only that. Any monetary system that involves issuing certificates redeemable in some commodity(ies) can result in some issuers debasing the integrity of the certificates.

When you throw down the bucks for nice 300-threads-per-inch sheets, do you count the threads? Myself, I rely on Martha Stewart and K-Mart to do as they promise. With cash money, I might exercise more due diligence. But I agree that any business must have fluctuations, ups and downs, and cycles. Individual businesses go through these changes as do groups of firms, either aggregated geographically or by industry or linked by their creditors or whatever. Life is like that. Statists want life to be stationary and static and stayed, so they complain about business cycles and want to prevent or cure them.

Among the many problems historically were laws that required accounts to be cleared by the end of the day. (New York in the so-called and putative "Panic of 1857" - and it was in Mary Poppins for that's worth. In Rome, it was by the end of the month, which led to priests being bribed to put it off a day or two, or so I was told by an astronomer.) In a society where many (most or all) loans are callable, you get those cascades. Finally, in the Panic of 1903, banks avoided disaster by creating Clearinghouse Scrip. Eventually, the books cleared. Some banks may have closed. But basically the banking system came through it. There was precedent. In the Middle Ages, bankers met at fairs to clear their books, often without having to touch a coin.

The historic failures of over-extended gold-backed banks from the Medicis forward were the result of impatience, which is why they were "panics" and not collapses. I point out that the National Bank system required $25,000 in gold be deposited in the US Treasury in return for interest-paying Treasury Bills against which banks could issue notes up to 90% of the value. Still, banks failed. So, I agree that being backed in gold assures nothing, or at least only minimizes risk without eliminating it.