How is US currency worth anything?

[Tippit]

I'm not going to refute you nonsense in full, because you're clearly not capable of assessing these things rationally. I will however suggest you follow you own advice and refuse to use fiat currency at all. That way you can serve as an object lesson on what happens to people who let govern the lives according to crackpot theories.

Calling me irrational is not an argument. I have followed my own advice, my basis in gold is roughly $270 USD/oz. I've beaten the S&P 500 by anywhere from 13-15% per annum for the last seven years with what is in my estimation, very little risk.

 

[Tippit]

There is no objective rational basis for valuation. Everybody places a different value on everything. Value is personal and subjective. This goes for paper money, food, gold, life.

Value is not subjective, it's inter-subjective. If value were absolutely subjective then prices would be irrationally unstable, and they are not. The value of different goods and services change in relation to each other over time, but there is an inter-subjective basis that remains. Things like food and water will always have a utile value that is intrinsic to human beings.

I think many of you are conflating the notion that because the value of things changes relative to other things that this means there is no intrinsic value. I would argue that it simply reflects changing perceptions on cold hard reality.

No, it clearly has not.

What history has shown, however, is that the US economy since the end of WWII has been the greatest prosperity generator in the history of mankind. That is the reality against which the claims of the evils of fiat money must be tested.

And yet, at least half of the world's 6.5 billion people live in abject poverty. You probably don't get to see them too much because of where you live, but apparently they do exist. The US economy has prospered *in spite of* fiat money and fractional reserve banking, and in fact the huge gains in productivity caused by technological progress have helped to disguise the absolute debasement of US currency since the law of 1792 when the dollar was defined as 371.25 grains of silver. Given a static, stable money supply, prices move naturally downward over time as productivity gains take effect. Instead, in the face of all of the progress made in the United States, someone has stolen an awful lot of value by controlling the issuance of the tokens we use as money.

 

[Tippit]

You can live in a house. What can you do with the pretty and scarce gold?

I can use it to purchase a house, or I can convert it to fiat money for the express purpose of purchasing a house. Or I can save it with the knowledge that its value is harder for bankers to manipulate than mere paper.

They can be so increased. How likely do you think it is that they will be?

You're behind the curve. Inflation has been the norm in global monetary policy for a few centuries now. A trip to the Wikipedia page on Inflation might be in order.

If you get paid in cash, you don't need to keep it. Buy whatever you want with it. That's what it's for.

Why thank you, I will. Unfortunately President Roosevelt didn't share your philosophy when he signed Executive Order 6102. Any thoughts on why a US President would outlaw the possession of a harmless inert metal?

Do you really buy gold immediately with any money you get?

Do I sound insincere?

In any case, you can if you want to. Why is it terribly important to be able to buy it from the government?

I'm not advocating that the government should get into the gold selling business, I'm advocating that people should relearn the importance of sound money. I have an interest in economic and political stability, and so should you.

 

[Michael Redman]

Things like food and water will always have a utile value that is intrinsic to human beings.

Yes, and gold does have a utility value, but its exchange value is vastly in excess of its utility. For all practical purposes, the "value" of gold is no more tangible than that of paper currency. It is mostly of value simply because others want it, and will trade goods and services for it, not because ownership of it in itself serves utility.

And yet, at least half of the world's 6.5 billion people live in abject poverty.

It used to be that nearly everyone lived in abject poverty. What's changed?

 

[Leftus]

Did you not read the first sentence of the article you cited?

In an attempt to address the causes and effects of the Great Depression, Executive Order 6102 was signed on 5 April 1933 by U.S. President Franklin D. Roosevelt.

Which is just another fancy way of saying "Gold hoarding is a problem inherent to the nature of gold. It doesn't lose value. And since it's a limited resource in a growing economy, eventually a deflation kicks in, which means it'll be hoarded even more."

So by your own source you've now shown that gold based currency creates hoarding which creates depression.

Rather than " ... advocating that people should relearn the importance of sound money" you should be reading your own sources. Going back to a gold currency will cause a depression. You even proved it.

 

[Tippit]

(You can even buy inflation-indexed bonds which are guaranteed to make a small profit.)

What? Inflation indexed bonds such as TIPS are indexed to government sponsored indexes like the CPI. If, as some believe, the CPI grossly understates inflation, then the holders of these bonds will stand to lose by the spread between the CPI and the real rate of inflation just like any other person dependent on CPI-linked government fixed income. On the other hand if there is disinflation, the bond buyer loses opportunity from higher yielding non-indexed bonds. Nothing is "guaranteed".

 

[Tippit]

Yes, and gold does have a utility value, but its exchange value is vastly in excess of its utility. For all practical purposes, the "value" of gold is no more tangible than that of paper currency. It is mostly of value simply because others want it, and will trade goods and services for it, not because ownership of it in itself serves utility.

Wrong. The value of gold lies in its intrinsic physical properties. It's pretty, it's easily recognizable, it's easily divisible, and most importantly, it is scarce.

Paper money can or does share most of these properties except the last. The scarcity or abundance of it is determined by men, not nature. Therefore paper has value only in a specific legal construct under certain specific conditions. It's quite valuable to the issuers of the paper, because if they can swindle everyone else into accepting their paper in exchange for real goods and services, they are well on their way to economic and political power. If they can convince people like you that this process is necessary, healthy, and fundamental to economic progress, all the better.

It used to be that nearly everyone lived in abject poverty. What's changed?

Technological progress and innovation have changed, and accelerated. Unfortunately monetary and political systems have yet to evolve, and so most of the world's 6.5 billion are left impoverished.

 

[Leftus]

Fiat money is an evolved form of money. It was selected for it's utility in the marketplace. Despite the claims that it is easily divisible, it is not and the division process is a destructive process which isn't true of fiat money, gold has nothing on fiat money in convience and ability to exchange for trade.

If you had an ounce of gold and I wanted 1/8th of an ounce in trade, the division of that would leave you with less than 7/8ths (because I'm not going to take the loss). Cut it and you lose gold dust into the air. Melt it and you lose some of it in the process since not all of it comes out of the forge. The only way to get around that is to issue placeholders, paper money, for that gold. The actual exchange of gold becomes burdensome and wasteful. Paper money, even when backed by gold, was superior to actual gold because the transactions behind it didn't destroy gold. And from that evolved fiat money. The removal of the gold standard was another evolution in money. To say that money hasn't evolved is to either misunderstand money or evolution.

 

[Tippit]

Did you not read the first sentence of the article you cited?

In an attempt to address the causes and effects of the Great Depression, Executive Order 6102 was signed on 5 April 1933 by U.S. President Franklin D. Roosevelt.

Which is just another fancy way of saying "Gold hoarding is a problem inherent to the nature of gold. It doesn't lose value. And since it's a limited resource in a growing economy, eventually a deflation kicks in, which means it'll be hoarded even more."

So by your own source you've now shown that gold based currency creates hoarding which creates depression.

Rather than " ... advocating that people should relearn the importance of sound money" you should be reading your own sources. Going back to a gold currency will cause a depression. You even proved it.

Your attempt at a paraphrase is far more "fancy" than the text of the Wikipedia article, and draws a number of unsubstantiated conclusions.

First of all, gold hoarding occurs under a fiduciary money/fractional reserve banking system, ie: a "gold standard". Gresham's law dictates that bad money drives out good, and this results from people accepting promises to pay (notes redeemable by the government in gold) instead of payment itself (actual gold). Since rational people know that the supply of paper receipts for gold will increase faster than the supply of gold itself, they will hoard the gold and trade the paper.

Second of all, the Great Depression was caused by a one-third contraction in the supply of US dollars by the Federal Reserve System, not by gold, or the hoarding of gold, and this itself was preceded by a large expansion in fiduciary money during the roaring twenties which caused malinvestment and speculation. Hence Roosevelt's expropriating (stealing) people's hard earned gold amounted to nothing less than official theft. It was a swindle based on false pretenses. Are government restrictions on gold ownership which lasted until 1974 consistent with your idea of a free society?

Thirdly, even if hoarding were a problem, why would Roosevelt seek to expropriate people's existing gold? Why not instead simply stop redeeming gold for paper, and just issue unbacked fiat money? The answer is that it was the beginning of a multi-decade campaign to suppress the price of gold and to remove the idea of gold as money from the public awareness.

The idea that gold as money results in depression is inconsistent with gold's illustrious history as money for thousands of years. Recessions and depressions arose when people decided either out of force or convenience to accept paper receipts for gold instead of gold itself. It is the boom/bust cycles inherent in fiduciary and fiat money that cause depressions, not commodity monies.

 

[Leftus]

> Your attempt at a paraphrase is far more "fancy" than the text of the Wikipedia article, and draws a number of unsubstantiated conclusions.

You picked the source. If you don't like it, pick a better source.

> First of all, gold hoarding occurs under a fiduciary money/fractional reserve banking system, ie: a "gold standard".

Not quite and requires a change in the way hoarding is used on top of that. When people hoard gold they hoard it as a process of not using it. They are sitting on it. When a bank hoard it they do it as a necessity. It's not their money to hoard. When they are allowed to loan it out they do so to the maximum allowed by law and then sometimes beyond that.

If money and gold were allowed to compete, as Ron Paul suggests, what will happen is that fiat money will make the spending of gold impossible because it will have driven gold out of the marketplace. The only way to make a gold standard work is to have the government decree that people can only trade in gold. This process is also called fiat. Why are you more comfortable with the government telling you that you have to use gold than they are telling you that you have to use paper?

The government restrictions on gold are wrong, no doubt about it, once we left the gold standard. But that isn't a good case on using it for a currency.

Hoarding is a problem and, again, your link that you used as evidence states that. If you don't like that then pick a new source. The great depression had many sources and hoarding was one of them. The prevention of hoarding is a good thing on the whole. Which is yet another advantage that fiat money has over gold.

Are you really trying to say that if we went to a gold currency we wouldn't have economic booms or busts?

 

[Dabljuh]

Tippit, why are you so fond of deflation (which is a natural result of trying to use a fixed supply medium like gold as a currency) yet at the same time think inflation was theft by bankers?

Inflation is bad. It robs creditors and gives free value to debitors. It makes it hard to impossible to save a living.

Deflation is worse. It robs the economy of productivity, it creates huge amounts of mass unemployment, all while a few, quite possibly the very jewish bankers you loathe, happily get richer every day because THEIR money becomes more valuable. And they get richer merely due to the virtue that they posess gold, not due to their cunning wits or their hard work.

The inflation is kept at a steady rate of 1-3% to prevent a deflation. That's not because the evil jewish bankers think this would make them rich - on the contrary. It's because the evil jewish bankers know that in the setting of a deflation (which you seem find disturbingly desirable) there'd soon be a violent revolution from the millions of people unemployed and the hungry and starving, and their butts would be up a wall pretty soon. Seriously, a deflation is much worse than an inflation.

I don't know the details of the executive order's details, but my hunch is that Roosevelt wanted to specifically stop the US populace from draining the fed of all gold until it runs dry which may cause a panic, while still keeping the dollar internationally tradeable - which it may not have been if he went ahead and proclaimed that the dollar no longer could be switched for gold.

International Trade back then was still pretty much gold based, and an US without gold would have been an US without any international economic power.

 

[stilicho]

I don't know the details of the executive order's details, but my hunch is that Roosevelt wanted to specifically stop the US populace from draining the fed of all gold until it runs dry which may cause a panic, while still keeping the dollar internationally tradeable - which it may not have been if he went ahead and proclaimed that the dollar no longer could be switched for gold.

The whole history of the Federal Reserve, central banking, and fiat currency is complex and not due to one simple problem.

If you return to the days before industrialisation, you might find that a gold or gold-based system was the only one that would work. This is just not the case any longer. Capital concentration (first noticed during the canal-building boom) and technological advances simply meant that a substitute had to be found. Other influences included more sophisticated banking techniques, the development of "political economy" theories (now called economics), and advances in the field of accounting.

Most of the critics of fiat currency are fixated on the "illusion" that it represents money instead of "being" money. More extreme adherents of this philosophy impart special powers to money, including the attribution of a special moral superiority to gold-based systems, and even the capability to prevent warfare or to stop crime. (Yes: it's there, just cruise the various von Mises sites available all over the web.) Worse yet, gold-based systems are supposed to stop inflation and force economic cycles to follow a more "natural" pattern. It would take too long for me to explain why I don't fully believe in economic "cycles" in the first place, but who can really define what a "natural economic cycle" is? Which of the severe bank panics or depressions prior to 1913 were "natural"?

And anyone who thinks that metal currency itself was entirely stable ought to read some of the history of coin-clipping which, maybe perversely, *increased* in proportion to the purity of the metal used.

 

[portlandatheist]

I have a vision for the future:
The whole world adopts the gold standard. Oliver complains endlessly about how the world economy is being manipulated by South Africa. War breaks out between a European nation and a gold rich nation and Europeans sport bumper stickers that say "What is OUR gold doing under THEIR soil?"

 

[Dabljuh]

If you return to the days before industrialisation, you might find that a gold or gold-based system was the only one that would work.

That's not correct. The chinese used a form of paper money, on the parchment of the white deer that the chinese emperor had a monopoly on growing. The ancient egyptians had currency based on copper, as well as based on grain stored in the king's granaries.

Fiduciary and fiat money is pretty old in practice. Lots of cultures never used gold, or any metal. There's certain people who say that europe had so little advancement over a 1000 year period between the fall of the roman empire and the renaissance, because no new gold could be found in europe. The expensive restauration during the renaissance could only be financed when the kings started to dilute their gold and silver coins with copper, and later, gold and silver from the american colonies.

Gold is neat and all, but very far from universal. It's really just european currency, and hence, american.

 

[Unalienable]

Do you really buy gold immediately with any money you get?

Do I sound insincere?

Good for you, Tippit. They're so smart and we're just fools, clinging to a barbaric relic of ancient history. And yet their bank accounts dwindle daily in terms of buying power, while our buying power goes up daily.

Putting it that light, I'm perfectly happy to be a barbaric fool.

 

[OneShotKi11]

So then why not just print continuous amounts of infinite money if the only thing that gives it value is us as a nation agreeing that $5 Dollars is worth $5 dollars?

Serious question

 

[Michael Redman]

It's logical fallacy spotting time!

Good for you, Tippit. They're so smart and we're just fools, clinging to a barbaric relic of ancient history. And yet their bank accounts dwindle daily in terms of buying power, while our buying power goes up daily.

Putting it that light, I'm perfectly happy to be a barbaric fool.

 

[gtc]

So then why not just print continuous amounts of infinite money if the only thing that gives it value is us as a nation agreeing that $5 Dollars is worth $5 dollars?

Serious question

Five dollars will still be worth five dollars, but that five dollars will buy you a lot less in the way of goods and services if you keep printing money.

 

[Unalienable]

It's logical fallacy spotting time!

I have to apologize my previous post. It's such an absurd argument it hardly is even worth shooting down. But understand where I'm coming from:

I've had this discussion with people for 10 years now. Back in 1997, I was having this exact same discussion, when gold prices were depressed at 15 year lows, people would push the gold-price statistics in my face constantly.

Their arguments 10 years ago were stupid, and I knew it. My argument above is stupid, and I know it. But now that the shoe's on the other foot, it feels good to kick some ass with it.

Again, I'm sorry.

 

[Puppycow]

So then why not just print continuous amounts of infinite money if the only thing that gives it value is us as a nation agreeing that $5 Dollars is worth $5 dollars?

Serious question

You would eventually have very high rates of inflation. Some countries have tried just that, and the results have been inflation rates so high that your cash would lose half its value in a day. Obviously that would be a problem for anyone trying to save money.

The Fed's main job is to keep inflation at a reasonable level. Around 1-3% is good. Higher is bad, and deflation is also bad.


An article by Econ Prof. Tyler Cowen on the recent weakness of the dollar:
The Dollar Is Falling, and That’s Good News

SO far the Federal Reserve and the Bush administration have shown little concern over the falling dollar. This isn’t because of neglect or lack of interest; trillions of dollars worth of currency are traded every day, so policy makers have only a limited ability to push around long-term exchange rates, even if they wanted to do so.

When it comes to market prices, people can always find reason to be unhappy. In the eurozone, for example, it is a common complaint that the euro is too strong and therefore it is too difficult for Europeans to export goods and services.

In the case of the dollar, we need to stop thinking of its value as a marker of economic success. The American economy has its problems, but so far the low value of the dollar has proved more a benefit than a cost.

In other recent news Bernanke hints at further rate cut