Why doesn't the world have one currency?

[The Central Scrutinizer]

No, no, no, wrong, wrong, wrong. You people just don't read.

So the government has 8,140 metric tonnes of gold. It's actually more than that because if memory serves that doesn't include the amount held by the Federal Reserve, but anyway, let's go with 8,140 metric tonnes.

$700 billion in circulation. The current commodity price has nothing to do with this.

So, we dissolve the Fed (and in the process gain its gold reserves, but again, we're not going to count that here) and start, through attrition, replacing the Federal Reserve dollars with gold certificates issued by the Treasury. If we want there to be $700 billion floating around the economy, and if we don't want to purchase any more gold to make that happen, then you do simple division to find your base.

Murray Rothbard detailed a plan to do exactly this in his book The Case Against the Fed. It's a good and surprisingly quick read. At the time he wrote the book, this would have meant each dollar would have been redeemable for .02 grams of gold.

Now that we're talking about the Fed, can you tell us - Are all banks required to be members of the Federal Reserve? Maybe your buddy Murray could answer for you?

 

[Drooper]

For pete's sake. e-gold? That is a transferable voucher, not money. It is neither a means of exchange, nor a unit of account

Do you know what happens when you try and make an FX transaction with e-gold?

Well, they take the price of the good in, say, Australian dollars. Then they work out what the current price of gold is in Australian Dollars using a spot gold price and a spot USD/AUD exchange rate. Then they calculate how much gold represents that value at the time of the transaction and that is how much e-gold you pay.

Even if you make a domestic purchase you still need to calculate the required e-gold payment by referring to the price of gold (that is the unit of account bit) which is expressed in Dollars.

e-gold could not be used as a medium for exchange without the existence of real money - Aussie and US Dollars in this case.

For the same reason it is not a unit of account.

Repeat after me Shanek. Gold is not money, e-gold is not money, super secret planet X e-gold is not money. You can argue until you are blue in the face, but you would still get an F for claiming so in any first year undergraduate economics course because it shows that you don't understand the definition of money.

 

[The Central Scrutinizer]

Repeat after me Shanek. Gold is not money, e-gold is not money, super secret planet X e-gold is not money.

You mean all that super secret planet X e-gold I have in the bank is worthless?

 

[Drooper]

You mean all that super secret planet X e-gold I have in the bank is worthless?

Not on planet X.

I have been reliably informed that you can buy a brand new frubrulating comboxidodler for less than fifty schumen.

 

[Bjorn]

Right. The commodity price is arbitrary. The real value of the gold is pretty much constant.

Would you mind telling us how much it is, say in dollars per gram? (I wonder if I should sell or buy.)

The commodity price is a nominal, not real, value.

I thought the price the market is willing to pay is the real value (I mean, it's a free market and all that). Was I wrong?

 

[Art Vandelay]

Mostly give them to other Indians. They don't have to return to the American economy like they do now.[/quote[They don't have to, but dollars would have no value to them if they didn't. The US would be importing goods and services without having to give anything back.

Try it and see. The only way you can get gold for your dollars now is in the commodities market, where the price of gold fluctuates.

If by "commodities market" you mean "a place where you can exchance dollars for gold", that's a tautology. And the ability to exchange one thousand dollars for a gram of gold is not something that fluctuates.

FDR actually made what you're saying illegal in 1933.

Cite?

The value of the dollar would be defined as a certain weight of gold, and that would be guaranteed. You're not reading.

Rude little bastard, aren't you? Next time you start getting arrogant, you might try not having a completely idiotic position. Simply offering a certain amount of gold does not constitute "defining" the value of the dollar, and the exchange rate would not be guaranteed, as I have already explained. You have not countered my reasoning, simply reiterated your claim that it would be "guaranteed".

There wouldn't be inflation! We didn't have inflation in this country as long as the dollar was tied to a specific weight of gold.

But the dollar wouldn't be tied to gold. If it were, IT WOULD COST THE SAME! Just how difficult is it to comprehend the concept of "tied"?

learn what you're talking about.

Not only have I learned what I'm talking about, I don't even need to. Your statements are so obviously false that merely understanding basic logic shows them to be false, without even having to resort to economic arguments. All you have to defend yourself is an oblique argument to authority ("if you'd learn about his, you'd realize I'm right").

That's absolutely correct! The price of some goods fluctuated, and many actually got cheaper because of technological innovations (don't confuse that with deflation), but the value of his dollar, the worth it had, in real terms, was the same.

Are you seriously claiming that the real value of gold never changed?!? Why is it that every other good changed value, but gold didn't?

The value of the gold is what gives the currency its value.

If the value of the dollar is greater than its redemption value, then it MUST have a source of value other than the redemption value. That's just a basic, obvious, only-a-person-like-you-could-deny-it fact.

You just don't see how redeeming the certificate takes it out of circulation. You just don't see how many people doing that would both increase the value of the currency (since there is now a lower supply of the currency) and decrease the value of the gold in the commodities market (since there is now a larger supply). You just don't see how the gold backing the currency being less than the price of gold on the commodities market would be an incentive for people to use the gold to trade for new currency.

If the redemption value is less than the commodity value, then the effects of redemption are COMPLETELY IRRELEVANT because no one in their right mind is going to ever redeem a dollar. And while people will certainly have an incentive to trade gold for dollars at the redemption rate, they will have no opportunity to do so because NO ONE IN THEIR RIGHT MIND WILL REDEEM A DOLLAR. What is so hard to grasp about this?

Shane, your insistence that anyone who disagrees with you (note that that is EVERYONE who has responded to you: tell you anything?) is simply "not reading" is so monumentally conceited that I can't see how you could possibly expect to be taken seriously.

 

[Leif Roar]

Right. The commodity price is arbitrary. The real value of the gold is pretty much constant. The commodity price is a nominal, not real, value.

This doesn't make any sense, Shanek.

How is the commodity price not a real value? If gold is selling for X dollars an ounce on the commodity market, then I can purchase - directly or by way of a currency - X dollars worth of goods for an ounce of gold. That certainly is a real value.

Secondly, I've explained earlier how the currency value for gold has to be roughly equal to the market or commodity value of gold. If the currency value is less than this, then the reason to trust the currency is gone; and if the currency value is greater than this, the currency will cease to exist as people will convert all the available currency into actual gold (which, for a currency the size of US dollars, would affect the market price of gold quite a bit.) That means you can not consider the currency value of gold as different from the market value.

 

[shanek]

Would you mind telling us how much it is, say in dollars per gram?

That's nominal value, not real value! Sheesh...

 

[shanek]

If by "commodities market" you mean "a place where you can exchance dollars for gold", that's a tautology.

There is a difference between buying and selling gold and redeeming a certificate for an amount of gold. I would have hoped that was obvious...

Cite?

You can't be this ignorant of history, can you? Look up Executive Order 6260.

Rude little bastard, aren't you?

Pointing out that someone clearly hasn't read my posts is rude?

Next time you start getting arrogant, you might try not having a completely idiotic position. Simply offering a certain amount of gold does not constitute "defining" the value of the dollar, and the exchange rate would not be guaranteed, as I have already explained. You have not countered my reasoning, simply reiterated your claim that it would be "guaranteed".

Next time you tell someone not to have a completely idiotic position, try not having one yourself. We aren't talking about the exchange rate!!! We are talking about the amount of gold you can redeem the currency for!!! They're two completely different things!!! Why don't you get that???

It IS guaranteed because THAT'S what the dollar would be set at!!! Read the Coinage Act of 1792. That set up all of the specific weights of gold and silver that the dollar was redeemable for...and that never changed.

Furthermore, I can cite books backing me up on this...the Rothbard book I mentioned earlier...The Economics of a Pure Gold Standard by Mark Skousen...Should There Be an Independent Monetary Authority? by Milton Friedman...source after source after source.

So don't go blathering on about how you've learned such-and-such when pretty much every book written on the subject backs up me and not you.

Are you seriously claiming that the real value of gold never changed?!? Why is it that every other good changed value, but gold didn't?

The real values of goods never change, unless a new use is found for the good. You're talking about nominal value again. Please learn the difference!

If the value of the dollar is greater than its redemption value, then it MUST have a source of value other than the redemption value.

No; if the dollar is greater than its redemption value then people will simply hold on to the dollar rather than redeeming it. If the dollar drops below its redemption value then more people will redeem their dollars, taking them out of circulation, and revaluing the remaining dollars.

You, despite your claims to the contrary, are showing yourself to be completely ignorant and uneducated on this issue. I beg you to read the books I've cited!

 

[shanek]

How is the commodity price not a real value?

All prices are nominal. Learn some economics, people! This is getting frustrating!

The Macroeconomics thread, again: http://www.shanekillian.org/jref/macroeconomics.html

If gold is selling for X dollars an ounce on the commodity market, then I can purchase - directly or by way of a currency - X dollars worth of goods for an ounce of gold. That certainly is a real value.

No; if something sells for X dollars that is its nominal value!

That means you can not consider the currency value of gold as different from the market value.

I have explained this at length, and nothing in your paragraph suggests that you considered or even read my explanation.

 

[shanek]

Here we go, people, nominal value:

http://www.economist.com/research/Economics/alphabetic.cfm?TERM=NATION BUILDING#NOMINAL VALUE

NOMINAL VALUE

The value of anything expressed simply in the MONEY of the day. Since INFLATION means that money can lose its value over time, nominal figures can be misleading when used to compare values in different periods. It is better to compare their real value, by adjusting the nominal figures to remove the inflationary distortions.

So the nominal value is the value expressed in the money of the day, i.e., its price.

 

[Art Vandelay]

How is the commodity price not a real value? If gold is selling for X dollars an ounce on the commodity market, then I can purchase - directly or by way of a currency - X dollars worth of goods for an ounce of gold. That certainly is a real value.

Actually this is wrong. While it is "real" in the normal use of the term- it certainly isn't fake- it's not "real" in the economic sense of the word. The distinction between "real" and "nominal" is a bit abstract, but basically, "nominal" refers to the price in terms of some currency. "Real" value refers to a more permanent type of value, that does not depend on arbitrary measures such as price.

 

[Art Vandelay]

You can't be this ignorant of history, can you? Look up Executive Order 6260.

Not only did I not see anything in that order that proves what you said, I'm pretty sure it's been repealed.

Pointing out that someone clearly hasn't read my posts is rude?

No, ascribing dissent to "clearly" not reading your posts is rude. The implication is that no one could POSSIBLY read your posts without being convinced of your point of view.

Next time you tell someone not to have a completely idiotic position, try not having one yourself. We aren't talking about the exchange rate!!! We are talking about the amount of gold you can redeem the currency for!!! They're two completely different things!!! Why don't you get that???

A poor choice of words is hardly the same thing as having an idiotic position. I used "exchange rate" because it is the rate at which the exchange is made; I failed to consider the fact that the term is usually considered to refer specifically to inter-currency exchange rates. I stand by my term being technically correct, but I agree that different choice would have been clearer. It's a tribute to my argument is that the worst that you can do is quibble over word choice.

It IS guaranteed because THAT'S what the dollar would be set at!!!

You are still simply asserting your position rather than actually presenting a counterargument. My argument stands unrefuted.

Read the Coinage Act of 1792. That set up all of the specific weights of gold and silver that the dollar was redeemable for...and that never changed.

My position is that one cannot simply use whatever level of gold reserve that one wants. You respond that a specific level of reserves did work. What kind of argument is that? Of course, given enough of a reserve, one can guarantee a constant redemption rate. That hardly means one can use any level one wants. To take your position to an extreme, do you seriously think that a gold standard can be maintained through one gram of gold? If the entire national gold reserve were one gram, could we use that to back the dollar?

Furthermore, I can cite books backing me up on this...the Rothbard book I mentioned earlier...The Economics of a Pure Gold Standard by Mark Skousen...Should There Be an Independent Monetary Authority? by Milton Friedman...source after source after source.

Clearly, you are completely ignorant of the difference between “cite” and “namedrop”. A citation would be an actual quote, with an explanation for how it supports your position and disproves mine. Simply naming a book and claiming it supports you isn’t going to convince anyone of anything other than that you’re a wanker.

The real values of goods never change, unless a new use is found for the good. You're talking about nominal value again. Please learn the difference!

That’s ridiculous. The real value of every good changes. Buggy whips are an extreme example of this, but every good, to some extent or another, fluctuates. If real values were constant, there would be no need to decide on a CPI; one could use any good at all as a base good. Don’t presume to tell me what I’m talking about; it would be an act of arrogance even from someone who knows what HE is talking about, which you clearly don’t.

No; if the dollar is greater than its redemption value then people will simply hold on to the dollar rather than redeeming it.

Hmm. You post an obviously true statement, and pretend that it contradicts mine. What an odd debating tactic.

"Triangles have more than two sides."
"No, SQUARES have more than two sides."

 

[shanek]

Not only did I not see anything in that order that proves what you said, I'm pretty sure it's been repealed.

It was only repealed in 1971 when Nixon made it irrelevant by getting us completely off the gold standard. FDR's executive order made it impossible for people to redeem their dollars for gold.

No, ascribing dissent to "clearly" not reading your posts is rude. The implication is that no one could POSSIBLY read your posts without being convinced of your point of view.

This is just bogus. I'm saying that no one could possibly read my posts and make the comments about them that they're doing. Being convinced has nothing to do with it, although I'm sure you'd love for that to be the case.

You are still simply asserting your position rather than actually presenting a counterargument. My argument stands unrefuted.

Your argument is completely bogus pretty muc by definition! Check any of the sources I cited. It doesn't really matter so much how much gold you have backing up the currency, as long as you set it at one amount and leave it there.

Did you read the Coinage Act?

 

[The Don]

I'm clearly not understanding the argument. Please can someone set me straight ?

I understand that if the value of the dollar is defined to be a set fraction of an ounce of gold then the value of gold is set in those terms. Does this mean that the commodity value of gold will always be a fixed value (barring devaluation) or can the commodity value diverge from the fixed value for periods of time ?

I understand how fixing to a gold standard aims to reduce inflation by restricting the supply of money on the grounds that unless there is a significant increase in the size of the gold reserve then there cannot be an oversupply of money chasing the same value of goods. What I fail to understand is how a (relatively) fixed money supply fails to prevent inflation in a shortage situation.

How does the central bank regulate the value of bullion held ? How does it make a decision to incdease or decrease its holdings and how does this differ from a decsion to print money without increasing the gold reserves.

Shanek claimed that :

There wouldn't be inflation! We didn't have inflation in this country as long as the dollar was tied to a specific weight of gold.

This isn't borne out in fact. If you look here http://inflationdata.com/Inflation/Consumer_Price_Index/HistoricalCPI.aspx?rsCPI_currentPage=6 you find periods of (damaging) inflation followed by periods of (potentially even more damaging) deflation, it's not a stable system.

 

[WildCat]

That's nominal value, not real value! Sheesh...

So what is the real value?

 

[Bjorn]

I'm trying to imagine a scenario where the dollar is backed by gold and the price of gold in the commodity market is different from the amount of gold I would get per dollar from the Federal Reserve:

If dollars are backed by gold at ten dollars a gram .....

and the commodity gold is more expensive, say 15 dollars a gram:

I would demand 100 grams of gold for my 1,000 dollars and sell it in the commodity market immediately. Repeat.

If the commodity gold is cheaper, say 5 dollars a gram:

I would see no point in having gold backing up the dollar since the gold could be sold in the market at only half the dollar amount I 'paid' for it when I did the 'exchange' with the Federal Reserve.

There's something I don't get here.

 

[shanek]

I understand that if the value of the dollar is defined to be a set fraction of an ounce of gold then the value of gold is set in those terms.

Note: it's the nominal value, not the real value, that's being set. There's been plenty of confusion about that in this thread, so I just want to make sure it's straight.

Does this mean that the commodity value of gold will always be a fixed value (barring devaluation) or can the commodity value diverge from the fixed value for periods of time ?

Oh, it can certainly diverge. If, for example, there's suddenly more demand for gold jewelry then we can expect the commodity price to rise. But long run it should stay in balance.

I understand how fixing to a gold standard aims to reduce inflation by restricting the supply of money on the grounds that unless there is a significant increase in the size of the gold reserve then there cannot be an oversupply of money chasing the same value of goods. What I fail to understand is how a (relatively) fixed money supply fails to prevent inflation in a shortage situation.

A shortage of what?

It prevents inflation because it prevents the government from printing money with impunity.

How does the central bank regulate the value of bullion held ?

It doesn't. There is no need for a central bank in this system.

How does it make a decision to incdease or decrease its holdings and how does this differ from a decsion to print money without increasing the gold reserves.

They just aren't able to do that. To do so would be outright fraud.

This isn't borne out in fact. If you look here http://inflationdata.com/Inflation/Consumer_Price_Index/HistoricalCPI.aspx?rsCPI_currentPage=6 you find periods of (damaging) inflation followed by periods of (potentially even more damaging) deflation, it's not a stable system.

Um, that table is from 1913 to the present. 1913 is when the Federal Reserve and its fiat money was introduced to America.

 

[shanek]

So what is the real value?

The real value of gold is the actual value of the gold based on how much it's desired and what you can do with it.

 

[shanek]

If dollars are backed by gold at ten dollars a gram .....

and the commodity gold is more expensive, say 15 dollars a gram:

I would demand 100 grams of gold for my 1,000 dollars and sell it in the commodity market immediately. Repeat.

Remember: when you redeem the gold, your $1000 is taken out of circulation. Whereas 100 grams of gold is now in the commodity market where it wasn't before. So you have fewer dollars chasing after more gold, and the commodity price of gold drops.

If the commodity gold is cheaper, say 5 dollars a gram:

I would see no point in having gold backing up the dollar since the gold could be sold in the market at only half the dollar amount I 'paid' for it when I did the 'exchange' with the Federal Reserve.

If the commodity gold is cheaper, then the dollars are worth more than the gold. So you're going to keep your dollars and spend them in the economy. And BTW, the Federal Reserve wouldn't exist anymore.