The Gold Standard

Yves here. I must confess that I had not worked out how the gold standard would promote mercantilism and colonialism.

Richard Murphy, as you will see, is soliciting feedback on this piece, so if you have any suggestions, please provide them as comments on his site.

By Richard Murphy, a chartered accountant and a political economist. He has been described by the Guardian newspaper as an “anti-poverty campaigner and tax expert”. He is Professor of Practice in International Political Economy at City University, London and Director of Tax Research UK. He is a non-executive director of Cambridge Econometrics. He is a member of the Progressive Economy Forum. Originally published at Tax Research UK

This is the proposed entry for the gold standard in the glossary I am writing.

There will be another entry on the myths that the gold standard still gives rise to. That is not ready to share as yet because getting it right is proving to be hard to do.

Comments are welcome, which is the reason for publishing this now.

This term refers to a method of attributing value to a currency issued by a country. It was in widespread use until the 1920s and 30s. It finally disappeared from any common use when the USA abandoned the gold standard in August 1971.

When jurisdictions developed their own currencies as an indication of their own sovereignty the need for a method of comparing value between different currencies was required to facilitate international trade. This was created by requiring that there be a fixed exchange rate between the value of a jurisdiction’s currency and an ounce of gold, hence the term ‘gold standard’.

To achieve this outcome, it was then decided that as a general rule a country could only issue new currency if it had gold reserves sufficient to back the currency that it put into circulation. Given that gold reserves were usually in short supply this restricted the issue of new currency. This approach also provided that currency which was in circulation with a value based upon its convertibility into gold, which was an asset assumed to have universal appeal.

As a result, by restricting new money supply the gold standard not only provided for the relatively easy exchange of currencies used in the course of trade but also provided a mechanism that was intended to restrict the ability of a government to create new money (see separate entries on money and money creation), so reducing the risk of inflation arising from the creation of new currency by a government.

A consequence of this was that governments were constrained with regards to their ability to run government surpluses and deficits (see separate entries). If a government ran a deficit it necessarily injected new money into the economy for which it was responsible but to do so it had to either secure that money from third-parties or alternatively secure new supplies of gold either by mining it or as a result of success in international trade.

The significance of the last two points should not be ignored. The role of the gold standard in promoting the growth of colonies to secure access to gold and to increase overseas financial markets for goods and services produced in the governing country had important consequences almost none of which stand to the credit of any country which undertook such activity.

Presuming that new gold was not available, the only mechanism available to a government to secure the currency that it needed to support a deficit when the value of money was linked to that of available gold resources was by borrowing existing money in circulation. As such, whilst the gold standard was in operation governments were necessarily obliged to borrow the currency for which they were responsible from those who might own it. This meant that the governments in question were necessarily indebted to the financial markets that might supply this currency to them, and to the various demands of those markets with regard to the payment of interest, leaving them vulnerable to the vagaries of such markets and sentiment within them.

Since 1971, when the gold standard was eventually abandoned, and since the introduction of floating exchange rates (see separate entry) (which means that almost no currency is now fixed in value against any other) the constraints that the gold standard created have disappeared. All major and most other economies in the world now use a fiat currency (see separate entry). This means that the currency in use in a country only has value because of the legal decree of the government of that jurisdiction declaring it to be its legal tender and, more practically, because its value is backed by the ability of that country to raise future taxation revenues. This capacity is partnered by the ability of the government to command its central bank to make payment to anyone to whom funds might be owing using newly created money, if necessary. In this situation, there is no reason for a government to borrow from financial markets.

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  1. ambrit

    Another means of acquiring gold to support government spending in a Gold Standard regime would be confiscation. Think the episodes during the Middle Ages in Europe when governments would despoil the Mercantile Jews of their riches. In that case, religious fictions were employed to ‘justify’ such thievery. Likewise, the same mechanism is purported to have been behind the genocide of the Armenians by the Turkish Government around the turn of the Twentieth Century.

    1. Wukchumni

      There was no confiscation of gold coins done as far as I can tell. Citizens (as we used to be called once upon a time) were requested to turn them in for banknotes and i’m sure a bunch did, but it wasn’t mandatory.

      Almost to a person nearly every American associates all that glitters with illegality to this day, even though it has been almost 50 years since then, and there was a twist in that pre-1975 Americans could own anything they’d like in coins as long as they were dated before 1933, which created quite the trade in various European countries minting coins with old designs from 1908 to 1915 to get around the diktat. There was also a lively trade in older gold coins, Sovereigns in particular as they were all dated before 1933.

      $20 gold coins containing nearly a troy ounce had buy/sell spreads of $40-50 in the 60’s, to give you an idea

      The Turks were the most clever in that their coins were all dated 1923, and below the date was a couple other number/s and you needed to add them together to get the real year it was minted

      This one is dated 1966,fwo_613268,a.html

  2. fjallstrom

    I left a comment, reproducing it here for discussion:

    I think it would be good to either focus on a definition of the system or go deeper into the actual history. As it stands, parts comes across a bit as a just-so-story.

    For example, one paragraph starts with “To achieve this outcome, it was then decided”, and I immediately want to know where and when that decision happened. Was there a European conference on the standardisation of coins? If there wasn’t, and it was more of a convergence of interests, or one power (likely Britain) forced the others, then it wasn’t decided as such.

    If you want to go deeper into the establishment of the gold standard (which happened in the 19th century and mostly from silver or bimetallic) and colonialism, I would recommend Late Victorian Holocausts as a starting point. It includes how the transition from bimetallism to gold standard in the west created a surplus of silver coins that was used to undermine the economies and states in Asia, most notably China and Japan. The books sources may yield more background to the actual historical establishment of the gold standard and the forces that created it. Unfortunately, l have lent out my copy, so I can’t give a more precise account.

  3. JR

    Is a gold (or other metallic) standard really a gold standard if the sovereign(s) using the gold standard can come off the gold standard when times get tough? In addition to the events of 1971, recall also that the UK came off the gold standard in 1931 due to difficult economic pressures then existing in the UK (and also in part, if I recall correctly, due to various machinations by the Federal Reserve Bank of New York and the Bank of England). These events also led to the downfall of the second Labor government in UK history. Further in this vein, FDR basically pulled the US off the gold standard when he signed the Gold Reserve Act in 1934.

    One other thought, is a gold standard really a gold standard if the gold supporting a currency rests in the vaults of the Federal Reserve Bank of New York (or some other gold repository with the ability to restrict physical transfer to the gold’s nominal owner)? There have been various reports over the last several years of various countries trying to repatriate gold, but, for some stated reason or another, not being able to actually receive the physical.

    Also of interest in this vein, there have been various musings here and there on China and Russia increasing their gold/silver holdings in order to support their currencies and create an alternative payments system/reserve currency(ies) to promote trade. For some reason, I recall that Saudi Arabia recently agreed to accept non-dollar denominated payments for oil (but am not sure about that one).

    1. Tim

      The last discriminating feature of gold is that possession can be 100% of the law. Why a country would not maintain possession of its own gold is simply beyond me.

  4. JoeCostello

    I’d say the gold standard was always more theory than practice. I’d step back and start with it developed out of 19th century’s turn to paper notes. In the US first with banknotes and then the greenback all promised payment in gold or silver on delivery, none ever had close to the gold matching the paper.

    So it developed out of there, then into the 20th century when the Fed was founded, I do not believe that the Fed required banks to ever keep any gold in reserve, I might be wrong about that at the beginning, but the banks created the majority of money, it’s hard to argue the US was ever on a gold standard, even before Mr. Nixon.

    The biggest thing is the idea of the gold standard has always been pushed for the most part by certain entities attempts to keep control of the money system. But it was always a theory much more than any practice.

    Keynes said of the deflation of the 30s and ridiculousness of gold that at that point you could fit all the gold ever mined on an ocean liner.

    Also, I just finished Fernand Braudel’s Out of Italy he says Spanish records show between 1500 and 1650 Spain brought a total of only 160 tons of gold from the Americas and yet that provided the base for the tremendous economic activity of the time.

    Money’s a funny, funny thing.

    1. John

      “In this situation, there is no reason for a government to borrow from financial markets.”
      It seems to me that this assertion about fiat economies reduces the Treasury bond market to a bunch of hustling welfare queens. I don’t see the bond trader welfare program as necessarily bad, it should just be more widely distributed.

      1. JP

        The treasury bond market is the backbone of the monetary system. Not just the US but any trading partner. Anyone with any savings is a client investor in treasuries.

        The joke is all the hand wringing over the national debt. Does the US print money? Well yes, but it is complicated. What is a lot of that money spent on? Imported goods and materials. What do the exporting countries do with those dollars? Buy treasuries.

      2. deplorado

        In addition to the welfare for the 1%, it provides means of control/discovery of general interest rates.

        1. marku52

          Interestingly, no country (I’m looking at you America!) can run a persistent trade deficit under a gold (or any other metal) standard. The outflow of gold to pay for the deficit will cause the deficit country to raise interest rates, their currencty will fall in value, and the deficit will correct.

          Fiat currencies, for all their advantages, enable “beggar thy neighbor” trade mechanisms.

      3. Jorge

        “bunch of hustling welfare queens”

        Yes! Requiring the govt. to create money via bonds is an unnecessary giveaway to the rich.

        Now, if you want a wider distribution… I would mint a “baby bond” for every child born, with a monthly coupon to age 18. A society with a falling birthrate that prizes native-born children (like Japan or Singapore) would do this if it really wanted to juice the birth rate.

  5. LY

    How about mentioning how it was silver before gold? Silver flowed from mines such as Spain’s South American colonies to facilitate global trade, especially with China.

    For example, pound sterling refers to silver.

    1. vao

      Indeed. What is described in this short article applies to any metal-based currency. Before it became predominant in the last quarter of the 19th century, the gold standard was actually followed by comparatively few countries — such as those that had access to West African gold production. Most backed their currency with a bi-metallic standard (silver+gold), or just silver (Latin American countries/Spanish empire, India, and most importantly, China which maintained the silver standard till the Great Depression).

      The gold standard was pushed by Great Britain, and enabled by the discovery of tremendously large deposits that increased world gold production to a multiple (and even orders of magnitude) or what it had been before. Those deposits were found first in Australia, then the USA, South Africa, Russia and finally Canada. Interestingly, three of the major sources of gold were thus located within the realm of the British empire…

      1. Irrational

        Indeed x 2.
        The Spanish went in search of riches wherever they ventured in the 15th-16th century although the official reason was religion. Potosi is the famous example I was taught in history. The greed of Spanish officials at the mint in Potosi ultimately debased the currency IIRC and this caused an economic crisis in Spain which had gotten used to the high life (the kings at least).
        In all non-fiat systems, if the stock of metal was constant, deflation and therefore recession had to follow any inflationary episodes. For example, Great Britain was adamant that it would rejoin the gold standard after the hugely inflationary WW! and did so in 1925. However, 6 short years later after a dire recession, it went off the gold standard.
        I guess I am rambling, but this intrigued me both at school and uni. Ultimately it is worth exploring the cycle of resource extraction supported by wars, the role of wars in creating inflationary episodes, necessitating more resource extraction. But this goes far beyond a glossary!

        1. Wukchumni

          A fabulous read on the demise of the gold standard is Lords of Finance: The Bankers Who Broke the World, by Liaquat Ahamed.

          1. Stephen V

            Amen. And I also enjoyed
            A NATION OF COUNTERFEITORS probably also on your recommendation? Should be required reading for all bankers. Ha!
            OOPS. SEE BELOW

  6. rick shapiro

    Gold is no more a natural currency than are cowry shells, cigarettes or – wait for it- fiat currencies. In each case, it is implicit common agreement that creates the standard. Before the mercantile era, it was silver, not gold, (although gold was more valuable) that was the international standard of valuta. The problem with any commodity currency, however, is that the quantity of money is prey to mismatches between creation (mining) and economic activity. The centuries-long depression of the “dark ages” was in large part due to the shortage of metallic currency. It is fiat currency, maintained by central banks under the control of us (democratic governments) that allows society to avoid, for the most part, severe depression or inflation.

    1. Wukchumni

      Inflation pretty much never existed under the Au standard, and most all of the 100 or so hyperinflation episodes since Weimar happened under a purely fiat system.

      There are a number of repeat hyperinflation players, but we’re talking about 1/3rd of all countries committing financial suicide in the past century. That’s severe in my book.

      Why are central banks not loading up on seashells or cigarettes if they’re all that?

    2. flora

      Since leaving the gold standard the US economy has become a bubble economy, one asset bubble followed by another when the first one pops. That isn’t inflation in the classic sense but it’s not nothing. Stocks – housing – stocks again – housing again, etc.

  7. eg

    Not sure whether or not a glossary entry is the right place to include this, but isn’t part of the great many misunderstandings of “the gold standard” the notion (in part cemented by that very title) that there was one universal such rather than a great many over time and place, including of course all of its suspensions during crises? All of which call into question what I take to be the popular impression that it represents some immutable, natural “standard” at all but simply rather just another series of contingent arrangements deemed convenient at the time by those with the authority to make them and the power to impose and maintain them — for a little while, anyway.

    I’m afraid that I’m not making myself terribly clear, but it can’t be much of a “standard” if various and sundry sovereigns can always and everywhere be making up its rules, can it? Perhaps there’s a lesson somewhere in there regarding its abandonment …

    1. Wukchumni

      The English Sovereign has remained pretty much the same weight and fineness since 1489 when it was valued @ 1 Pound and remained constant until 1931, and they are still being struck using 530 year old measures, good enough standard?

      The other mostly European standard was the Latin Monetary Union which came about in the 1860’s and union member countries all struck silver & gold coins that were standardized weights and finenesses. It had the bad luck to come about just as the Comstock Lode was making a mockery of the biblical standard of 16 to 1 for silver to gold, for those playing along now, it’s over 85 to 1. Still, the LMU lasted until the late 1920’s.

      The key to the failure of the gold standard and its abandonment is really the idea that everybody had to be on the same system, and as countries embraced the fiat system backed by nothing (eventually after 1971) anybody still on the Au standard late in the game was in danger of fiat raids* by countries whose monetary system consisted of issuing paper money. Europe was for the most part completely broke after WW1, and you can’t have a standard that demands capitalization in such a regard when the players had nothing having blown their wad on the war, game over.

      * the fiat raids were in the early 30’s & late 60’s

      1. JP

        The failure of the gold standard was its inflexibility. An economic expansion is really an expansion of the money in circulation. A fixed amount of money in an expanding demographic is deflationary.

        Fiat money is backed by the resources and integrity of the issuer. Is that more or less something then gold? What is the Grand Canyon worth? Would Bush have sold it to the Saudis?

        1. Wukchumni

          The Au standard was an economic birth control pill in a time when they were cheaper by the dozen, and now everything is reversed, babies are few and far between and money is plentiful.

          1. JP

            And Milton Friedman (hated him) defined inflation as too much money chasing to few goods. Or you might say money overwhelming the economy. I think what we are really talking about here is sustainability. The gold standard may have exacerbated the boom and bust cycle but now expansion is just out of control. Baby making has been out of control since WW2.

            1. Wukchumni

              There must be quite a few underbidders on a $48 million 1962 Ferrari or a half million $ bottle of wine, money doesn’t grow on trees silly, you only need to depress on the QWERTY and don’t forget the decimal point!

        2. marku52

          the trouble is, you would like your money supply to exapand as prodiction expands. Otherwise, deflation results, and a debt based system like capitalism doesn’t’ work well under deflation. Even staying even in a deflationary environment means your debts eventually bankrupt you.

          And If the miners get too successful, and suddenly dig up a bunch more of the stuff, you have inflation.

          tying your money supply to how successful people are at digging holes in the ground has its own set of problems.

          1. JP

            And If the miners get too successful, and suddenly dig up a bunch more of the stuff, you have inflation.

            It’s about the timing. If the gold hit the economy at the cyclical bottom it would not be inflationary. If it hits, like the Bush or Trump tax cuts, when the economy was already in flame it becomes gasoline. Deflation scares the powers that be way more than inflation because the gov’t is a debtor. Quick to QE slow to QT. Maybe Dr. Hudson doesn’t fully get this but the fed has engineered in debt relief in the form of a constant inflation target rate. That is not to say wages have kept up.

            Tying the money supply to how excited bankers are to lend is the current problem but it is probably more efficient and accurate than just setting rates or digging holes in the ground.

      2. Soredemos

        Money doesn’t need to be backed by anything, but of you insist on thinking in those terms, fiat is backed by taxes.

        Out of curiosity, and I don’t mean to attack you here, what are your views on Hudson’s writings about the emergence of credit and debt management in Mesopotamia? The evidence is that fiat/virtual/ledger money, as well as debt and ways of dealing with it, predates coinage by millenia. I don’t think I’ve ever seen you in the comments section on any of Hudson’s articles on the subject here. You seem to be conspicuously silent on these issues.

  8. The Rev Kev

    I would say that gold filled a vital need in trade in regions like medieval Europe. Remember just for measurements there were scores of standards in use across that continent and the same was true of money. Having gold as a standard is a no-brainer here. It is durable, malleable, does not rot, decay or rust and was respected in nearly every country. If some countries want to go back to gold, I would say good luck. Hell, you could put in use a gold-silver alloy and the ancients knew of that and called it Electrum. Would it put a massive crimp on development? Of course it would. So all those vanity projects don’t get built and resource depletion of the planet starts to go away as a problem. Am I a gold bug? No, not really. But I do find interest in how gold is treated in the modern world. Saw an example a coupla days ago. So for the past several months Zimbabwe has been issuing gold coins to mop up excess liquidity in the economy and in order to stabilise inflation and exchange rates. The IMF went nuts and started to demand that Zimbabwe use ‘interest bearing assets to mop excess liquidity and wind down the use of gold coins to “sustainably anchor economic growth.’ I’m not sure if the IMF meant pieces of paper or digital entries for those assets but the Zimbabwans seem to be happy with the stuff that shines-

    1. playon

      Mohammar Qaddafi had planned to issue a pan-African gold dinar coin before he was terminated. Bet the IMF wasn’t too crazy about that idea either.

  9. Adam1

    I think the key missing piece is that the gold standard was nothing more than a glorified fixed exchange rate regime. When things in a market dynamic change then the price of the item(s) change. At least in theory the exchange rate between 2 countries should rise and fall relative to each other as their relative economic performances diverge or converge. When you artificially fix the exchange rate then the only way for the relative economic performances to remain in some kind of balance is to force other internal pricing mechanisms to adjust – like interest rates and the price of labor.

  10. Wukchumni

    In terms of the USA we were never on a pure gold standard-not even close.

    The Continental Currency debacle so chastened the fledgling country that the only Federal money issued until 1862 was specie, but even in the midst of that vast oodles of DIY banknotes were issued to fill the need for money, as gold demanded value if it were to be represented as a country’s money.

    These were called ‘Wildcat Notes’ during the time they circulated and in the business we called them ‘Broken Bank Notes’ and if want to delve deeper into them, A Nation of Counterfeiters:
    Capitalists, Con Men, and the Making of the United States
    , by Stephem Mihm is a fine tome on the subject that kind of reads like latter-day cryptocurrency DIY money.

    Come the Civil War and the first issuance of Federal currency in the greenbacks, along with corresponding Confederate currency with a key difference…

    The Union issued about 20 million ounces of gold in monetized coins over the course of the Civil War while the Confederacy managed to put out nothing, bupkis as in zero.

    Those greenbacks also known as United States Notes, could not be redeemed for gold coins, nor could any of the other half dozen different type banknotes (Demand Notes, United States Notes, U S Notes, Legal Tender Notes, etc.) in the country issued from 1862 to 1933, only Gold Certificate Notes.

    So you see we were never on a pure gold standard financial system, not even close.

    The monetary system we were on was the National Bank Note system with over 14,000 banks represented where each of the chartered National Banks issued their own currency which was printed by the Federal government and the designs all looked the same, but the name of the bank and signers of each and every banknote were different. This was the most common money of the land, by far more numerous than any gold coins in circulation.

    It existed from 1863 to 1935.

    1. tevhatch

      As a contributor to several standard committees for the SAE, I know the biggest problem with “Standards” is getting everyone to agree with what is standard in practice (vs. ideally, which is still a trick). Perhaps you could put your working definition at the beginning?

      1. Wukchumni

        The one true standard worldwide was the agreed upon value which had very few variances of value per ounce over time, that was a constant.

          1. Wukchumni

            An English pound was worth 1 gold Sovereign and as mentioned above, it varied little in weight & measure over almost 450 years of it being the basis for value.

            How does that compare with fiat’s track record?

            1. tevhatch

              There’s that word value. It’s not very meaningful without knowing what going on elsewhere, which is why I mentioned the link above this one and the discussion of holders of silver vs. holder of gold. The value of gold is negative to a holder if it’s sewn into clothes which are hard to doff and one’s ferry is sunk mid-river.

              Reserve vs. currency discussion.

              1. Wukchumni

                There’s that word value. It’s not very meaningful without knowing what going on elsewhere

                I’m a junior in high school and all of the sudden i’ve got a couple of Ahmadinejad-like tongue twister Persian classmates, both products of the weirdest diaspora I ever saw…

                Value is what you’re after, right?

                Here’s how it went down in the City of Angels, LA being kind of a perfect fill-in for Tehran in climate…

                Every middle to upper middle class Iranian that could get the hell outta dodge did so with a bunch of Pahlavis on their person as they were waving Iran bye-bye for a long time in making good their escape, you get extra escape bonus points if you happened to be Jewish-which a bunch of them were.

                They were all net sellers into a generational gold bubble and plowed their money into LA real estate.

                When they left Tehran the exchange rate of Rials was around 10 to the $, I just looked it up, 42,100 now.

                This very same situation played out in 1949 in China and 1975 with fleeing South Vietnamese, getting out of a really bad situation, that’s where the value is.

                1. tevhatch

                  Rent extraction on gold is difficult, usually it’s the other way around, one has to pay to keep gold safe in storage, and it’s costs for exchange makes bitcoin look reasonable. It seems your friends used currency to do what it does, to make an exchange easier. They exchanged (most likely rent seeking) assets in Iran for (actual rental property?) assets in LA. That’s an interesting kind of value, but it’s not a long term value that the currency itself held, rather the exchange mechanism created an opportunity to make a value.

                2. Soredemos

                  Gold having ‘inherent’ value is entirely culturally dependent. You’re just ignoring the exceptions because they don’t fit your narrative.

                  What’s really frustrating is that Yves has specifically brought up the Vietnamese example before to show how gold is in fact a poor store of value: Vietnamese had to sell for whatever buyers deigned to throw their way.

                  1. Wukchumni

                    I know nothing about a Vietnamese selling off beads for way under market value, but I do know that my boss flew to Guam in 1975 with 2 briefcases, one full of cash and the other empty, and he thought he might be there a week, but ran out of money after a day.

                    You see the only way for somebody w/o connections to get away from Saigon et al as the Communists were closing in, was 24k taels which were wafer thin and weighed about 20% more than a troy ounce.

                    Its entirely possible that for several hundred if not a thousand South Vietnamese, this was their very first transaction on American soil, and he ‘set up’ many for success once they got to the states.

                    Sad about all of the South Vietnamese who didn’t have this key resource, they got to hang around.

                    Here’s what they looked like…


                    Somebody mentioned ‘value’ in this thread above, whats the value of freedom?

    2. flora

      Thanks for the reminder about Broken Bank Notes. I have a couple of those from 1912 -1920 (?) or so, before the Great Depression and the colossal small bank failures, and the start of FDIC depository insurance. They’re very attractive notes, beautifully engraved, slightly larger than a dollar bill, and only as sound as the local bank that issued them. When the bank or its owners were out of money the notes became worthless. They’re collectable as an interesting historical item.

      1. Wukchumni

        Not the right era, Broken Bank Notes were from the 1830’s to 1850’s, and if you’ll allow me to plug a couple of Swedish movies from the early 1970’s titled The Emigrants & The New Land and in the latter one of the Swedes gets taken by Wildcat banknotes!

        The movies are superb and Max von Sydow & Liv Ullmann star.

        I found both to be fascinating where the director went out of his way to show how pioneer life really was.

        1. flora

          Ah. Thanks for that information. The old notes I have were issued by small banks as promises to pay bearer x-amount, issued in the early decades of the 20th C.

          I’ll check out the movies you suggest. They sound pretty interesting.

          1. flora

            adding to be clear to readers: when I wrote that the old bank notes are collectible as historical items I do not mean they are valuable in themselves or likely to become valuable or to appreciate in value. No. I doubt there’s any appreciation in those old engravings. But for those of us interested in engraving (like old and mostly valueless bank notes or stamps) as an art form and for the historical context for when they were made, these old notes are interesting relics and often beautiful art. So, don’t go searching for old, expired and valueless bank notes thinking they’re an investment. They aren’t. / ;)

  11. tevhatch

    This article goes well with the Geopolitical Economy Hour link above it, so if I may be so bold I suggest to fellow readers they be read together.

  12. bold'un

    The 20th century ‘gold standard’ always included the possibility of devaluation or redenomination to get out of a crisis situation. Centuries prior to that there was seignorage, which means that the face value of minted coins was greater than their melted-down value, thus imposing an element of ‘fiat’ in stable jurisdictions.
    The gold standard famously stands rather at odds with the expectation of usury. If all the gold in the world is in bank vaults, and banks live by lending the same, it is not clear where the community of debtors will find the money to pay the interest (except from a loan-shark from another bank!).

    1. Grebo

      Money tokens have to have a higher face value than commodity value or they will disappear from circulation. It follows that using gold coins does not necessarily equate to having a gold standard.

      The deadbeat debtors have to go work in the gold mines.

  13. tiebie66

    Did not the gold standard make impossible the exorbitant privilege of the reserve currency? This seems a rather serious effect.

  14. Susan the other

    So the gold standard is obsolete. It served a regulatory function by maintaining the value of a currency, first as coinage and later backing certificates. This was policy, however, not actual value. More like smoke and mirrors. But the big gotcha has always been that the value of gold is fiated. Gold is fiat too. And to think that we have spent centuries thinking governments must borrow money from existing stores of money held in private banks feels like a tragedy. I think Russia is happy to back the ruble with gold because Russia has lotsa gold, but Russia definitely doesn’t want the ruble to be valued higher than the dollar. So that’s funny too.

  15. Adam Eran

    The biggest advantage of gold: it’s hard to counterfeit. A touchstone and some aqua regia (sulfuric + nitric acid) reveals fakes in a hurry.

    David Graeber says gold has backed currency for all of 200 years in the 5,000 it’s been extant.

    Finally, it’s naturally deflationary (barring some massive new discovery on an asteroid). Mark Blythe says “You can have the gold standard or democracy, not both.” It favors creditors that much.

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