Return to Gold Standard?

Since Russia doesn't have any credibility in the field of economics, I doubt it matters. The Chinese are better, since they were smart enough to send all their top people to the UK and the US for their PhDs.

The gold standard makes no sense, because gold, like paper money, is only worth what people think it is worth. And it isn't really in short supply, either.

curious said:

Since Russia doesn't have any credibility in the field of economics, I doubt it matters. The Chinese are better, since they were smart enough to send all their top people to the UK and the US for their PhDs.

The gold standard makes no sense, because gold, like paper money, is only worth what people think it is worth. And it isn't really in short supply, either.

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Very true. Will make things even more complicated than what they are.

curious said:

The gold standard makes no sense, because gold, like paper money, is only worth what people think it is worth. And it isn't really in short supply, either.

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First off, a return to the gold standard wouldn't mean people would actually use gold in daily purchases. There would still be paper money, it would simply be backed by gold.

Gold has a limited supply whereas nothingness has no limit, so a gold-backed currency is not like a fiat currency. It is a lot more stable and the currency would be sound.

First off, a return to the gold standard wouldn't mean people would actually use gold in daily purchases. There would still be paper money, it would simply be backed by gold.

Gold has a limited supply whereas nothingness has no limit, so a gold-backed currency is not like a fiat currency. It is a lot more stable and the currency would be sound.

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I'm not sure why that matters. A return to the gold standard would not necessarily mean a limited money supply. It would just mean that we'd have a better idea of what each dollar was worth in the world's view (since it would be worth some equivalent of gold held by the government).

I have never really seen how it would be inherently more stable though. Gold itself is only stable because it's basically a world currency. It fits the bill for currency, for the most part (it still has some inherent value). It was a general currency for awhile. That's why its so established. A well established fiat currency is basically the same though (at the moment, the US dollar fits the bill pretty well...that might change in 15 years or so).

The only danger is that the government could theoretically make it worthless. Then again, as I pointed out in another thread, Gold would be just as vulnerable if a way to synthesize it was found (or something equivalent to the government running the presses non-stop).

The Parakeet said:

I'm not sure why that matters. A return to the gold standard would not necessarily mean a limited money supply. It would just mean that we'd have a better idea of what each dollar was worth in the world's view (since it would be worth some equivalent of gold held by the government).

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Exactly, that is the point. With a fiat currency, there is no backing, so that one day it could be worth nothing. A commodity-backed currency on the other hand, will always have value as long as the commodity does and since there is a limited supply of commodities on this planet, it will always hold atleast some value.

The Parakeet said:

I have never really seen how it would be inherently more stable though. Gold itself is only stable because it's basically a world currency. It fits the bill for currency, for the most part (it still has some inherent value). It was a general currency for awhile. That's why its so established. A well established fiat currency is basically the same though (at the moment, the US dollar fits the bill pretty well...that might change in 15 years or so).

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With a current US Federal Reserve note, you can not exchange it for gold because it has no gold backing. The government can essentially print an unlimited supply of it until people no longer hold any value to it. A gold-backed currency, on the other hand, would always have the safety net of being tied back to the hard substance, which it would be able to be traded for.

The Parakeet said:

The only danger is that the government could theoretically make it worthless. Then again, as I pointed out in another thread, Gold would be just as vulnerable if a way to synthesize it was found (or something equivalent to the government running the presses non-stop).

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Well, synthesize it first and then we'll talk

Look at history and you will see many regimes (including Zimbabwe currently) that have failed due to hyperinflation caused by the overprinting of fiat money. Commodity-backed money has always been the sounder currency because it has always had that hard substance behind it. Money was first created to act as a substitute for hard commodities so that people wouldn't have to carry around the weight and so that it was easier to barter without having to find people to act as intermediates in order to receive the particular goods one wanted.

Even looking at the history of the United States, you will find that we have shifted between fiat and commodity-backed currencies several times and the only reason we switched to fiat every time was because of a dire need of money- to fund things like wars and big spending. That extra value created by the switch only came from the people's pockets indirectly through inflation. Commodity-backed currency is a lot more sound and a lot less susceptible to the government stealing the people's money.

First, we would have no control over the amount of gold available. That would be controlled by Russia and South Africa. Is that what you want?

Second, Zimbabwe isn't in trouble so much because it printed money but because there is no perception that there is an actual government, let alone a stable one and an economy to back the currency. It's the total lack of an industrial, agricultural, or ore extraction base that is the problem.

curious said:

First, we would have no control over the amount of gold available. That would be controlled by Russia and South Africa. Is that what you want?

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What are you trying to say here? The fact that there are gold deposits in those areas really has very little to do with a currency being backed by gold because the metal is still in a small, limited supply. All that would matter is how much the United States has in gold reserves, not what other countries have. They might make money off of the increased value of gold, but it is not like they can't already make tons off of the high gold prices as is.

Second, Zimbabwe isn't in trouble so much because it printed money but because there is no perception that there is an actual government, let alone a stable one and an economy to back the currency. It's the total lack of an industrial, agricultural, or ore extraction base that is the problem.

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How do you think that problem was driven? It was driven with the debunking of the currency and by the government being irresponsible. Fiat currencies always give governments the ability to be very irresponsible fiscally, which is often a risk that can destroy an economy.

Also, how do you explain the hyperinflations of the Yuan Dynasty, the Weimar Republic or similar examples? These countries were pretty sophisticated for their times and yet they still went through this problem thanks to the upholding of a fiat currency.

curious said:

First, we would have no control over the amount of gold available. That would be controlled by Russia and South Africa. Is that what you want?

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It's not much difference to Russian companies and the Arab Consortium controlling the oil flow now!

Hey, you know what? If Bush was still in power and the US used Gold as a currency base, he'd go and invade South Africa, so you needn't worry about it anyway.

Oh, and i forgot to mention, the American people or the US Government don't have much control over their economy either, apart from what they decide to pay or buy.

You do realize that the price system does control the economy, right? It's the invisible hand that guides it.
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MYP

Think about your point for a minute. An increase in the supply of Gold would have no effect on its price? That's odd. It sounds like a market failure. It sounds like the value of gold is based purely off of the value that people think it has, a lot like a currency.

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Zimbabwe

It was a mix of problems. The bigger problem was arguably that the Government was just bad and irresponsible. The printing of currency was just a symptom of that.

Their money wasn't worth much, but he still had soldiers to pay (a coup would have been unpleasant). So they print out more money. This freaks people out and devalues the currency. People are scared of inflation, so they spend the money that they have before it is devalued. Rapid spendings increases the rate of inflation. This further devalues the currency and causes a vicious cycle. Soldier wages still need to be paid, so the government dumps more currency into the market. Things continue until one side breaks the cycle, probably the government being economically responsible.

The problem, MYP, is that this could easily happen under a Gold Standard. It would just be easier to see. The principles of bad economics and too many dollars chasing too many goods is a general problem.

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It's also funny that you use the Weimar Republic as an example of Fiat hyperinflation. Their problems were primarily caused by the French occupying their industrial region and removing their ability to have any economy. They shut it down for 8 months in protest. It was a problem of infrastructure.

I understand the price system, but my point is that that unfound supply is still limited. I am not 100% sure of the exact number, but something like 75% of the world's gold supply has already been found. With the other 25%, the price of gold will go down, but it certainly won't be to the point where gold is worthless. In fact, if it is made the reserve for any major currency, the demand will drive price up so much that that 25% probably won't even put us below the current value of gold. Simply printed money on the other hand, doesn't have a limited supply like that- it can just be printed and printed with no stoping point.

As for inflation- you need to realize that there are two types of inflation. The sort you are talking about when people spend more (hence increasing the demand of goods) is natural as the laws of supply and demand drive it. Over time, that inflation would balance out as suppliers increase production or demand qwells to the point where market equilibrium is reestablished.

Monetary inflation, on the other hand, is caused by the excess printing of money, which makes the money less valuable- having no effect on the actual value of goods. It just seems like it has an effect on the value of goods because goods exchanged for the currency are more expensive due to the devalued currency- in reality the demand and supply for the goods could be exactly the same as before the devaluation of the money.

ZImbabwe's problems certainly do go much deeper than just printing money, but the point is they spent too much (it wasn't all just for necessary expenditures like soldier salary) and the fact that there was a fiat currency allowed the government to do that. A gold-backed currency would give the government a lot less power to spend so much because to get to the levels where Zimbabwe is, they would have to devalue the gold:currency ratio tremendously, which would cause an alarm bell to the people. Passing the legislation to devalue the currency so much would also take a lot more work and make it less likely.

As for the Weimar Republic, that is only one example of such great inflation. There are tons of other examples of hyperinflation including those in Brazil, China, Russia, Turkey,etc. At the end of the day the governments still had too much money in circulation for the people to have faith in it. Had that money been backed by gold or another commodity, it still would've had value throughout those times because if you look at any situation of hyperinflation you will see that gold/commodity prices were still relatively a lot higher because throughout history they have never dipped to nothingness- they have always been relatively stable and although they may take hits now or then, they always come back up- the same can not be said for nothingness which is what backs a fiat currency.

The price system comment was for Dirk. Guess I should have just used quotes. Oh well.

Inflation - Yes. I realize that, but both types often come into play for hyperinflation.

As to all the others, you do have a point, but it's the same one I was making. It could still happen. It would just be easier to see. Zimbabwe wouldn't have had to use legislation to change it. They would have just printed more and done it. That was half the problem. No healthy economic policy in place.

One last nit to pick. It's not backed by nothingness. It's backed by the economic strength of the country. That may not be tangible, but it is powerful.

Gold is what it is. It's a non-cyclical hedge. It rises or remains stable in a crisis because people put money into it because they have faith that it will retain its relative value. If a lot of people lost faith in it (for some reason) then it would lose an absurd amount of value since it has little practical value.

I agree that gold still relies on the faith that people have in it, but in reality everything does. The difference is that history has shown that people value certain things more than other things, especially over the course of time and so far in human history gold has always had pretty high value. As for the economic strength of a country, the problem is that the common man can not say "this portion of the country's wealth is mine" since it is not tangible as you said. With gold, he can say that and that is why people will always have more faith in it. Me and you may value our country's economic strength because we know what that really means, but every person does not understand that and even if they did, many would still have the reaction to demand what is his when troubling times come- which in the case of economic strength he can't really get since again, it is not tangible. Then there is also the whole issue with how to calculate a country's wealth...

The Parakeet said:

You do realize that the price system does control the economy, right? It's the invisible hand that guides it.

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Yes, but i wasn't referring to that. Oh, and it depends whether you're working with a currency based economy or a resource based economy. Me no stupid, me know my economics.

I was referring to the fact that the US economy is in the hands of the Federal Reserve, not the people or the Government.

Oh. Apologies then.

Still the Fed doesn't have a "huge" amount of control over the economy. They can do a few things which might grow the money supply if the banks agree to work with them. This crisis shows the limit of what they can really do (the leakage of any Fed action was so bad that they had to give it all over to the treasury department). Either way, they can guide it's general direction and either help fuel growth or curtail it.

Either way...they are bound by a charter that limits them from being too reckless, since they are legally required to be working to limit inflation and unemployment.

The people still guide the actual direction of the economy. We decide what businesses rise and which fail. Which genres grow or fail. We still vote with our dollars.

The Parakeet said:

The people still guide the actual direction of the economy. We decide what businesses rise and which fail. Which genres grow or fail. We still vote with our dollars.

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You see, that's the problem, though.

a) the vote is disproportionate in favour of the bourgeoisie
b) first you have to have that dollar
c) only because the capitalists want what's best for their pockets - point being, the interests won't always be the same.

Not really.

a) It's not truly disproportionate because they apply to different markets. The rich just establish their own niche.

The rich aren't exactly affecting the price of pizza. The average consumer (the one exactly at the 50% point) effectively decides the price. Since the true "bourgeoisie" would naturally be a small part of society, their influence would be minimal (except perhaps on new technology or the occasional luxury good...which by its nature would be a luxury).

The only people who decide a market are the ones who are interested in it. I have no interest in buying a Zune. I'm not in the market (technically I guess I'm in it...but at such a low interest level that I'm irrelevant since they'd have to go down to $1 before I'd buy).

b) No...you don't have to necessarily have it to impact the general market (sorta). Price is dictated by what value people believe they get from a product. Nothing more, nothing less. If the general populace feels a pizza is worth $5, then it's worth $5. If they feel it's worth $200, then its worth $200.

If they don't have the money to buy it, then they are still in the market acting as a potential customer. If the company drops their price, then they would gain that consumer. So they actually still have voting power if they aren't buying. If they are never included over time, then it would simply be idiotic to supply to them, since this would mean that the cost to the company was less than the perceived value to that consumer.

Obviously this gets iffy when it comes to moral considerations (on food, basic shelter, healthcare, etc.)

c) Yes...so does the consumer. They sorta balance each other out as long as competition is in place. In an ideal capitalist system (perfect competition) the companies would make barely any profit while the consumer receives the lowest price possible. Any time they are making considerable profits, it is considered a type of market failure.

The Parakeet said:

Not really.

a) It's not truly disproportionate because they apply to different markets. The rich just establish their own niche.

The rich aren't exactly affecting the price of pizza. The average consumer (the one exactly at the 50% point) effectively decides the price. Since the true "bourgeoisie" would naturally be a small part of society, their influence would be minimal (except perhaps on new technology or the occasional luxury good...which by its nature would be a luxury).

The only people who decide a market are the ones who are interested in it. I have no interest in buying a Zune. I'm not in the market (technically I guess I'm in it...but at such a low interest level that I'm irrelevant since they'd have to go down to $1 before I'd buy).

b) No...you don't have to necessarily have it to impact the general market (sorta). Price is dictated by what value people believe they get from a product. Nothing more, nothing less. If the general populace feels a pizza is worth $5, then it's worth $5. If they feel it's worth $200, then its worth $200.

If they don't have the money to buy it, then they are still in the market acting as a potential customer. If the company drops their price, then they would gain that consumer. So they actually still have voting power if they aren't buying. If they are never included over time, then it would simply be idiotic to supply to them, since this would mean that the cost to the company was less than the perceived value to that consumer.

Obviously this gets iffy when it comes to moral considerations (on food, basic shelter, healthcare, etc.)

c) Yes...so does the consumer. They sorta balance each other out as long as competition is in place. In an ideal capitalist system (perfect competition) the companies would make barely any profit while the consumer receives the lowest price possible. Any time they are making considerable profits, it is considered a type of market failure.

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In c, i presume you are referring to Adam Smith and Milton Friedman?

The richer people are the beneficiaries of the system. Granted, the bourgeoisie play a small role, but it is the people with the most money that can afford to live more comfortably etc. Or indeed, afford to live.

Actually, capitalism, by nature, is an economic system that favours the producer over the consumer.

That occurs after the bourgeois revolution. The system preceding capitalism is feudalism. That is political and economic. The economic ideology to feudalism is the exchange of land for military service. This gives way, after the bourgeois revolution, to mercantile capitalism, which in turn is replaced by industrial capitalism.

Although we're waaaay off topic, i'll leave you with a did you know to give an example of when the interests of the proletariat conflict with those of the capitalists.

In an economic area that is distinct to one class, for example art. This is where your value works against the worker. Especially in the case of abstract art, physically relatively worthless goods are sold at ludicrous prices. For example, a shopping trolley with a brick in it sold at the equivalent of $2'000'000 in Britain a few years ago. While that's not a necessity for the working class, it is still economic discrimination.

However, consider the "fine dining" area. This shows how focus on a particular class brings discrimination. Tell me, what sort of people would you expect to see in a french restaurant, where the doorman takes your coat, a chauffer takes your car and the bill brings the necessity for CPR skills up even further than knowledge of the Heimmlich Maneouvre.

Did you know?: Sometimes, when a company wants to increase its customers, it will raise the price of its product. This has a psychological effect on the potential consumer, and they feel it's more worthwhile to buy it if it's more expensive because it must be of greater value.

A phrase some bourgeois person said on the television (i don't know who he was): *puts on snobbish accent and speaks through nose* "People never appreciate what is free".

*As I pointed out in the other thread (and as I plan to do in a PM...because I am nothing if not redundant), we should probably move general discussion to its own thread to reduce the derail. As a mod, I probably shouldn't be encouraging such derails...I mean...we have a gay marriage thread that includes a discussion of NATO's relevance and the EU's relative military power .

Also, on a quick readthrough, my thoughts aren't as coherent. Probable because of the range of things that are covered.

Sorry for the wall of text too.

Also I figured that I'd add your PM to me...sorry if you didn't want me to do so...but it's not personal and makes a point or two. I assume that you just missed the window for editing your post. Just tell me if you want me to delete it. I've got a permanent edit button.

I thought of another example of artificially keeping prices up: diamonds. Let's face it, it's a rock. Another thing, while it is far more common than all precious gems put together, it has a higher price than any ruby or sapphire.

The Free Market was something thought up by Adam Smith. But if you have read "The Wealth of Nations" (I have) and compare it to the modern day, you'll notice how there are big differences. Especially in the case of monopolies and ogilopolies.

Also, Smith recognised that his idea was a failure when he said:

Quote:
Originally Posted by Adam Smith
People in the same trade seldom meet together... but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

The familiarity of this complaint will be because nothing has changed.

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I believe that C is general Econ theory. It was even in my High School Econ course.

Free Market Econ (followed to the logical end) would be a perfect system. Truly beautiful really. Competition would force all the companies to produce the same good products at the lowest price possible, with their profit only being roughly equal to the reward necessary to take on the risk. The fact that it doesn't work in reality isn't a problem of the whole system. Just little kinks that have to be worked out (and actually are being worked out...some very cool examples really).

Capitalism doesn't favor the producer really. They can be destroyed quickly by the whims of the consumer. It's usually sways of demand that bring about change. They are also burdened by competition, unlike the consumer (unless they're trying to keep up with the Jones...which isn't really the same).
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Your points

Art- Yep...it's a market failure. A dumb market failure, brought about because some rich people find great value in having such art. I (and most people) find it foolish. They don't. What right do I have to stop them.

Art is special though, and in a way isn't a market failure. That one brick in a shopping cart is presumably "the original" (as stupid as that is). There's only one. It's worth what someone is willing to pay for it.

It's also not discrimination (I will actually cover this later).

Fine Dining - It's a niche restaurant. How dare KFC not offer better atmosphere to cater to those who'd like it? . They are in business because some people find the atmosphere and "high cuisine" to be of high personal worth. It's expensive because a lot of that is genuinely expensive. Again, that's niches.

Diamonds - It's a market failure due to good advertising (so good that they made the diamond ring a tradition...props to that marketing team) and a relative monopoly over supply. If we had a relevant international government body we could probably bust them up for artificial price controls. *Shrug* It's just the market for them though. It's also due to a bit of marginal price benefits. This is also first day of econ discussion. Why is water so cheap but a diamond expensive? Water is cheap because an extra cup of water wouldn't really help me right now (I'd only pay a lot if I was in the middle of the desert). My benefit wouldn't be that great. One diamond would drastically improve my position (in a relationship, street cred, etc.) due to the whole "not having any" position. If I already had a diamond ring, then I wouldn't be willing to pay much for one. Again...the cruel mistress of real life.

Monopolies and Oligopolies - A market failure by definition. Price fixing is illegal because the people in the system don't like it. We hated it so much that we made our government incorporate this (Intel just learned this the hard way actually). Monopolies are failures that we try to eliminate. Pointing this out is the same as me apparently pointing out the flaws of the Soviet Union as flaws of Communism. Oligopolies are a little rare. They usually fall apart into monopolistic competition thanks to game theory. They like screwing each other over more than they do the public.

Smith was right for his time. If the two blacksmiths in town fixed prices, then you're screwed. Nowadays, that's impossible due to better communication and transportation. I'd go to the next town. I'd check the relative costs of their business in their 10-K reports. Someone would catch it, people would be outraged, etc. Having basic regulations eliminate the problem.

It's only true if the market has huge entry barriers or high inelasticity (few goods do...insulin being one example...and we just know how much they're gouging us on that). As technology continues to advance, these disappear. There are very few true monopolies left. Monopolistic competition is generally quite fair to the consumer too.

-Weird Prices

And these are the geniuses that you want running the economy? . This is a market failure. People are susceptible to advertising. They naturally associate higher price with higher cost. I don't see the problem.

In fact, it's human nature. I know there was a survey done not too long ago that surprisingly found that 80% (I think) of people would rather work for $50,000 in an office where everyone made $30,000, than work in an office where everyone made $100,000. We naturally want what's better, scarce, more expensive. That's human nature. A point I was making in another thread. Why would the upper 50% agree to pull the lower 50% up to them.
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There's a bigger issue I see with discrimination. You see, I sometimes wonder just how much you really know about Econ. I say this because most of your claims can be refuted with knowledge of Econ 101. Fancy food isn't available for everyone, because they aren't willing to pay the relative price for it. The market dictates the most efficient distribution of goods. The people who want things the most get them from the people who can produce them the most efficiently.

This is only a big problem in a system where there is no social mobility. If those who are less wealthy truly valued what the upper class has, then they could save and work for it. Most don't value it that much. I don't value it that much and it's not out of my grasp.

I'm missing the point though. There are about 4 or 5 ways to distribute various goods.

Price - This is what we have. Those who value it most get it. It's not necessarily all fair, because some can earn easier than others, but it still applies. The $200 dinner may just be one hour of work to the rich guy and 40 hours of work to the poor guy, but it's still the same amount of money (It's still 200 value meal burgers).

Queues - People wait in line and get it when it comes out. This is discriminating to the rich. Their time is worth more (to someone at least) so they can't afford to wait in line as long as a poor person.

Lottery - Inherently stupid since those who don't value it that much might get it by random luck.

Interview/Discretion - Stupid due to it's inherent bias towards corruption.

So yeah...price is probably the most efficient and still fair way to do it.

Besides...those who can't afford it are still in the market. Like I said, if they drop the price, they will probably buy it. There is usually a good reason that they can't drop the price. If not, it's a market failure. Plus...just how much influence does this bourgeois class have. Their only noticeable impact is on the random stuff that rich people like...so yeah. Not much influence. They don't even really impact new tech that much. So yeah...just an issue of niche marketing and not of market dominance.

What right does one man have to judge the value of things? Some view my expenses toward video games as a waste. I feel that my enjoyment makes it worthwhile. The fact that one person enjoys something expensive does not mean that that expensive thing is automatically awesome for everyone. It just means that a niche market sprang up to cater to something that a select group of people. That's monopolistic capitalism for you. If we have perfect competition, it wouldn't be a problem .

I think that your problem is the whole "bourgeois" thing. You seem to really see most wealthy people as this evil upper class. I know a lot of wealthy people. Some are idiots, inconsiderate, crazy, etc (takes a look at my roommate and sighs). Some are frugal, hardworking, and considerate. Some were lucky and got their fortunate. Some worked for years to prove themselves and get to where they were.

This is the problem I always see with any socialist system. You are striving to make people equal in rewards. Why? Just make them equal in opportunity. Believe it or not, some do earn their money and choose to enjoy the finer things. They valued them enough to work their butt off and attain them. Even inheritances are "fair". Their parents worked to provide them with a better future. A very small group of people actually stumble into wealth. That tends to just fall under the "life sucks" area. That's the market for you though.