Topic: The GOLD Standard (Read 998 times)

Its good to see you here. Shire Silver is a very nice bullion product, and I support it.  We should do some trades for the New Liberty Dollars.
And I agree with your point on the Standard being the problems.   There were many different gold standards. 
I think what our interlocutor is looking at is the Gold Price Standard, and working to understand it.

The question 1) Why buy gold if the price is attempting to be fixed.  It is a durable, stable, store of value.
Your house can burn down and your gold will still be there if the firefighters didn't steal it.  You paper money will be gone.  Your hard drive may be destroyed, but the gold wire in your Shire Silver card will remain, and can be extracted from the residue.

The second question of a "moving desired price" is essentially what we have today.  Gold price is heavily manipulated by central banking.  It has some free-market elements, but since is it traded for a controlled commodity (fiat currencies), it can be the victim of trading manipulations.
There have been some very extensive publication on this matter by the Gold Anti-Trust Association (Gata.org)

During the classical gold standard, gold was the standard.  It was the money of the US Constitution.  So it was a goal for bankers to keep their private currency in parity with gold.  As soon as it wasn't, their currencies failed.  This was because gold was the standard.  And if they couldn't live up to that standard, no one would accept what they were calling money.
Banks would buy gold in order to keep their currency strong.

They would also create debt money, which would pay them interest.  This was the period of "free banking".
http://en.wikipedia.org/wiki/Free_banking

In many ways, Bitcoin is a system of free banking, which was the banking system credited with the most stable and productive trading environment in the last few centuries.  Bitcoin goes a few steps further though.  It is built on the foundation of internet peer-to-peer resiliency.

The problem with the gold standard wasn't the gold, but the standard. Any attempts to "fix" the market, whether by trying to set a price or manipulate the amount of currency, is doomed to failure. Simply allow free trade and the market will balance itself out.

FYI, you might not be aware of my Shire Silver cards, which complement bitcoins pretty well. They make everyday use of gold and silver much easier than with traditional bullion products, eliminating the need for any sort of backed notes. [The reason Americans used paper notes during the gold standard era was because using traditional bullion is a pain.]

But to address your concerns about the supposed need for flexibility in the currency market, the exchanges and market price will alleviate most such concerns, and layers on top of the base currencies will handle the rest. To explain, you can think of bitcoins as being the M1, and things like Ripple can build the M2/M3 supply.

This is certainly true today.  We give a pass to government currency manipulators for all sorts of reason.  Historically it has commonly been to fund a war.  That's how we got greenbacks in the USA, so the civil war could be funded. 
When the drums of war started beating for World War 1, we got the Federal Reserve in the bargain.  Our current currency war includes the post 911 spending catastrophe winding down, with a sprinkling of new socialisms riding the wave.

Gold has been priced with strong stability through most all of the time it has been used as money up to the current day.  It has traded within a fairly narrow boundary with relation to other goods and services.  (the old trope of the price of a hand tailored suit of mens' clothes approximating one ounce of the stuff)
The Gold Standard, in the context of this discussion I am taking to mean, the attempt to link the value of a currency similarly. 

I don't think a Gold standard is likely to work in the same way with Bitcoins.  At least not in the current incarnation.  There will always be bitcoin destruction.  Passwords get lost, backups fail, data gets seized and stuck in a vault until it is forgotten.  And it is a finite commodity.  Programmatically predetermined to be finite.  It could work like gold in some ways, but not in others.
Currently bitcoins are approaching 1/10 an ounce of gold in value, but it remains a lot easier to spend gold than it is to spend Bitcoin.  This may not always be true.

These bitcoin days are similar to the days lost to history when gold was first discovered, mined, refined, coined.  It wasn't useful until folks figured out what it was, and decided they wanted some.  That is where we are today, very early days.

Theres no point pegging anything to USD when a small cabal of bankers can wisk trillions out of thin air overnight.

Why bother to keep price fixed to 1000 USD per ounce, if value of gold itself will afloat anyway, thus making entire thing pointless... That system would have point if value of gold was constant. It *could* have point if it wasnt tied to gold, but to basket of goods - it would be simple inflation/deflation countermeasure then.

Thanks for your replies NewLiberty..

What I really want to know is more about this 'Gold Price Model' of the Gold Standard that I have been mentioning..

Basically, I am interested in a monetary system that can grow and expand as the economy 'demands it'.


Can you have a look at these 2 specific question :-

1) Do you think that this model of the Gold Standard can work ?

AND

2) Does it still work if you use the total cash / total gold to set the 'aim' price ? (The price would then float up and down, rather than stay at $1000, as money was injected and removed from the system, assuming the quantity of gold remained the same)

What we have is a free market pricing.
There is utility to bitcoin that doesn't exist in gold.
It may be an interesting metric to look at as to the total net bitcoin/gold, but as to setting a price it may not be useful other than deciding whether an individual wants to buy or sell gold with their bitcoins.
(see my link below if you are interested in doing that)

There is also a nice article recently published in the Business Forum Journal that compares them:
http://www.bizforum.org/Journal/www_journalJVP011.htm

For example, Bitcoin is more useful as money than gold when we look at internet commerce, gold is more useful in other ways.  (You can make stuff out of it) The thing is though that other uses (inherent value) compete with its usefulness as money.  Bitcoin doesn't have that issue.

For the purposes of my question assume Bitcoins could be used instead of GOLD..

What i mean is the gold/bitcoins are just a financial product for now with a basically fixed amount. None of this beauty/lustre or other utilities are to be considered.

Can the Gold Price Rule, as stated in my OP, work with a 'moving' desired price that is exactly total cash / total gold|bitcoins ? Rather than a fixed price.

To your question, there are lots of reasons to buy gold during the classical gold standard period (such as the USA had pre 1913).  Even if you had confidence in the government's ability to have success in keeping the paper money at parity with gold price, it has a timeless quality, lustre, beauty and utility.  It was still the "good money" and everyone would prefer it to the paper, which is why the paper was what was in circulation.
It was the literal meaning of "Cold Hard Cash".

To your second question, this would not be the classical gold standard, but would be the flexible gold standard.
In today's world, we are likely only going to be able to achieve the flexible gold standard.

I have been reading about 'The Gold Standard' and there seem to be quite a few variants..

Obviously there is the 1-to-1 standard where the gold IS the money. Or the paper money is linked 1-to-1 to the gold reserves. The pure version. It's basically bitcoin, but with a tiny amount of inflation as new gold is mined..

The one that interests me more, seems more flexible. I think its called the Gold Price Rule, but don't quote me. It allows for cash to be injected when there is a demand for it, as people sell their gold, and vice versa.

Anyway, the gold price is pseudo-fixed, say to $1000 per ounce(or whatever), and traded on the market. If the price drops below $1000, the bank can inject money into the system, driving the price back up, and if it goes above $1000 the bank can remove money from the system, driving the price back down.

In this hypothetical example, a computer works this out and it is not left to the discretion of fallible humans.. 

There are a coule of things I don't understand..

(1) What incentive is there to buy and sell gold if you know that the price will always be pushed up/down to the fixed-ish level ? (I can see that you could buy low and sell high, but it'll never rocket/tank..  Is $1000 not just as good a hedge ?)

(2) Can/Should the desired gold price be fixed to the MOVING price of total cash / total gold ? (So that when you print money the desired fixed price would actually go up, and vice versa. Assume we have total transparency and know exactly how much of both cash and gold are in the system. Then I can see an incentive for my question (1). )

A 'moving' desired price, that goes up as more cash is injected, seems more sensible to me.. rather than an actual fixed price plucked from the air..

Is that possible ?

Thanks!

ps 20 Years from now they may call it 'The Bitcoin Standard'.. fingers crossed..