It doesn’t affect ordinary commerce, but it takes monetary policy out of the hands of the government.

If there is enough gold in Fort Knox to back 14 billion dollars. Won’t that mean at best the US economy can be no bigger that that? and if thats the case, then for every 1000 old dollars (current dollar) will be replaced by 1 new dollar (gold backed version). and won’t that mean that the business that sell products that don’t cost less than 1000 old dollars will have to decide if they can stay in business at all? an example of that would be restaurants, grocery stores, electronic stores, and many others. and some manufactures will also have that same decision.

it depends on how strictly you define a so-called gold standard but here is what Wikipedia says:

“”"”
The U.S. adopted a silver standard based on the “Spanish milled dollar” in July 1785. This was codified in the 1792 Mint and Coinage Act. This began a long series of attempts for United States to create a bimetallic standard for the US Dollar, which was to continue until the 1930s. Because of the huge debt taken on by the US Federal Government to finance the Revolutionary War, silver coins struck by the government left circulation, and in 1806 President Jefferson suspended the minting of silver coins. The US Treasury was put on a strict “hard money” standard, doing business only in gold or silver coin as part of the Independent Treasury Act of 1846, which legally separated the accounts of the Federal Government from the banking system.
“”"”

For all intensive purposes, the US was on a gold standard long before 1873. I’m not sure why you say it was started in 1873. Maybe it doesn’t fit your definition of ONLY gold being used as currency but if you allow the gold standard as possibly including the use of silver as well as gold, then USA was on a gold standard for most of the 1800′s, and was on a silver standard as far back as the late 1700′s.

The US was also on a quasi-gold-standard for most of the 1900′s, until the early 1970′s. It was quasi because it didn’t apply to Americans. But it did apply to everyone else. My understanding is that anyone was able to swap US$ for gold all throughout the 1900′s (until 1970′s.)

Your argument that we can’t discover new gold supplies so we won’t get large money supply increases (to cause bubbles) is a weak argument. We already have huge quantities of gold that is not counted as gold because it is uneconomic to mine. If the gold price increases you will see huge increases in gold supply.

In any case, my main argument is that a gold standard (or any hard currency standard) doesn’t prevent the buildup of government debts. As I showed in the chart, there was a massive increase in US government debt in the 1870′s. You have no argument against that other than claiming it is not a perfect gold standard…

You seem to have your own set of misconceptions about gold standards.

The various bubbles and busts in the 1600s, 1700s, and 1800s that you mention were either related to 1) fiat money systems or 2) large discoveries of gold in the “new world” rapidly increasing the money supply (which can’t really happen anymore, since none of the known gold reserves amount to more than a small fraction of “above ground” gold). Also, that 1873 “Long Depression” that you mentioned was caused by a period of overexpansion and overcapacity that occurred in the years leading up to 1873. Since the gold standard was introduced in 1873, you can harldy blame events of the preceding years on a gold standard that wasn’t in place.

“I also don’t get the bizarre view held by some that the government can’t go on a spending spree if it chooses to. Did everyone forget that USA was on a quasi-gold-standard in the 40’s?”

Note your use of “quasi-gold-standard” and think about what you just wrote–the US wasn’t really on a gold standard since the holders of dollars were turned away when they tried to redeem their dollars for gold.

Your last paragraph is the most insane thing that you wrote. “Gold-backed currency would do very little other than impoverish everyone during contractions.” As opposed to impoverishing everyone through expansions and contractions? Let’s use the current U.S. fiat monetary system to refute your point. Since the 1970s, we now tend to have two earners per home instead of one and the gap between the rich and poor has expanded rapidly throughout the entire period (both as a proportion of income and ownership of assets). You should also take note of the obvious attenuating properties of a real gold standard.

A gold standard might not be practical or good, but your points are completely wrong (all of them). You clearly don’t have a clue which countries have had a gold standard in which years. I don’t even know where to start with you (lack of) understanding of economics.

yikes

US debt to GDP

I don’t know why so many people incorrectly believe that a gold-backed currency would be any different. Did everyone forget various bubbles and busts in the 1600′s, 1700′s, and 1800′s? In particular, how about the Long Depression (1873)?

I also don’t get the bizarre view held by some that the government can’t go on a spending spree if it chooses to. Did everyone forget that USA was on a quasi-gold-standard in the 40′s?

Perhaps the best example is the 1800′s and in particular the Civil War. Did everyone forget that the government debt to GDP skyrocketed? Look at this chart and the 1860′s and tell me if you still believe that the government cannot borrow like crazy with a gold standard.

Except for the goldbugs, who obviously have a selfish interest, gold-backed currency would do very little other than impoverish everyone during contractions. The money supply can contract very rapidly and, well, as it has always been through history, those owning the gold, which is almost always the wealthy (except in some rare cases when no one cares about gold eg. modern day India), will end up “enslaving” the population. At least with inflation, the typical person without high wealth at least has the option of pursuing consumption (i.e. spend now and enjoy life).

As for Obama’s advisors (economic or other), I fear he and the country are placing too much hope on finding just the right expert, the smartest person, to solve this mess. Markets are far superior than any small group of experts (see Federal Reserve), so what we need are folks who can restore more normal incentives to our system. A gold-back currency would help in this regard as well.

Thanks for sharing your insights.
Russ

I believe Obama is one of the outliner what American Politics can throw up. To assume American Political System to ‘cream up’ leaders who can undertake anything like outlined above is to except miracles from our leaders. Some miracles have happened, but to expect another one who can undertake this bull work is to live in fools paradise. Not going to happen.