Take note, Ron Paul fans. It is a bad idea, and economists everywhere agree.
The poll you link to surveys central banking apologists, mostly Monetarists and Keynesians. They are by definition in support of fiat currency. They view the economy as something to be engineered through the manipulation of the money supply - something impossible with a fixed gold standard. Consensus among them is meaningless.
That’s like asking your local butcher if eating meat should be outlawed.
Looking at their answers, it’s clear even the “experts” are anything but. Allow me to address a few:
Nancy Stokey: “There are much better ways to avoid excessive inflation, while maintaining the flexibility of a fiat currency.”
Inflation is an increase in the money supply. You cannot avoid excessive inflation by allowing for the mechanisms of excessive inflation to control inflation. This is like keeping a flame at bay with a firehose of gasoline.
The Fed’s only tool is to inflate - and it has persistently used this tool to the great detriment of the value of our currency. By no means has a central bank, much less leaving the gold standard, avoided excess inflation (as I will demonstrate later).
The law of supply is immutable: When dollars are abundant they are also cheap. A gold standard thus keeps dollars from being artificially abundant.
Richard Thaler: “Why tie to gold? why not 1982 Bordeaux?”
Because gold is a proven asset. It is the most successful medium of exchange in the history of mankind. People have used and still use gold as money. No one uses wine.
Though perhaps if wine (1) retained value over thousands of years without decay (imperishable), (2) were easily divisible without losing value, (3) were malleable and ductile, able to be shaped into more convenient and portable forms, (4) remained stable in a wide range of temperatures and climates, (5) has never been worth nothing, (6) was fungible (an ounce from one source would be equal and identical to an ounce from another source), (7) supply was finite without being so rare as to be difficult to use (relative scarcity), (8) new supply was relatively uncommon and difficult to acquire (certainly relative to the success of vineyards or activity of a printing press), (9) had a long-standing history of being used as currency, and above all else (10) free people were using it as a medium of exchange or intermediary of trade - then Thaler might have a point. Seeing as none of that applies to wine, Thaler’s comment exposes some serious economic shortcomings.
Kenneth Judd: “The relative price of gold can be very volatile.”
Yes - relative to the dollar because the dollar is volatile:
This chart clearly shows the effect of fiat currency that can be inflated at whim - such as the greenback during the “Civil War” or the Federal Reserve note when losing its silver/gold backing in the late 60’s.
Meanwhile, the value of gold is incredibly stable relative to other commodities.
Let’s look at gasoline back in 1980, which, like 2011, also had a spike in the price of gold and oil (these are my calculations, but feel free to look into it yourselves):
Price per gallon, 1980: $1.25
Price per gallon, 1980 (pre-tax, in inflation-adjusted dollars): $3.32
Ounce of gold, 1980 (average): $615
Gallons of gasoline per one ounce of gold (1980, pre-tax): 508.2
Price per gallon, 2011: $3.25
Federal taxes per gallon, 2011: $0.185
Price per gallon, 2011 (pre-tax): $3.06
Ounce of gold, 2011 (average): $1565
Gallons of gasoline per one ounce of gold (2011, pre-tax): 510.6
So, relative to the Federal Reserve’s “stable” dollar, the price of gasoline increased by 245%. Relative to “volatile” gold, on the other hand, the price of gasoline decreased by 0.5%.
Which one is the bad idea again?
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