real question about sound money

[SeanEdwards]

Maybe someone on this forum can explain something about monetary policy to me. If the currency is linked to a specific precious commodity (gold, or whatever), then how does the money supply expand? Does it require that gold be mined and deposited in some Ft. Knox type deal? I admit that I really don't understand this stuff, and have never studied macro-economics, so I'm hoping someone here can provide a link that explains exactly how a modified gold standard would work.

It seems like if the money supply was locked, then all economics becomes a zero-sum game. You can't get rich, without making someone else poor. What am I missing here? Money sure is weird.

[Swmorgan77]

Good question. Rotbhard answered it more succinctly and effectively than I could. I highly recommend taking the time to listen to the free audio book "What has government done to our money" at this link:

It's short, and its an easy read (which you wouldn't expect from an economics book).

You will understand the Gold standard issue MUCH better if you take the time to listen.

http://www.mises.org/media.aspx?action=category&ID=92

By the way Rothbard's short answer to your question is that we need not worry about having "enough gold" to allow for exchange, because the market would determine a price based on the availability of gold and so products/services would be worth less gold if it was less available. Gold's availability would not prevent it from serving as a currency, it would simply mean that it would be worth more products and services. We would need smaller quantities of it to exchange, but it does not need to be "plentiful" per se.

[BLS]

I'm not really sure, but I would think that your last statement is true.
You can't just MAKE money. If you could, everyone would do it, right?

Therefore, your last statement makes the most sense. There's a finite amount, and it's distribution dictates wealth.

My biggest concern about RP wanting to get away from paper money, is HOW will we pay for things?

[foofighter20x]

Debt As Money (47 min)

[briatx]

If you had a constant supply of money, as the economy expanded the money would gain value over time. Imagine that.

Unfortunately I think everything is going electronic. Its not necessarily the paper that's bad, its because its a fiat currency, backed by nothing but the goodwill of the United States, its economy, and its military.

[beermotor]

There's nothing wrong with electronic deposits and banking, either. So long as the supply is not expanding (with the whims of government), then everything is fine. You get ECONOMIC STABILITY rather than the crap we have now. Will it curtail rapid expansion? You're damn right it would! And that's the entire point! What happened after the dot com boom of the 90s? What happened after the "roaring 20s"? What you want to avoid is rapid booms and busts. That is what the Austrian Business Cycle is all about.

[goldenequity]

Another great film 4 U.

The Money Masters

[Original_Intent]

What is even more bizarre is if you think about our current system with the same critical view that you look at the "what if" scenario:

We have a system where how much money is in circulation is under the control of a very few people (and yes they can take money OUT of circulation as well as put it in.

These people are private bankers, this is NOT under the control of the government at all (although even if it was I am not sure that would make me feel any comfort)

They print money out of thin air and we pay them interest on it.

And with a godl standard it is not a zero sum game - as productivity rises, things are produced cheaper and even with a fixed money supply prices drop and standard of living rises. Under the current system, productivity rises AND prices also rise - the effect of inflation is hidden due to rising productivity. The consumer price Index is a dishonest way of measuring inflation and big surprise! this was changed during Clinton's administration to make people feel that inflation was under control.

[Swmorgan77]

I'm not really sure, but I would think that your last statement is true.
You can't just MAKE money. If you could, everyone would do it, right?

Therefore, your last statement makes the most sense. There's a finite amount, and it's distribution dictates wealth.

My biggest concern about RP wanting to get away from paper money, is HOW will we pay for things?

Well "getting away from paper" does not mean money can not literally be made of paper. It would just mean that it would be a certificate for X amount of gold, redeemable on demand.

[TyTodd]

Just a couple of thoughts on this discussion:

1) "Making Money" - Under the current system, with fiat money, the Federal Reserve, the IMF and World Bank are essentially creating money out of thin air. This is done either quite literally by printing Federal Reserve Notes (dollars) or by creating checks / credit for loans that are unsecured (or highly leveraged) against held asset reserves. This introduces additional money into the U.S. (and thus world economy), devaluing the dollar and causing inflation here in the U.S.

2) Increasing "Group Wealth" - Printing money or making money doesn't increase wealth, in fact it devalues the currency as noted above. Although extensive borrowing and the creation of dollars can give the appearance of short term economic expansion, the devaluing currency and the ultimate effects of inflation and the subsequent trade imbalances it engenders will inevitably overwhelm the short term appearances. At the end of the day, you can't print money and redistribute it to the general populace and expect that this will improve the standard of living... all this does is increase prices. Everyone maintains the same amount of purchasing power, it just takes more of the paper "money" to conduct the transactions. NOTE: the creation of paper money actually inevitably benefits the gatekeepers in these transactions (i.e. the wealthy on wall street) who influence the entire process and have access to new money before the effects of the dilution are felt in earnest.

3) Regarding Gold & Silver Supply - I am not an expert here, but from what I understand, the general principle is that by returning to a gold backed dollar (or legalizing competition between gold / silver and fiat currency; this is what Congressman Paul advocates) the laws of supply and demand would naturally accommodate for the limited amount of natural resources (gold) that could circulate (or be reserved to "back" the currency). Meaning, if gold isn't available in enough quantities, the open market would adjust and value the gold (and hence dollar to gold) accordingly. The whole principle behind gold and silver as currency standards is in part due to the fact that they are: a) inherently valuable (we use them for ornamentation and in industrial processes), b) fungible - two units of gold with equal weight and purity are exchangeable / inter-tradable, and c) they are inherently divisible. A diamond couldn't be used for a currency standard because diamonds aren't easily divisible into smaller units, and they can't be aggregated into larger components.

Hope that makes sense. If anyone understands these issues with more clarity, please feel free to tweak my statements