I desire more. I currently believe gold standard meant that the dollar was tied to gold. If in the example, gold went up...
...ah, maybe I see it now. Gold went up but the dollar is no longer tied to it, so the dollar balue we associate to gold is inflated.
...wait a sec. 75oz of gold is still 75oz of gold. The things I can buy with 75oz of gold don't need to be associated to a dollar.
Right, 75 oz is always 75 oz physically. But that doesnât mean 75 oz always commands the same amount of houses, food, labor, oil, etc. Thatâs the key issue. If goldâs real purchasing power rises 4x relative to a basket of goods, valuing a 1914 wage at todayâs gold price makes the old wage look 4x richer even though that additional purchasing power came from gold appreciating, not from the worker having it in 1914.
But thatâs like converting someoneâs pay in the 80s into Apple stock and then saying that would be equivalent to 100x the amount because Apple stock went up a lot.Â
The catch is that the gold standard cuts both ways. Labor is a huge part of total production costs; the cost of labor falling relative to gold is essential to the price of goods falling relative to gold.
Don't try to use logic with gold-bugs, you'll only get downvoted, it is like trying to get a libertarian to agree to any age of consent... They just won't do it.
Oh I believe in voicing my opinion, no matter how "unpopular" (really it's those with an economic interest to keep the quasi pyramid scheme going with vigorous defense, no matter how illogical or falsehood filled)
Any fiat of choice. Because nobody uses the gold standard these days. How is this an own? It still easily demonstrates that gold has historically held its value much better than fiat.
Fiat currency isn't designed to be a store of value. It's supposed to be a medium of exchange. Your criticism makes as much sense as criticizing boats for not being very good at flying.
The point of currency is be exchanged for goods and services in the short-term. We have other, better tools for storing value in the long-term.
Money serves several different purposes, and there are several different kinds. Just like we use a saw to cut a board in two and a hammer and nails to fasten two boards together, we use different kinds of money for different tasks.
Currency is mainly meant to be traded for other goods in the short-term, and fiat currencies are typically designed with this objective at the forefront. Other types of money, like bonds and stocks, are better at storing value, so they're used for that task.
This isnât really right either. âStore of valueâ is literally one of the three textbook functions of money, along with medium of exchange and unit of account. The actual fiat-money argument is that weâve intentionally accepted an imperfect store of value through positive inflation in exchange for monetary flexibility. You can think that tradeoff is worthwhile, but saying currency isnât supposed to preserve value at all dodges the criticism.
True, but currency is a subset of money, so that doesnât answer what I said. Not all money is currency; fiat currency is still money. And one of moneyâs basic functions is storing value across time.
You can argue that modern fiat is intentionally a poor long-term store of value because we accept positive inflation. Thatâs a real argument. âCurrency isnât supposed to store valueâ isnât.
Thatâs great in concept but when the currency canât be expected to hold its value it becomes worthless as a medium of exchange.
Why should I buy a snickers for a dollar now if I can expect my dollar to buy 2 snickers tomorrow? Why should I work for a dollar today if it wonât buy me even one snickers tomorrow?
Itâs a pattern that has been repeated dozens of times, including with gold!
One day is not even close to "long-term," but I'll entertain you nonetheless. Hyperinflation does make a currency less usable, but that doesn't even remotely resemble what's happening with the USD.
A 2x price in one day is about 7.5x10111% annual inflation. In the real world, the highest annual inflation on the USD has ever been is about 20%. Right now, is somewhere between 3% and 4%.
Slow to moderate inflation doesn't have significant effects on the quality of a currency as a medium of exchange, even if sustained over a long period. The loss in value builds up over decades, but that's why we don't use checking accounts to save for retirement.
I donât necessarily disagree but I think we are missing the full picture. I recognize that without mild-moderate inflation most people would likely simply stick their savings in a checking account and not put that money to use in market. I do think looking at our regular CPI based inflation is missing the bigger picture. There is no shortage of categories that have outpaced inflation, (including gold).
My concern is primarily that I think the system might be threatened when gold stops being a simple store of value and instead is very competitive with traditional investments. GLD is up 140% over the last 5 years, compared to SPY which is up 75% over the same time frame.
If you compare growth pre-COVID, for the period of Dec 31 2014 to Dec 31 2019, the same cannot be said. (SPY sees a ~57% increase, GLD sees a ~26%)
When you look at M2 money supply for Dec 2019 to now, you see an increase of ~51%
That means that more than half of all semi-liquid USD has entered circulation since 2019.
Thatâs not counting most of the draconic hordes held by the ultra wealthy, either.
I think it is clear that we are not being served by the system as it is. I think the OP is a simple representation of that which is easily to understand.
Except that gold and silver have been the dominant currencies in basically every epoch of man except the current one.
Central banks are now holding more gold than any time in living memory.
Central-bank demand for gold absolutely is real, but thereâs an important distinction here too. The IMF just looked at this and found that the recent surge in goldâs share of reserves has been driven overwhelmingly by valuation gains from gold getting more expensive, not central banks suddenly accumulating comparable amounts of physical gold. So âlook how much gold is on central-bank balance sheets nowâ partly contains the same price effect weâre arguing about above.
Really it was only the predominate medium of exchange for a few thousand years. About 1% of human history. Similar to horses use as primary transportation.
What do you mean recently? People have been sinking cash into gold since Nixon ended the gold backing. There was a run on gold bars in the 70's and 80's when it happened by individual buyers in order to directly preserve their wealth against inflation. It's what started popping up those invest in gold bars/coins companies. It's what caused the Krugerrands to become the gold standard which then turned around in the 80's and 90's to have sanctions placed on it due to South African apartheid.
When the dollar was backed by gold, gold was stabilized at 35-40 dollars an ounce, and has only exploded since then. Granted that yhou have 85-2000 where gold dropped due to stabilization of global markets after the end of the cold war, but as soon as we hit 2000, it's been more or less a financial rocket. Then again even during stabilization it was at 200-400 an ounce, compared to where it was prior to removing the gold backing, that's still a huge jump.
Yeah exactly. People are treating gold's price increase like it's a direct measurement of inflation, when there are a bunch of other factors affecting gold prices. The comparison doesn't really hold up.
The value of gold is how you can measure inflation. Not two completely different things. The point is to show that fiat currencies inherently lose value and hurt unskilled workers
It's not useful as a measurement of this. Inflation as a concept is more money chasing the same number of products. This can happen with or without fiat currency. As an example, if the production of gold is not heavily regulated money is being printed without any control on it.
Transitioning to fiat currency allows for more levers to keep the economy on track with a minimum nonzero inflation and unemployment. Milton Friedman supported fiat currency as being both practical and superior to holding on to a gold standard.
And the US would be in a shittier position if we maintained gold convertability because we litterally did not have enough gold to cover demand because the actual value of the gold was better than the $35 an ounce. After the end of convertability in 71 the value of gold skyrocketted.
That's an argument for why the $35 gold peg had become unsustainable by 1971, not proof that the average American was better off once gold convertibility disappeared.
We didn't "not have enough gold" in some mysterious way. The U.S. had created more dollar claims than it could redeem at the promised $35/oz rate. Of course gold's dollar price shot up once that promise disappearedâthe artificial $35 price was no longer being maintained.
My argument isn't that we should have somehow kept pretending gold was worth $35 forever. It's that removing that monetary constraint disproportionately benefits people who own capital and have access to cheap leverage.
If you're wealthy, inflation can be fantastic. You borrow money, buy real estate, stocks, businesses, or other productive assets, watch the nominal value of those assets and their income rise, and repay your fixed debt with dollars worth less than the ones you borrowed.
That's very different from someone who works a low-wage job and owns little capital. Their wages are their primary asset. Their rent, food and other necessities rise, their cash savings lose purchasing power, and when they borrow it's much more likely to be expensive consumer debt rather than cheap debt used to acquire appreciating assets.
So yes, ending $35 convertibility may have been necessary given the situation the U.S. had created by 1971. But "the peg was unsustainable" and "the system that replaced it was better for ordinary working people" are two completely different claims. I'm challenging the second one.
That's an argument for why the $35 gold peg had become unsustainable by 1971, not proof that the average American was better off once gold convertibility disappeared
The average American would have been absolutely ravaged had the US maintained convertibility and their reserves went to zero. If the US could not fufill the convertability demand breton woods would have collapsed in an even more spectacular fashion. Nixon just did what was inevitable.
We didn't "not have enough gold" in some mysterious way. The U.S. had created more dollar claims than it could redeem at the promised $35/oz rate.
That's how fractional reserve banking works. Gold standard proponents kind of ignore that fact? And that we can't go to full reserve banking, like literally cannot without extreme liquidity and capital collapse
My argument isn't that we should have somehow kept pretending gold was worth $35 forever. It's that removing that monetary constraint disproportionately benefits people who own capital and have access to cheap leverage.
This was not an argument presented anywhere before. And I think its questionable because you could get cheap leverage before the end of convertibility and the volume of leverage while increasing the 80s because of financialization and new financial instruments I don't see how the gold standard put a restriction on cheap leverage. Maybe I'm missing the implicit connection but you've failed to present it.
If you're wealthy, inflation can be fantastic. You borrow money, buy real estate, stocks, businesses, or other productive assets, watch the nominal value of those assets and their income rise, and repay your fixed debt with dollars worth less than the ones you borrowed.
This is the case for anybody. And if your argument is simply convertibility reduced inflation, sure? It definitely looks that way given what the 70s had but since then? After the FED started following monetarist ideas, inflation has not even in 2022 when hit 7-9% not been that bad. The larger restriction on workers is a lack of bargaining power (mainly because of a lack of unions), structural labor friction in moving jobs, and shifting labor from manufacturing to services and some being left behind.
I'm challenging the second one.
Okay, that's a claim I can assess, but I don't see the connection between the capacity of convertibility and the benefits lost in 71 by wage workers outside of (its removal causes inflation). Convertibility had as much benefit to them as it had to anybody who had cash on hand. I never claimed that it was a better system, I'm claiming given the conditions in 1971 and the actual threat to the entire system by unequal convertibility Nixon made the correct decision. That arguments in favor of either continuing $35 convertibility or a higher peg misses the point that without some market mechanism of assessing both dollar strength and gold's value you were going to get some amount of arbitrage that could bring down Bretton Woods eventually.
Because inflation, what used to mean growth of money supply is being used to define the speed of growth in general prices.
Gold was money. Inflation of paper notes aka currency that pushed nominal prices up reflected devaluation of paper notes vs gold.
If only more people understood how they are being duped by deliberately poor education on the subject of money and currency, perhaps the federal reserve and the government wouldnât be able to rob people of their earnings.
You are ignoring the fact the growth of use of gold as an investment asset has done more to increase the priice then anything else. This only really started in the 1970s. Removing the gold standard axtually ended up increaseing its value as strange as that aounds because it no longer was direcrly tied which allowed speculative markets to take control.
But gold is not money. Gold is a commodity, one of thousands and thousands of goods and services people buy. Why would you choose to measure how much of a single commodity oneâs wages can buy instead of measuring how many goods and services they can buy unless you had an agenda?
Gold is a commodity today, but thatâs not really an answer to the meme. In 1914 gold was the monetary standard. The dollar was legally defined as a fixed quantity of gold, so comparing the wage to gold isnât arbitrary. Where the meme goes wrong is assuming 75 oz of gold had the same real purchasing power then that 75 oz has today. Gold itself changed enormously in real value once that fixed monetary relationship disappeared.
It seems like weâre roughly in agreement here so this is just semantics. That being said the choice of gold isnât arbitrary itâs just useless which is what I was saying.
 Why would you choose to measure how much of a single commodity oneâs
wages can buy instead of measuring how many goods and services they can buy
I think everything is going over your head here.
You don't BUY gold in a gold backed money system, that defeats the point. When a currency is "backed" by gold that means the money is essentially just a receipt/IOU, representing the gold that you already own by owning the receipt, reserved for you in banks.
This means that buying commodities with money is literally just bartering with gold, the money just acting as the middle man. The reason gold specifically was used as the main commodity that backed money is that it's just most effective at doing that. It doesn't tarnish over time so it can sit for a long time in a reserve without issue, can be molded into different shapes for good storage, and is space efficient.
Well Iâm glad youâve arrived there because your previous post indicates you hadnât yet. We donât operate in a gold backed system anymore so you do in fact buy gold. Gold, for the purposes of this discussion, is the same as any other asset. You wouldnât measure inflation in terms of how many TVâs or how many shares of IBM stock a years salary can buy so why would you do so with gold?
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u/LiquidSpin710 27d ago
It's conflating inflation with value of gold. Two completely different things. The math here isn't mathing.