How can we implement the gold standard?

[oneguyver]

Imagine you have a magic wand that can pass any law you want, what would you do to get us from where we are today into a gold backed currency?

Please note that I know the arguments for adopting the gold standard so please let's not regurgitate them. The question is "how would we get there?" not "why".

I ask because I thought about the different scenarios to make the gold standard happen and none were viable/good/just, maybe you have a scenario I haven't thought of. Here are a few scenarios:

A) Make gold the currency and the current dollars not valid. Problem: Suddenly anyone not owning gold would be indigent.

B) Divide the amount of gold owned by the US government by the amount of dollars in existence. Problem: According to the treasury the US has roughly 261.49 million ounces of gold stored, and based on the national debt the amount of dollars in existence is 13.4 trillion dollars. This means that the price of gold would be $51,244 per ounce. This would be a massive transfer of wealth to those who own gold.

C) Confiscate all gold in the US and divide it by the amount of dollars in existence. Problem: An ounce of gold would still be worth a few dozen times what it is today. In this case the transfer of wealth is going to be to foreigners who own gold (being able to buy property here in the US for a few ounces of gold).

D) Divide the amount of gold in the US by the amount of dollars in existence and decree that dollars cannot be exchanged for the stored gold and vice-versa. Problem: This would mean the amount of dollars in existence would be fixed (even if we mine more gold). With a growing population and economy it's only a matter of time until the number of dollars available are not enough to properly conduct trade (think back to the great depression when the Fed contracted the money supply). By the way, this option would be the same as taking your magic wand and making a law that says "thou shall not print any more money", so you don't really need the gold standard to have this effect.

Once again, in the hypothetical case that you can pass ANY laws you want, how would you implement the gold standard?

[Elwar]

Legalized competing currencies.

It will get us onto the gold standard in the same way that legalizing competition in the phone industry got us from using land lines to cell phones.

Imagine if back in 1992 there was someone pushing for a law to get everyone to stop using their home phone and switch over to mobile(car) phones. The opposition would be huge, and the practicality would be stiffling. Instead, they opened up the industries to competition.

[Zippyjuan]

Who would have enough gold to create a gold backed competing currency if it were allowed?

[Mini-Me]

Who would have enough gold to create a gold backed competing currency if it were allowed?

Your question implicitly presumes either the necessity of centralization, the inability of prices to slowly come to equilibrium with the current supply of gold as it is increasingly used as money, or both...but there is no justification for either presumption. A free market gold standard [or similar] is not something that is instituted by a central party, but something that could (and would) gradually evolve and take over from fiat money in the absence of onerous restrictions.

[specsaregood]

Who would have enough gold to create a gold backed competing currency if it were allowed?

A competing currency wouldn't have to necessarily be backed by gold.

[Sola_Fide]

Once again, in the hypothetical case that you can pass ANY laws you want, how would you implement the gold standard?




The government shouldn't "implement" any standard.



The market is perfectly able to decide what it wants to use for exchange.

[oneguyver]

Your question implicitly presumes either the necessity of centralization, the inability of prices to come to equilibrium with the current supply of gold, or both...but there is no justification for either presumption. A free market gold standard is not something that is instituted, but something that could (and would) gradually evolve and take over from fiat money in the absence of onerous restrictions.

I don't think it implies centralization, whether there is one big competing currency backed by gold or many smaller ones, there still has to be enough total gold in reserves to compete with the dollar, or else even without inflation or money printing, the price of gold in dollar terms would have to skyrocket to make up for the lack of gold available. It would be a massive transfer of wealth to gold owners.

[sratiug]

Who would have enough gold to create a gold backed competing currency if it were allowed?

Who has enough paper and zeros to print fed notes if it is not allowed might be a better question.

[sratiug]

I don't think it implies centralization, whether there is one big competing currency backed by gold or many smaller ones, there still has to be enough total gold in reserves to compete with the dollar, or else even without inflation or money printing, the price of gold in dollar terms would have to skyrocket to make up for the lack of gold available. It would be a massive transfer of wealth to gold owners.

But if there are competing currencies, you can have silver, nickel, copper, plastic and wood to make change.

[oneguyver]

By the way, the responses so far are advocating competing currencies (which may or may not be backed by a tangible asset), not a gold standard for the dollar.

Just to be clear.

[Mini-Me]

I don't think it implies centralization, whether there is one big competing currency backed by gold or many smaller ones, there still has to be enough total gold in reserves to compete with the dollar, or else even without inflation or money printing, the price of gold in dollar terms would have to skyrocket to make up for the lack of gold available. It would be a massive transfer of wealth to gold owners.

If it happened all at once, it would be a massive transfer of buying power to current gold owners, but it couldn't really happen at once*. The price of gold would increase by a huge multiple, but it would do so gradually as gold became more useful as money, and this very process of wider circulation would serve to spread it around as well. The fewer people who have gold, the fewer people who can use it as money, and the slower its demand and value will rise compared to the fiat dollar. Still, if gold were ever permitted to become a serious competitor to the dollar, you definitely wouldn't want to be the last one clinging to fiat money, that's for sure. In the presence of more reliable competition circulating as money domestically, the fiat dollar couldn't hold long-term buying power.

Realistically speaking, I do think the market would gravitate towards a bimetallic standard though, rather than a singular gold standard. The reason is, gold would become so valuable per gram that it would primarily be used for bank deposits, electronic debit, etc. The market would likely gravitate toward a cheaper [but relatively supply-stable] metal like silver for physical cash purchases.

*I should clarify: When I say the massive transfer of buying power would happen slowly, I'm referring specifically to a gradual market turn towards gold over fiat money as a preferred medium of exchange. However, if the dollar enters hyperinflation overnight for other reasons and people suddenly flock to hard assets as a response, then all bets are off.

[sratiug]

By the way, the responses so far are advocating competing currencies (which may or may not be backed by a tangible asset), not a gold standard for the dollar.

Just to be clear.

That's because no one here is really in favor of a gold standard. We are generally in favor of competing currencies and would use all metals plus other things. Ron Paul is not in favor a gold standard. But if there were a standard implemented, it cannot be constitutional unless it is gold or silver. [edit: plus we have a couple of paper loving FED trolls]

[oneguyver]

That's because no one here is really in favor of a gold standard. We are generally in favor of competing currencies and would use all metals plus other things.

Okay, that clarifies things.

I think people should stop using the phrase "We should go back to the gold standard" as it's used A LOT and it's greatly misleading (if the actual goal is to allow competing currencies). I've seen both Ron Paul and Peter Schiff using the phrase at various times. To be fair, I've also seen them talking about competing currencies too.

[sratiug]

Okay, that clarifies things.

I think people should stop using the phrase "We should go back to the gold standard" as it's used A LOT and it's greatly misleading (if the actual goal is to allow competing currencies). I've seen both Ron Paul and Peter Schiff using the phrase at various times. To be fair, I've also seen them talking about competing currencies too.
YouTube - January 20, 2010 Competing Currencies (http://www.youtube.com/watch?v=dBaQgZ5PfAg&feature=player_embedded)

[Stary Hickory]

Legalized competing currencies.

It will get us onto the gold standard in the same way that legalizing competition in the phone industry got us from using land lines to cell phones.

Imagine if back in 1992 there was someone pushing for a law to get everyone to stop using their home phone and switch over to mobile(car) phones. The opposition would be huge, and the practicality would be stiffling. Instead, they opened up the industries to competition.

Exactly this just legalize Gold as money and stop trying to "fix" a currency. It will all work out in the end with the most stable form of currency becoming the standard by trial and error in the marketplace.

[specsaregood]

Okay, that clarifies things.

I think people should stop using the phrase "We should go back to the gold standard" as it's used A LOT and it's greatly misleading (if the actual goal is to allow competing currencies). I've seen both Ron Paul and Peter Schiff using the phrase at various times. To be fair, I've also seen them talking about competing currencies too.

Well Dr. Paul says it, it is his way of dumbing down the message. Its a helluva lot easier to put into a stump speech/explain than to talk about competing currencies. And he'll happily tell you that while the Gold standard had its downsides, it would be better than what we have now.

[DamianTV]

The GOLD Standard, by itself is not good enough.

Rule #1. Always have a backup plan.

The Founding Fathers knew this. They knew that having one plan without a backup plan was not smart. They didnt write in just gold. They wrote in Gold and Silver. Silver being the backup plan.

Thus, to settle my own argument very briefly, I will try to emphasize that the statement we use frequently "The Gold Standard" actually means returning to the previous set of standards, where Silver is an implied standard, even if not specifically mentioned in our paraphrasing.


Section. 10. No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

---

Enough of that. The Gold Standard by itself I dont think will solve our problems. Neither will banning Fractional Reserve standards. We need to reevaluate the entire situation, with the intent of preventing Money Manipulators from benefiting by doing nothing. I have been told that "Honest Money System" doesnt work because the word "Money" implicitly means dishonesty. Money in and of itself is neither good, nor evil. Money is supposed to be representative of Currency, or a representation of something of value.

Instead of bartering and trading Fish for Apples, or I'll work on your car and you fix my dishwasher, we came up with recipts, and started to trade these receipts, which became the first known representation of currency. These recpits could have been anything. Things of actual value, a horse or pig, some form of livestock, and just about everything had been used as the form of currency. Feathers, shells, sticks, etc were used as the Form of Currency. But in this we are misinterpreting what Currency actually is. Currency is supposed to reflect something of value, regardless of its Form. Many times, people get it in their heads they need to call for a change to the Form of Currency. Return to the Gold Standard. It implies taht we need to change the Form of Currency from Chickens or Cattle to Feathers and Shells.

Changing our Form of Currency does not solve the problem, we need to change what the chosen Form of Currency represents. Due to the nature of the current money system, our currency represents Debt. Currency is now mostly Digital. And whatever those digits are, it is created through the Loan Process. Way way oversimplifying, but Joe wants a new car, and takes out a car loan, the Bank he takes out the loan from creates the new currency out of nothing and that nothing is given value due to Joes promise to repay the loan, thus the current form of currency represents debt. Once Joe pays off that debt, the currency is effectively destroyed. Since most currency is now digital, it can be easily destroyed by changing a number in a bank account to zero.

If we are going to effect any form of long term changes to the current money system that benefit everyone, we need to change what currency represents, from representing debt owed by someone to someone else, to representing things of value. That I believe is the core of an Honest Money System.

[Seraphim]

Ditto on competing currencies. The market virtually always reverts to a gold and silver as the base of the currency structure with whatever else local markets decide to use as exchange.

[Sola_Fide]

Due to the nature of the current money system, our currency represents Debt.


Bingo!

[psi2941]

i support the paper standard! paper is lightweight, and you can burn it for heat.

[DamianTV]

Cant exactly make a paper airplane out of gold bullion... lol