How would gold standard work?

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kjgienapp's picture
kjgienapp
Status: Member (Offline)
Joined: Mar 20 2009
Posts: 2
How would gold standard work?

I've been fascinated by the financial markets since 2003 when I graduated from high school and I saw everyone going nuts over the stock market. My high school did such a horrible job of explaining inflation and how money is created that I started asking questions and searching the Internet. In college I focused more on computer science than finance but when I got to take some finance and economics classes near the end of college, I was once again presented with sub par explanations of how money is created. By this time I understood the effects of inflation because each year college got more expensive but it was the same college experience.

A friend and I have been exploring the Austrian school of economics. He is enrolled in some Austrian economic classes (I don't have enough time between work and baby daughter) and he has shared the information with me. But there are a few concepts I can't seem to wrap my head around.

How does a 100% gold or silver standard based money system increase the size of the money pool? Does it even need to expand? If it doesn't grow how does new industry and technology get created? My trouble with the concept comes from the fact that the world's population is growing but there is only a finite amount of gold or silver (I'm assuming all the gold has been mined, I do understand that mining gold increases the money supply but it can't go on forever). If there are more and more people doesn't that mean that there is less money available to each person?

If we use gold, what do we do with the gold that we use in industrial production? Since it is also money, won't this shrink the money pool? What about jewelery? I really like my gold ring. Wink

The biggest issue I have is how will we, hypothetically, transition to a gold or silver based money system? Do we need to have a complete collapse or can we transition semi-peacefully (I'm not naive, it will suck for a while)? If we transition to a gold or silver standard do we still need a government group to control the money supply? I know that the Fed in its current incarnation has to go. I've been thinking we need a sacrificial president - one who says he'll play ball with all the banks and keep the current gig going but then pull a 180 and tell the bankers to get the hell out the money printing business and get us back on a gold standard.

I know that a lot of people on the forum are preparing for a collapse but I'd the discussion to stay more towards the transition idea...

Thanks for the input - I think my understanding of the current system is holding my mind back from being able to think about an alternative,

Kevin

gyrogearloose's picture
gyrogearloose
Status: Platinum Member (Offline)
Joined: Sep 8 2008
Posts: 537
Re: How would gold standard work?
kjgienapp wrote:

I doesn't that mean that there is less money available to each person?

Kevin

And with the current system there is more and more money available to each person (in some places trillions for peasant farmersTongue out)

Ever think that given all the CC that a decreasing money supply might be a good thing ? ( even if it happened to cause negative growth ? )

 

Cheers Hamish

pleaseremoveme's picture
pleaseremoveme
Status: Silver Member (Offline)
Joined: Jan 24 2009
Posts: 115
Re: How would gold standard work?

The scarcity of gold has previously been solved by introducing bank notes and other forms of paper money. This is basically what the fractional reserve banking system and fiat money are all about: multiplying a base money supply, that is to small to satisfy demand by itself.

In the Great Depression people hoarded cash and gold, creating a shortage of both. Many countries 'solved' this problem by abandoning the gold standard, alowing the central banks the increase the money supply far more than they could before.

Attempts to return to a gold standard are bound to lead to rising gold prices, because of the suddenly increased demand for gold. Fighting rising gold prices by deflating the money supply leads to a recession. A saver way would be to introduce a new currency based on gold, and find foolproof ways to slowly expand the amount of gold used as money.

Jarhett's picture
Jarhett
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Joined: Nov 21 2008
Posts: 132
Re: How would gold standard work?

I don't have time right now to go into detail about how it would work, but the biggest growth in the world occured under a gold standard.  Read The Dollar crisis by Richard Duncan and all your questions will be answered. 

kjgienapp's picture
kjgienapp
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Joined: Mar 20 2009
Posts: 2
Re: How would gold standard work?

The reason I was concerned with there being less and less money for each person is because eventually there would be so many people and a finite amount of gold. Decreasing the money supply is a good thing in the long run.

Where did the "I" in my quote come from? At first I was like, "crap, I made a stupid grammar error" I checked but there isn't an error. 

Carlos P's picture
Carlos P
Status: Bronze Member (Offline)
Joined: Jan 26 2009
Posts: 34
Re: How would gold standard work?

Maybe this will help you. I have not finished reading it yet, but in it Gary North explains why Mises believed that a gold or silver based money is better than fiat money. Plus he reviews Mises theories on money in general.

http://www.lewrockwell.com/north/mom2.html

DGCmagazine's picture
DGCmagazine
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Joined: Mar 27 2009
Posts: 2
Re: How would gold standard work?

Digital Gold Currency would be the appropriate method of payment for today. Digital gold currency issued by private companies has been in use for over a decade. Digital units 100% backed by gold held in allocated storage professionally managed. The digital units change hands, but the gold never leaves the vault. These are closed end accounting programs and work extremely well because the digital gold units are divisible down to very small sizes include .0001 you can actually spend a fraction of a cent to someone.  These accounts are denominated by weight, so when you see your balance it's a gram or an ounce.   Digital Gold is a part of the pending Sound Money legislation which is pending now in 6-7 states. These states would be required to accept gold, silver and digital gold currency in the payment of certain taxes and would be required to allow citizens to use digital gold ....so the concept if moving forward.   I have ALL of my available money in digital gold and silver at this time for safe keeping.

Some digital gold companies, www.goldmoney.com  www.anglofareast.com  www.pecunix.com  and www.wmtranfer.com has a gold WMG purse.  Oh, also new this week www.igolder.com

You can try my free online magazine for more info   http://dgcmagazine.com  

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