Economics: Gold Standard, Silver Standard, Fiat, Miscellaneous?

Looking to the past is great for understanding why certain systems did not work out. It is not useful, however, for returning to said systems that clearly failed for one reason or another.

Going back to intrinsic or commodity-backed currencies is idiotic and will just set us back to the same economic woes we had when the system was in place. The fiat currency is fine. If your government goes into hyperinflation, you probably got lots of other much more serious problems that was causing it to happen in the first place.

Was the current economic crisis caused by fiat currency? No. It was caused by bad financial regulation (either corrupt/broken rating agencies and not reining in bad loans).

The question today is how to move forward with fiat currencies.

• Stick with the USD as the global reserve currency.
• Go with China and use the IMF to use a mixed-bag currency via the SDR (special drawing rights) system. Essentially, your currency reserves are backed by IMF dollars which are made up a mix of several other dollars (Yen, Euro, Pound, USD, Swiss franc)
• ???

Bring back the problems of the past? Yes, we wouldn't want unprecedented economic growth, incredible leaps in quality of life, and stable currency. What a disaster that would be!

• Fiat currency can never last in the long term, and its expiry date shortens by large margins by the size of the area it covers. Look at the Euro. It has barely existed for twenty years and it has taken an incredible battering. If it wasn't for the Germans staying on the sinking ship, it would be destroyed by now. Even with the way things are going, the Euro is looking unlikely to last any more than ten years, twenty at most.

• A whole bunch of fiat currencies forming a "market" will not keep things functional any more than a massive exchange on Wall Street for garbage from different countries would stimulate the economy. It doesn't matter if you imported your garbage from Japan and it is considered to be very valuable so far as garbage goes; it is still garbage, and you are going to end up taking it to the curb.

That completely and utterly contradicts your explanation of the meaning of value.

Make an actual argument next time-all the gold standard is good for is getting us caught in a liquidity trap.

I support the chicken standard. Making poultry the fundamental unity of exchange would have several advantages:

• It would prevent undue wealth accumulation. There is a hard limit to how many Phasianids you can keep in a vault, or even to how many a continent can hold;

• It would encourage spending, as chicken spontaneously devalue over time (that is, die);

• On the other hand, holding poultry gives you a moderate, but reasonable, interest in terms of eggs and new chicks - more than what most banks offer nowadays, I'd guess;

• Food is one of the fundamental needs of human beings, and - differently from virtual exchange units or rare metals - its value is kept fixed by the average human dietary needs;

• It would make money laundering and theft virtually impossible. You try escaping a vault with ten thousand chicken, if you dare;

• Market bubbles would be obstacled, as a sudden increase in the number of chicken in a given location would pose significant logistical problems;

• Chicken is tasty;

• It would be hilarious.

edited 5th Apr '11 11:05:19 AM by Carciofus

Given that you think the Euro has existed for 20 years, you are clearly at the very least extremely misinformed. This makes it hard for me to perceive any value in arguing with you.

Would my Rubber Chicken with a pulley in the middle count?

He mentioned that ("It has barely existed for twenty years"). I think he meant that it would be unlikely to last ten or twenty more years, though admittedly it wasn't the best phrasing ever.

edited 5th Apr '11 11:03:21 AM by NativeJovian

Ideally, there should be a currency with very minimal to no inflation except in adjustment to significant supply shocks. I don't know what form that would take, but it could start with a re-assessment of how the money supply works in the first place. I'm sure there are better alternatives other than the gold standard.

The whole system of finance-based growth is unstable, and that's the real cause of the financial crisis.

^^^^^ Because destroying the world economy is a great way to prevent bubbles.

Well, you gotta admit that it would work.

It would also make the action of removing the bubbles meaningless, as you have a much bigger problem now.

edited 5th Apr '11 2:33:56 PM by AllanAssiduity

But at least I would have chicken.

You know here's something how about we have a human based currency if we want something from osneone we have to make a human sacrifice.

If you mean "someone", not really. There is no point in having a currency based on something that involves destroying it.

A currency revolving around trading ownership of humans would be almost as silly as chickens.

What if, mayhap, I want to buy a yoghurt? I'm not giving you a chicken's foot for it, no sir, or a human hand either.

Non-Comically Missing the Point. The benefit of a mineral standard is that it's harder to counterfeit. Money made of rare metals can be tested to ensure that they're rare metals - and gold/silver coins are easy to test, see Tasty Gold. Merchants used to have a bottle of acid to puts a drop on the coin to make sure it won't corrode — the "acid test." Silver coins could be bounced on marble shelves above the cash drawers to make sure they ring the right way — the "ring of truth." Nowadays tellers have a chemical marking pen to ensure that bills are made of cotton paper - but it's still just paper. The only thing keeping governments from printing excess money and devaluing the currency is ethics - and do I need to explain THAT joke?

^ Correct me if I'm misunderstanding something, but doesn't printing more paper to represent the same amount of gold or silver still devalue the paper? (Or are you saying we should be lugging around gold and silver coins?)

No, coins made of silver and gold were made of silver and gold so that the coins actually had the value they represented. People derived the gold standard from that when they started issuing currency and basically said "use this instead of actual gold, don't worry... we've got the gold it represents right here". That further abstracts to fiat-based currency by governments saying: "use this paper, don't worry: we'll vouch for it".

It's not exactly the printing of money that devalues the currency either. At some point people are going to mistrust that state and basically say "right, you're giving out more bills than we think you can vouch for. I don't want your money anymore."

Or at least, such is my understanding of things.

(why did we necro this exactly?)

That sounds Producerist.

It's not exactly the printing of money that devalues the currency either. At some point people are going to mistrust that state and basically say "right, you're giving out more bills than we think you can vouch for. I don't want your money anymore."

Yeah, right. Ask your grandfather or whatever and he'll mention the old saw, "candy bars were a nickel, comic books were a dime." Back in the 1900s, forty bucks in gold was the equivalent of a thousand 2011 dollars. And as currency devalues, the effect is thus: you do a job, get paid in paper, and the longer you wait to spend it, the less it's worth. You earn X for your work, but are only permitted to purchase X/1.5 in goods with your money. You work harder and harder for less and less. If a company tried that there'd be gunfights.

It only stops once people realize that rolls of toilet paper mass less than the cash used to purchase it - which is when you start burning it to keep warm and electing dictators to keep the trains running on time.

The point is a gold standard - even just a footnote saying how much gold the paper is worth - keeps you aware of how much they're stealing from you.

And I necro'd it because everyone was ignoring this point - they just kept spinning obscure and complicated theories about fractional whatever and ignoring the primary point of the gold standard - KEEP THE GOVERNMENT FROM STEALING FROM YOU!

edited 22nd Oct '11 6:28:47 PM by Kalaong

Except, in our world, most people have a mortgage and credit card debt. The inflation you rail against is actually a good thing for those with debts because it means the real amount of debt they owe decreases.

Edit: also, before we descend to the level of "shit money" as my Comparative politics professor once called money in hyperinflation, chances are that the US govt. would issue new currency to preserve the value

And can you show me that we are anywhere near the hyperinflationary mess you imply we are?

edited 22nd Oct '11 7:03:52 PM by Acebrock

But inflation isn't a bad thing, unless you have too much of it. In fact, a huge concern in the economy for the past two or three years is the threat of deflation.

Plus, if your income or return on investments rise faster than inflation, you're still getting ahead. The fact that we have to use larger numbers to represent the same value does not mean you have less actual value.

Inflation is good for people who have debt. It means that their debts are less.

Deflation is bad for people who have debt. It means they have more to pay off. the way things are, people do not want more debt on themselves. Most people are riddled with debt by the time they exit college due to rising tuition costs.

That's like saying having anemia is good if you have a leech on your neck.

EDIT: And how much of that debt is because of value lost to inflation? If people hadn't lived with inflation, and had been permitted to keep all the value from their production, would they be in debt?

edited 23rd Oct '11 8:43:41 AM by Kalaong

^ I admit, I'm not an expert on economics, but I have the feeling your questions are the economic equivalent of "if humans evolved from monkeys, why are there still monkeys?"

edited 23rd Oct '11 3:53:48 PM by feotakahari

I think... I can't remember who it was but... it was already nailed: having a gold or silver standard doesn't change anything, because gold and silver still only have value because we think they do.

You've just shifted the object that we think has value from the government itself to some things that the government owns. Nothing really changes, since, as people can own gold and silver, they also can own the government, by voting.

Therefore, I don't see much point in trying to change it...