Monday, September 19, 2011

On The Gold Standard

Several months ago, I was asked one twitter if I favored a return to the gold standard.

The answer is "No!"

The great flaw of the gold standard is that the standard leads governments and political rogues to manipulate the price of gold and other precious metals.

One need only follow the spot price of gold and silver for a few months to realize that the central exchanges setting the spot price are highly manipulate.

The Coinage Act of 1792 turned out to be greatly flawed. This attempted to set the ratio of silver to gold at 15 to 1. This ratio fluctuates. It is currently something like 44 to 1, though no-one knows why.

I favor a sound monetary policy. I prefer the price of the common unit or currency to be set to a basket of goods.

I would favor a program that accepted trade in silver and gold as legal currency.

Apparently, Americans were trading old silver pieces-of-eight as legal tender into the 1850s when such trade became illegal.

My ideal system would be a sound money system with a common currency based on a basket of goods that allowed people to trade in physical precious metal coins at the precious metal value. (The basket of goods might include precious metals and fuel).

Accounting, taxes and such would be done in the common currency. One simply has an option to use precious metal coins as legal tender.

I favor this because I think it would create a more dynamic market.

There would not be an obligation to accept coins just as there is not an obligation for businesses to accept checks or credit cards.

For that matter, I would expect that most mainstream businesses would avoid trading coins. Allowing people to use coins as legal tender is more likely to help sole proprietorships and companies operating on the fringe.

Having multiple types of legal tender on the market would make for a savvier consumer. People who carry both precious metal coins and dollars would develop a better understanding of the way that prices fluctuate.

Attempts to revive the gold standard would restore the paradigm in which governments tried to regulate precious metals. Simply allowing people to trade precious metal coins at spot price would make for a more robust economy.

BTW: While I was at LPAC, I used one of my two silver dollars to buy books. I am now down to just one silver dollar. I bought a number of silver quarters on eBay.

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