How do you have money backed by Gold AND silver?

[revolutionist]

If silver an gold have different values that change, how do you pin a dollar to an amount of gold and an amount of silver?

Am I missing something?

[Fox McCloud]

If silver an gold have different values that change, how do you pin a dollar to an amount of gold and an amount of silver?

Am I missing something?

preferably, things would be priced in "Gold grams" and "silver grams", and not "US Dollars".

As for if you're bound to sticking with the dollar--you'd have to define it as one or the other, and then the market would take care of the rest....using a fixed ratio wouldn't be a good idea, as it tends to cause one to be artificially over-valued over the other.

[Isaac Bickerstaff]

William Jennings Brian's "Cross of Gold" speech should help clear things up.

[Fox McCloud]

William Jennings Brian's "Cross of Gold" speech should help clear things up.

I'd be careful of what that guy says; he was no friend to the gold standard; as a matter of fact, he wanted inflation so that people could get cheap loans and pay them back at an even cheaper rate.

[aravoth]

If silver an gold have different values that change, how do you pin a dollar to an amount of gold and an amount of silver?

Am I missing something?

You have it backwards. The value of gold does not change. The value of your dollar does.

Once in a debate Ron Paul tried to tell people this by explaining that the cost of oil was high in terms of US Dollars, bu that the cost stayed the same with gold. And.....................


He was right....again.....and again......no one listened.

[Acala]

You have correctly identified the problem. Having a monetary denomination - like "dollar" - and pegging it to more than one commodity is a kind of price control that yields the same shortages as all price controls. If, for example, you tie silver and gold to a dollar denomination, when one metal becomes more valuable compared to the other, coins made of the more valuable metal will exit the market and be melted.

The answer is to scrap currency denominations entirely. If the government feels the need to continue to mint money, it should be by metal weight and fineness, not a face value in "dollars" or "yen" or whatever. Then the market will set the exchange rate between silver, gold, copper, platinum and whatever else people decide to circulate as money.

This was, in my opinion, where Liberty Dollar got off the track. Don't use the term "dollar". Certify weight and fineness. In fact, don't even certify weight because weight changes with wear and exact weight is easy for consumers to determine. Just mint the coins in convenient sizes with the metal percentage specified and certified. The market will then evaluate those coins on the fly.

And hang anyone who falsifies fineness values or engages in fractional reserve banking.

Then live happily ever after.

[Bradley in DC]

Latinum is a rare silver liquid used as currency by the Ferengi Alliance and many other worlds. It cannot be replicated. For ease of transaction, latinum is usually suspended within gold to produce "gold-pressed" latinum.

[Bradley in DC]

More seriously, it's important to make a distinction between bimetalism with gold and silver (which doesn't work well) and parallel currencies in gold and silver (which does work well).

With bimetalism there is a government-directed arbitrary fixed ratio for the price between them. With parallel currencies, the market sets the relative price for each.

[Fox McCloud]

here's a graph that I corrected to make it more consistent; I also added a legend to it as well, so it's a tad more informative:



Dr. 3D has made a number of excellent graphs; they're floating around here somewhere.

[bander87]

The problem is we kept redefining what a dollar was?

[Dr.3D]

Dr. 3D has made a number of excellent graphs; they're floating around here somewhere.

Here are some of them.

Compare Price of Oil in 1913 Dollars
Price of a Barrel of Oil In U.S. Dollars and Grams of Gold
Grams of Gold per Barrel of Oil
Barrels of Oil Per Ounce of Gold

[Pauls' Revere]

You have correctly identified the problem. Having a monetary denomination - like "dollar" - and pegging it to more than one commodity is a kind of price control that yields the same shortages as all price controls. If, for example, you tie silver and gold to a dollar denomination, when one metal becomes more valuable compared to the other, coins made of the more valuable metal will exit the market and be melted.

The answer is to scrap currency denominations entirely. If the government feels the need to continue to mint money, it should be by metal weight and fineness, not a face value in "dollars" or "yen" or whatever. Then the market will set the exchange rate between silver, gold, copper, platinum and whatever else people decide to circulate as money.

This was, in my opinion, where Liberty Dollar got off the track. Don't use the term "dollar". Certify weight and fineness. In fact, don't even certify weight because weight changes with wear and exact weight is easy for consumers to determine. Just mint the coins in convenient sizes with the metal percentage specified and certified. The market will then evaluate those coins on the fly.

And hang anyone who falsifies fineness values or engages in fractional reserve banking.

Then live happily ever after.

The problem I have with using precious metals as coin/currency is that just as they did in ancient times people will chip off pieces of the coin or shave them ever so slightly to pocket a small piece. These they melt down and sell off for thier own gain. This was part of the arguement for the creation of paper money or at least a form of money which was in and of itself worthless but which was understood to hold value. I could rip a corner off the dollar and people wouldnt really care. Try using a coin made of gold at the store with a piece missing out of it. The gold certificate would be a good start like we use to have where we could exchange our dollar for gold or silver at the bank. They had blue ink on them, and I use to have one long ago.

[Dr.3D]

The problem I have with using precious metals as coin/currency is that just as they did in ancient times people will chip off pieces of the coin or shave them ever so slightly to pocket a small piece. These they melt down and sell off for thier own gain. This was part of the arguement for the creation of paper money or at least a form of money which was in and of itself worthless but which was understood to hold value. I could rip a corner off the dollar and people wouldnt really care. Try using a coin made of gold at the store with a piece missing out of it. The gold certificate would be a good start like we use to have where we could exchange our dollar for gold or silver at the bank. They had blue ink on them, and I use to have one long ago.

This is why one would weigh the precious metal at the time of a purchase and not rely on a specific stamped weight of the metal on a coin. If the coin had been embezzled, it would be obvious from the difference in weight.

[nate895]

You have it backwards. The value of gold does not change. The value of your dollar does.

Once in a debate Ron Paul tried to tell people this by explaining that the cost of oil was high in terms of US Dollars, bu that the cost stayed the same with gold. And.....................


He was right....again.....and again......no one listened.

It appears oil is actually slightly cheaper in terms of gold at the end od the graph than from the start.

[Dr.3D]

It appears oil is actually slightly cheaper in terms of gold at the end od the graph than from the start.

Here is a closer look at the number of barrels of oil per ounce of gold.



The data was taken from these web sites:
http://www.eia.doe.gov/mer/prices.html
http://www.gold.org/deliver.php?file...hly_prices.xls

[Fox McCloud]

The problem I have with using precious metals as coin/currency is that just as they did in ancient times people will chip off pieces of the coin or shave them ever so slightly to pocket a small piece. These they melt down and sell off for thier own gain. This was part of the arguement for the creation of paper money or at least a form of money which was in and of itself worthless but which was understood to hold value. I could rip a corner off the dollar and people wouldnt really care. Try using a coin made of gold at the store with a piece missing out of it. The gold certificate would be a good start like we use to have where we could exchange our dollar for gold or silver at the bank. They had blue ink on them, and I use to have one long ago.

just because we have a gold or silver currency doesn't necessarily mean that you're carrying around the coin all the time; one could carry around gold or silver notes, or even a card, if you wanted..everything is still backed by gold, you're just making it easier to carry around.

Not only that, but as Dr. 3D pointed out, weighing it and testing it (which isn't that hard, and I'm sure there'd be a market develop for grocery stores to very quickly test if the gold was pure and had a weight consistent with the stamping of the coin).

the only problem is, even with a gold-backed currency run by the government, there'd always be the temptation to create more paper money than there was also gold; I'd also argue that banks would attempt to do this as well.

Ultimately, I personally think the only safeguard against this is to have the market ultimately pick the money.

[Dr.3D]

the only problem is, even with a gold-backed currency run by the government, there'd always be the temptation to create more paper money than there was also gold; I'd also argue that banks would attempt to do this as well.

In the case of certificates, it would be necessary to have multiple independent audits of the numbers of certificates printed against what is actually in the vault.

[Zippyjuan]

Would you use metal backed currency only for domestic transactions- which would say that your money has one value at home and another abroad- or for all transactions- domestic and foreign? If you include the latter, a problem can arise when you are running a trade deficit and your trading partners want their money exchanged for your metals which can lead to depleation of your supplies. Shrinking money supplies are usually accompanied by slowing economic growth.

If you have pegged currency exchanges. like we have with China- our largest source of trade deficit at $259 billion for 2007- then currency exchange adjustments cannot correct the reduced US money supply (loss of metals) relative to the renminbi so you could theoretically run out of metals to back your currency with. Then what?

As of July 2008, our reported gold reserves were worth aproximately $241 billion at market rates so one year's deficit with China could theoretically wipe that out if they demanded to be paid in gold for the deficit- assuming our current money supply was set at a fixed ratio to the price of gold in July of this year. http://en.wikipedia.org/wiki/Official_gold_reserves

[Pauls' Revere]

This is why one would weigh the precious metal at the time of a purchase and not rely on a specific stamped weight of the metal on a coin. If the coin had been embezzled, it would be obvious from the difference in weight.

For example: then if I buy groceries the clerk weighs each coin I had over?

[Pauls' Revere]

just because we have a gold or silver currency doesn't necessarily mean that you're carrying around the coin all the time; one could carry around gold or silver notes, or even a card, if you wanted..everything is still backed by gold, you're just making it easier to carry around.

Not only that, but as Dr. 3D pointed out, weighing it and testing it (which isn't that hard, and I'm sure there'd be a market develop for grocery stores to very quickly test if the gold was pure and had a weight consistent with the stamping of the coin).

the only problem is, even with a gold-backed currency run by the government, there'd always be the temptation to create more paper money than there was also gold; I'd also argue that banks would attempt to do this as well.

Ultimately, I personally think the only safeguard against this is to have the market ultimately pick the money.

Right we used to issue the notes and they had blue ink on them. You are right there would need to be some oversight or safeguard. The original "greenback" competed well back when Lincoln was in office if I remember correctly.

There is also this website which another RPF poster put up. wish I could take the credit but I cant, nor would I.
http://www.e-gold.com/
perhaps the use of a debit card against these accounts might work?

[Dr.3D]

For example: then if I buy groceries the clerk weighs each coin I had over?

Yes, a separate scale for weighing the metals would be there for just that purpose.
Each coin would not be weighed separately, the gold coins would be weighed all at the same time and the silver coins would be weighed all at the same time.

You would be paying by weight of the metals, not by some stamping on the face telling what they weigh.

Of course, the scheme of embezzling was pretty much wiped out when they started putting a reeded bezel on the coins and the wear was cut down when they started using an alloy of metals to make the coins wear better.

[Pauls' Revere]

From Wiki: The Gold Standard Desc:

The gold standard is a monetary system in which a region's common media of exchange are paper notes which receive substantial premia because they are normally freely convertible into fixed quantities of gold. Under a gold standard, money issuers normally stand willing to redeem their notes, upon demand, for pre-set, intertemporally constant, fixed amounts of gold. The gold standard is not currently used by any government, having been replaced completely by fiat currency, and private currencies backed by gold are rare.

Gold standards should not be confused with their historical predecessor, "gold-coin standards," wherein taxes are payable in either gold coins or overvalued, government-minted, less expensive, coins.

The main purpose of either government money system has historically been to provide seigniorage, or money-creation profit, to governmental leaders in order to provide them with general purchasing power during emergencies, especially those leaders who are legislatively constrained and therefore unable to raise taxes in order to execute the defense commitments that are required for the survival of their states (Thompson, 1974.)

Gold standards replaced gold-coin standards in the 17th-19th centuries in the West as the extent of defensive warfare expanded to where the gold-coin standards were no longer sufficient to the task. A similar history generated a gold standard in China from the 9th through the early 17th century.

Doesn't RP endorse the Gold Standard? That would mean we start printing gold and silver certificates again right?

[revolutionist]

wouldn't a store have to constantly reprice all of their merchandise as the costs of gold and silver change?

[Acala]

wouldn't a store have to constantly reprice all of their merchandise as the costs of gold and silver change?

First of all, if gold and silver became the major currency, their value would be determined primarily by demand for money, a stable demand, not by the various volatile demands that determine gold price today. So it is likely that the value of gold would be stable.

Also, keep in mind that what looks to you like volatility in gold prices has more to do with volatility in dollar value than gold value.

Finally, please note that the dollar fluctuates daily on world markets, but the grocery store doesn't reprice. It isn't necessary.

[yokna7]

In the case of certificates, it would be necessary to have multiple independent audits of the numbers of certificates printed against what is actually in the vault.

Thats a good idea, but regardless: if a precious metals standard was the law of the land it would never come close to the saturation the fed is doing. The old way "payable to bearer on demand" is the way to go.

[yokna7]

The problem I have with using precious metals as coin/currency is that just as they did in ancient times people will chip off pieces of the coin or shave them ever so slightly to pocket a small piece. These they melt down and sell off for thier own gain. This was part of the arguement for the creation of paper money or at least a form of money which was in and of itself worthless but which was understood to hold value. I could rip a corner off the dollar and people wouldnt really care. Try using a coin made of gold at the store with a piece missing out of it. The gold certificate would be a good start like we use to have where we could exchange our dollar for gold or silver at the bank. They had blue ink on them, and I use to have one long ago.

Probably not the case. Before the Coinage Act of 1965, silver was still used in our coins. They circulated freely. They stopped doing it because they new that in 1968 that they were not going to redeem certificates with gold. They wanted to stop the precious metal system and officially in 1971 it happened.

The last part of that can be argued. Coin circulation did drop but what was the problem?

[Goldenboy812]

From Wiki: The Gold Standard Desc:

The gold standard is a monetary system in which a region's common media of exchange are paper notes which receive substantial premia because they are normally freely convertible into fixed quantities of gold. Under a gold standard, money issuers normally stand willing to redeem their notes, upon demand, for pre-set, intertemporally constant, fixed amounts of gold. The gold standard is not currently used by any government, having been replaced completely by fiat currency, and private currencies backed by gold are rare.

Gold standards should not be confused with their historical predecessor, "gold-coin standards," wherein taxes are payable in either gold coins or overvalued, government-minted, less expensive, coins.

The main purpose of either government money system has historically been to provide seigniorage, or money-creation profit, to governmental leaders in order to provide them with general purchasing power during emergencies, especially those leaders who are legislatively constrained and therefore unable to raise taxes in order to execute the defense commitments that are required for the survival of their states (Thompson, 1974.)

Gold standards replaced gold-coin standards in the 17th-19th centuries in the West as the extent of defensive warfare expanded to where the gold-coin standards were no longer sufficient to the task. A similar history generated a gold standard in China from the 9th through the early 17th century.

Doesn't RP endorse the Gold Standard? That would mean we start printing gold and silver certificates again right?

Very good, as that was where i was going to go with it.

In theory, 1 oz of gold would be enough for the entire country, as denominations would be that of 1/1,000,000,000 etc...

The purpose of a gold standard in this regard is to protect against inflation, so to achieve total price stability. As the economy needs more money to expand growth, they could add a tad more gold and correspond with printing "notes" (in exact form) to accompany it.