Thursday, January 19, 2012

Money Question

Here is a question:

How does backing the dollar with the gold standard suddenly turn the dollar into "honest money" (into the veritable, the real)?


Whatever one's explanation is, it won't be any better than this one: Gold has great magical powers that will make the dollar "honest money".

Here's another question: how does backing the dollar with the gold standard create true wealth other than through impoverishing the vast majority?

Update: I changed the phrasing a bit to hopefully avoid confusion of meanings of the words, "honest money".


Belfry Bat said...

I honestly don't know what can be meant by "honest money" here. Perhaps they mean it shall have some "verifiable and immutable basic value"? It certainly can't be honest in the sense that Our Lord speaks of winning friends "by dishonest wealth" who can help us survive the final Judgment.

The value of any currency is, of course, what you can buy with it. Apparently, other than what is traded in the free market, the primary thing a State-issued currency will buy is --- your Tax Obligation, aka not-being-in-jail, aka your freedom and (perhaps) franchise. Obviously, there's some insanity here. Anyways, if some state wishes to issue its own currency AND keep that currency's trade value at a reasonable fluidity (not too high-and-sticky, not too low-and-grainy), it really ought to back it with something valueable, neither too weighty nor too frivolous. Gold, as it happens, used to be very popular (and it still is, though it's both accumulating more uses, and breeding dragonish habits in many quarters) as well as something that a small number of thugs could reasonably keep tabs on.

Of course, this leads to the question of what there might be that a government can offer, more-or-less repeatedly, which is of value to its subjects, but which it is reasonable (and feasible) to withold before some token debt be paid. I'm sure there are plenty such things, only there aren't many in my head at the moment.

Paul Stilwell said...

"verifiable and immutable basic value"?

Yes. In the sense that we will go from money-as-debt to something of intrinsic worth, something "concrete" - gold.

The value of currency to its subjects is, to this writer who is obviously no economist, based on exchange/transaction. Money is, as you know, nothing but legal tender. The real delusion is "backing" it with something supposedly substantial. But the only really substantial thing in this regard is transaction, exchange.

Anyways, I've been watching Bill Still. The Secret of Oz. Maybe you've seen it:

Sheila said...

Well, if currency is fixed to some finite, concrete standard -- any standard, really, you could set it to the value of salt or iron if you wanted to -- then the government would no longer be able to create limitless amounts of the stuff just by running a printing press. Hence, no runaway inflation. The money in your bank account will remain the same in value (e.g. "I have $1,000, which will buy me an ounce of gold or pay my bills for the month,") rather than devaluing over time (e.g. "I have $1,000, which ten years ago, when I earned it, cost me a month of work, but now equals only half of my living expenses for a month.")

Personally, I think it would be a pretty good idea. Tough sell, though, because it requires an economics lesson to understand why it would be of value.