Alan Greenspan calls for gold standard?

[ack44]

What the fuck? Can't watch the video right now, but sounds legit.

https://www.youtube.com/watch?v=yRJs5yL62BA

[lordxizor]

Perhaps not the right place for this, but there are some big questions I've always had about the gold standard and why it's so great supposedly. Gold has no inherant value, so what makes it such a good thing to back our currency on? Gold prices fluctuate quite a bit based on demand just like other commodities (just wait for the gold bubble to burst when the economy picks up and you'll see lots of people crying). What makes gold so special? Why not back our currency with steel, oil, or wheat?

Here's my main thought. Say the world's economy completely collapses and people are basically fending for themselves, how would people get what they need? They would barter. People would offer goods or services for other goods or services. Gold would have very little value in such a society, as gold serves no practical purpose. The dude who hoarded gold would die trying to eat it because he has nothing to offer of useful value.

If anyone has either a short explanation or a link to a brief explanation of what makes the gold standard so great, I would love to read it.

[jsem]

Even Friedman himself wasn't a staunch advocator of the gold standard.

Chapter 3 in Capitalism and Freedom discusses this:
https://books.cat-v.org/economics/capitalism-and-freedom/chapter_03

[emindead]

What the fuck? Can't watch the video right now, but sounds legit.

Even if the title in the specific video you linked is a little sensationalist, that's what I was thinking when I read your thread title.

Greenspan is a politician, nonetheless, because you could see how he got away when asked about what Ayn Rand thought about Central Banking. A: "I don't know because we never discussed it." It may be true, but considering how she was influenced by Austrian Economics, having met Henry Hazlitt, Mises, and Rothbard in the early days (in Rothbard's case right after Atlas Shrugged came out), I think that she must have said something regarding Central Banks. That she didn't talk with Greenspan in this particular case, hmmm.....

[Super Dude]

Perhaps not the right place for this, but there are some big questions I've always had about the gold standard and why it's so great supposedly. Gold has no inherant value, so what makes it such a good thing to back our currency on? Gold prices fluctuate quite a bit based on demand just like other commodities (just wait for the gold bubble to burst when the economy picks up and you'll see lots of people crying). What makes gold so special? Why not back our currency with steel, oil, or wheat?

Here's my main thought. Say the world's economy completely collapses and people are basically fending for themselves, how would people get what they need? They would barter. People would offer goods or services for other goods or services. Gold would have very little value in such a society, as gold serves no practical purpose. The dude who hoarded gold would die trying to eat it because he has nothing to offer of useful value.

If anyone has either a short explanation or a link to a brief explanation of what makes the gold standard so great, I would love to read it.

I understand that sentiment, but a barter system wouldn't work that great either, and for a different reason than you might expect.  Have you ever heard of an economic principle called the double coincidence of wants?

[lordxizor]

Perhaps not the right place for this, but there are some big questions I've always had about the gold standard and why it's so great supposedly. Gold has no inherant value, so what makes it such a good thing to back our currency on? Gold prices fluctuate quite a bit based on demand just like other commodities (just wait for the gold bubble to burst when the economy picks up and you'll see lots of people crying). What makes gold so special? Why not back our currency with steel, oil, or wheat?

Here's my main thought. Say the world's economy completely collapses and people are basically fending for themselves, how would people get what they need? They would barter. People would offer goods or services for other goods or services. Gold would have very little value in such a society, as gold serves no practical purpose. The dude who hoarded gold would die trying to eat it because he has nothing to offer of useful value.

If anyone has either a short explanation or a link to a brief explanation of what makes the gold standard so great, I would love to read it.

I understand that sentiment, but a barter system wouldn't work that great either, and for a different reason than you might expect.  Have you ever heard of an economic principle called the double coincidence of wants?

Obviously a barter system is not ideal. That's why we came up with currency. I'm just saying that in the event of worldwide economic collapse, there would be a period of time that the barter system would likely be in effect before new economic systems could be set up.

[Super Dude]

Maybe, but I feel like that would be an even more difficult economic system to support, even in the absence of a viable currency.

[PlaysLikeMyung]

We would end up using gold/silver/otherpreciousmetals as currency. Gold will always have value, regardless of our money. So people will use it

[lordxizor]

Maybe, but I feel like that would be an even more difficult economic system to support, even in the absence of a viable currency.

Sure, but if there was no viable currency and you happened to have the ability to fix a car, which would you be more willing to accept in exchange for your services: a couple lumps of gold or a basket of vegetables? The point is that gold has no inherant value, while food does.

Like I said, this would not work very well long term, but for a while I doubt many people would be willing to accept virtually valueless materials in exchange for things with obvious value.

Anyway... I think we understand each other, so no need to derail the thread any further.

[ack44]

Sure, but if there was no viable currency and you happened to have the ability to fix a car, which would you be more willing to accept in exchange for your services: a couple lumps of gold or a basket of vegetables? The point is that gold has no inherant value, while food does.

In basic survival bartering, gold has little or no value. But that's not the context in which we live - the context is civilization. And if you consider why gold was held as one of the most valuable assets in all civilizations in the history of man, then you'll start to see the value. On the flip side, I'd be interested if you could provide an example where gold had become heavily devalued for, say, more than a decade.

[rumborak]

Gold will always have value, regardless of our money. So people will use it

It will have some value, sure, but the point is that gold has no inherent, stable value. Gold's price, just like anything else, is defined through supply and demand. Right now only 8% of gold is used for investment. The other 92% are for jewelry and technology. Both are highly subject to change.

rumborak

[lordxizor]

Here's a chart for the value of gold over the last 30 years. Look at the extreme fluctuations. We're definitely due for a crash. My layman's opinion would be to sell your gold while it's value is high if you have it.

https://goldprice.org/30-year-gold-price-history.html

The problem with my scenario for worldwide eceonomic collapse is that it's never happened before, so there's no data to show what would happen to the value of gold. My prediction would be that people wouldn't give a rat's ass about shiny objects or fancy electronics and would focus on feeding their families, so the price of gold would plummet.

[PlaysLikeMyung]

Here's a chart for the value of gold over the last 30 years. Look at the extreme fluctuations. We're definitely due for a crash. My layman's opinion would be to sell your gold while it's value is high if you have it.

https://goldprice.org/30-year-gold-price-history.html

I think most economists would tell you to keep your gold. If you sell it, sure you get more money now. But if the value of the dollar turns to nothing (or close to it), you then have nothing of value to fall back on. Gold is that sort of insurance, or that's how I'm understanding it.

As for feeding your family... It's important, and I think most people would agree that getting some vegetables is more valuable to life than gold, but attaining that good, in this society, might prove difficult. People would still require some sort of payment. And a barter system might be effective, but we want valuable things. Currency.

There's also the problem of people not having something of value to trade. We're not all farmers, herdsmen, etc. I don't have a skill I could turn into something tangible for trade. How would I barter?

[Super Dude]

Maybe, but I feel like that would be an even more difficult economic system to support, even in the absence of a viable currency.

Sure, but if there was no viable currency and you happened to have the ability to fix a car, which would you be more willing to accept in exchange for your services: a couple lumps of gold or a basket of vegetables? The point is that gold has no inherant value, while food does.

Like I said, this would not work very well long term, but for a while I doubt many people would be willing to accept virtually valueless materials in exchange for things with obvious value.

Anyway... I think we understand each other, so no need to derail the thread any further.

Y'see this is why I asked if you were familiar with the principle of double coincidence of wants.  Let's say you're a farmer who makes his livelihood from sheep: wool, meat, etc.  Say you need milk, as from a cow, and your neighbor has a cow that provides milk.  You're willing to trade some wool or lamb meat for milk from his cow, or perhaps the cow itself.  But what if the farmer has beef and is unwilling to part with his cow, or raises his own flock of sheep?  Should the only farmer willing to make this trade live in the next town, would you be willing to make that trip simply to procure your milk?  Or even if we take your example, vegetables: maybe the other guy doesn't want vegetables, because maybe he grows some of his own and perhaps they're of better quality or quantity than yours.

That's the problem with the barter system: it requires that each party want what the other has, and that each party have what the other wants.  That is the problem of double coincidence of wants.

I'm not suggesting gold is the solution; I'm merely stating that a barter system would also not work.

[emindead]

Barter only works until a certain extent on primitive civilizations. Things get tricky -thanks SD for pointing out why- and then civilization evolved and created currencies, or money, to facilitate the exchange. There's an important economic paper that talks about the origin of money (here's the summary).

[lordxizor]

Barter only works until a certain extent on primitive civilizations. Things get tricky -thanks SD for pointing out why- and then civilization evolved and created currencies, or money, to facilitate the exchange. There's an important economic paper that talks about the origin of money (here's the summary).

Yeah, I'd never expect a barter system to work for long in a post economic collapse type of world, but I'd imagine by default it would exist for some period of time out of necessity. People banking that gold will be worth something after that are taking just as big of a risk as anyone really.

[emindead]

For gold to work again it would take time. I guess that in a post-Dec 21st 2012 situation you could have barter system in small rural places that would go on for a while. After that a transition will be implemented when the guys with the most productive lands and most productive jobs need something else in exchange that the other country people don't have. That's when precious metals come into play. A small and gradual process.

Talking of barter, there was a documentary I saw I think a year or a year and a half that due to the crash in 2008 Argentina was almost broke; their peso was basically not worthy. So they established in cities like Buenos Aires, Mendoza and the like a delimited market area where people could trade their goods. These markets were in really poor places but people from the middle class and lower started to go there because they could basically afford buying food. It's really interesting, though sad. You don't want to end in that situation... it's kind of demeaning.

[Riceball]

I wrote this on my way into work this morning so forgive me if its a bit train of thought sounding:

I suppose I understand the call for the gold standard, the US is so severely debasing its own currency via printing money and inflating (eventually) its debts away that the purchasing power of the dollar will be so low in real terms its really hard to see how the economy will adjust in the LR to the inevitable bubbles that reappear. ( and breath)

In addition, gold is priced in USD, and with the US printing these ridiculous sums of money to buy treasuries, how do they expect to buy up enough gold to back their currency? At the margin, they will just keep pushing the prices up, push yields & therefore the value of the USD lower, with the cycle continuing ad-infinitum. Maybe Greenspan is feeling a bit guilty about his role in the whole US financial fuckup (for want of a better word).