> (email exchange)
> On Fri, Aug 24, 2012 at 5:28 AM, Dave wrote:
> When you get a chance could you send a quick note out on problems with this type of
The reasons nations have gone off the gold standard isn’t because it was working so well and their economies were doing well. The reason they go off, like the US did in 1934, was because it was a disaster.
Historically nations suspend their gold standards in times of war, when they need their economies to function to the max. If a gold standard was so good for an economy, why suspend it when you need max economic performance? Obviously because it is not conducive of maximum real output.
The ideological issue is whether the primary function of the currency is to be an investment/savings vehicle, or a tool for provisioning government and optimizing real economic performance. In a market economy you can’t fix the price of two things without a relative value shift causing you to be buying one of them and running out of the other. Likewise, you can’t sustain full employment and a stable gold price if there is a shift in relative value between the two.
A gold standard is a fixed exchange rate policy, where the govt continuously offers to buy or sell gold at a fixed price.
This means the holder of a dollar, for example, has the option of ‘cashing it in’ for a fixed amount of gold from the govt, and a holder of gold has the option of selling it at a fixed price to the govt.
Therefore a new gold discovery which causes gold to be sold to the govt is inflationary and tends to increase output and employment, and a gold ship sinking in transit or a sudden desire to hoard gold is deflationary and tends to decrease output and employment. And there’s nothing that can be done about these relative value shifts, except to ride them out. The only public purpose served (by definition) is the stable nominal price of gold set by Congress.
With a gold standard, like any fixed fx regime, interest rates are necessarily set by market forces. With the govt’s spending being convertible currency, it is limited to spending only to the extent it has sufficient gold reserves backing the currency it spends. With gold reserves generally pretty much constant and not expandable in the short run, this means govt spending is limited to what it can tax and/or borrow. So when the govt wants to deficit spend, doing so by ‘printing’ new convertible dollars risks those dollars being ‘cashed in’ for gold. Govt borrowing, therefore, functions to remove that risk by delaying conversion privileges until the borrowings mature. This means the govt is competing with the right to convert when the govt borrows. In other words, the holder of the gold certificates has the option of either converting to gold or buying the treasury securities. The interest rate the treasury must pay therefore represents the indifference rate of holders of the convertible currency between cashing in the currency for gold now or earning the interest rate and not being able to convert until maturity. Note that it’s in fixed exchange rate environments that govt borrowing costs have soared to triple digits as govts have competed with their conversion features, and that govts generally lose those fights as the curve goes vertical expressing the fact that at that point there is no interest rate that can keep holders of the currency from wanting to convert.
Note that this also means the nations gold reserves are the net financial equity that supports the entire dollar credit structure, a source of continuous financial fragility and instability.
It’s all here in a paper I did in the late 1990’s.
Hope this helps!
A few more thoughts:
Being on the gold standard doesn’t prevent a financial crisis, but it makes the consequences far more severe.
We were on a gold standard when the roaring 20’s private sector debt boom lead to the crash of 1929 and the depression that followed. 4,000 banks closed before we went off gold in 1934, and it was only getting worse which is why we went off of it.
Gold would not have prevented the pre 2008 sub-prime boom, but it would have made the consequences far more severe. Including no Fed liquidity provision to offset a system wide shortage due to hoarding and banks bidding ever higher for funds that didn’t exist, most all firms losing inventory financing and being forced to liquidate inventories as rates spiked competing for funds that didn’t exist, and no deficit spending for unemployment comp as federal revenues fell from the collapse. In other words, the automatic fiscal stabilizers we rely on can’t be there. Instead it’s a deflationary disaster that only ends when prices fall sufficiently to reflect changes in relative value between gold and everything else.
Note that the recent decade of gold going from under $600 to over $1,600 is viewed as a sign ‘inflationary’ and a 250% ‘dollar devaluation’ as it takes 2.5x as many dollars to buy the same amount of gold. But if we were on a gold standard, and all else equal, and gold had been fixed at $600 back then, the same relative value shift would be manifested as the general price level falling that much in an unthinkable deflationary nightmare.
http://www.youtube.com/watch?v=MvBCDS-y8vc&feature=related Again the freidman video on your thoughts here
@Save America, http://www.youtube.com/watch?v=ENm44TufWuw
Rush limbaugh parody of Obama spending like its 1929, but that is just what was needed!
So you’re saying that a fiat currency, produced at what ever level someone in the government deems necessary, is the mechanism that produces optimum economic activity?
There’s no reason that a “gold standard” should be held to a fixed value by a government. In fact, there’s no reason why, from the perspective of the individual, that government should be involved in the administration of money at all. Humans seeking to make voluntary exchanges with other humans will inevitably find mediums of exchange. For good reasons gold has been this medium for centuries. Coins minted from gold under the auspices of regimes that no one even remembers any longer can still be used for trade purposes and, in fact, are. Your example that fiat money is necessary for government spending to alleviate an emergency such as a war is a good reason for not having fiat money.
you need to take a quick read of ‘the 7 deadly innocent frauds’ on this website, thanks
@chuck martel, Here is ralph Benko, head econ guy for those APP people calling for a gold standard, he says Jacques Rueff of france was the greatest economist eva! (mundell did win a rueff award so he must be somebody)
http://www.youtube.com/watch?v=g9p4IeE4JRU Now here is this guy talking about France’s Degaulle calling up Nixon wanting his gold back, and nixon sent it over on a ship.
Chuck can you help me out? It seems like this guy is saying the US CIA got some law passed in Paris where they couldn’t print thier own money interest free, but had to borrow from the rest of world at punishing interest rates, and the CIA was able to engineer this when all the french government guys where off on a sunday eating some jelly and a croissant. Now I know personally how powerful and deceptive our CIA boyz are, but I find it hard to believe Degaulle couldn’t pay his people or soldiers until Nixon got that gold sent back over the ocean on a boat.
As Warren points out in his example, what would Degaulle have done if the boat with all the gold had sunk into the ocean 10 miles down and was unretreivable? Just let his people starve to death because he didn’t have the gold to back printing up some more currency? Seems damn silly to me.
In Fact, that APP group should be TOTALLY DISCREDITED at this point if Benko is using Reuff has the ideaological underpinning for his memes.
But let us not dismiss this foolishness out of hand, because as from the forbes article above, real people are taking this Reuff guy seriously and that is dangerous:
As far as the ongoing Rueffian Renaissance goes, in India just last week the internationally regarded former deputy governor of India’s equivalent of the Federal Reserve System, S.S. Tarapore, wrote in a column entitled The Resurrection of the Gold Standard , “As Jaques Rueff says in his Monetary Sins of the West(1972),
Oh Crap, India wants to go back to a gold standard, what if the boat carrying all thier gold from fort knox back to bangalore goes down 10 miles under the sea and is unrecoverable, I guess a few hundred million indian children gonna have to starve.
Two points. The first is about policy space. Fiat currency increases policy space. How government uses that policy space is the issue. MMT shows how to use to it to achieve optimal output at full employment along with price stability. That is hardly possible under a convertible system. As Warren says, read the mandatory reading (in the nav bar) starting with 7DIF.
Secondly, you suggest, correctly, that a fixed rate regime is a basically a command system and that a market system would let the value of currencies float against the market price of gold. That has social, political and economic consequences that would not last long before the system was changed to something more stable.
BTW, as long as nations are sovereign, there is no way to mandate a gold standard that cannot be changed in the future. Govts will always do what they perceive necessary given changing conditions, as history shows.
… a market system would let the value of currencies float against the market price of gold. That has social, political and economic consequences that would not last long before the system was changed to something more stable.
And what would the dynamics of these consequences be? If you’re talking “stability”, what’s so stable about the current set-up? And who gets to change the system?
please re read ‘the 7 dif’ thanks
@chuck martel, The only reason gold coins are worth something is because not many are being made. Take your coins to a jeweler and ask him to make a ring and you’ll find out that the adulterating additives have rendered the gold more trouble than it’s worth. Pure gold coins wouldn’t be hard or durable enough.
That said, governments are generally tasked with guaranteeing weights and measures. So, since money is a measure of value, it’s entirely appropriate for governments to be in charge of certifying accuracy and that it’s not counterfeit. The dollar is backed by the good faith (honesty) and credit of the American people and our agents of government insure that commitment is met.
Of course, if government is perceived as some supernumerary entity, akin to some war lord or other wielder of force, then there’s no reason to expect government to perform any practical service at all.
the $US is just a tax credit
“Historically nations suspend their gold standards in times of war, when they need their economies to function to the max. If a gold standard was so good for an economy, why suspend it when you need max economic performance? Obviously because it is not conducive of maximum real output.”
I’ve as tried to articulate, in my inadequate way, the gold standard reflects Malthusian thinking. Austrian economists and their sympathizers like the late Julian Simon celebrate technological breakthroughs when human ingenuity finds ways to make scarce resources more abundant, for example, aluminum, which went for a scarcer than gold laboratory curiosity to a throwaway container for foods and beverages; or else when human ingenuity finds cheaper substitutes for scarce resources and the services they provide, for example, how communication satellites weighing a few hundred pounds have replaced the need for millions of tons of copper cables to carry the same amount of communication services.
Well, what does the invention of fiat paper currency as a substitute for the monetary services of gold look like? Uh, no, the Austrians demur. Gold has to hold a privileged position as a hard resource constraint on man’s ability to produce and trade. It makes you wonder what Austrian economists would do if a technological breakthrough turns gold into another throwaway substance like aluminum. Would they call for the prohibition of that technology?
Would they call for the prohibition of that technology?
Of course and they would argue for self-evidence on the basis it is synthetic apriori, just like the rest of their assumptions.
That synthetic stuff really disturbs “economic calculation”
Nobody could be further from Malthusian thinking than Julian Simon.
Maybe you’re right about this weird privileged position that gold occupies in some primitive minds. And it’s not just gold, either. There’s some folks with an absolute fetish over H2O, using it to drink, bathe, float yachts on, etc. The artificial dependence on that compound is holding society back. Some of these same waterbugs keep advocating the continuous intake of unadulterated oxygen, too. What’s up with that?
We’ve known for decades how to transmute elements. What if some technological breakthrough makes the nucleosynthesis of gold a lot easier?
Warren here is more ammo for you to take to Obama. This is Sean Fieler, chairman of the APP group calling for a return to the gold standard. About 12 minutes in he tells Turk a big problem he is hearing from the states, is the fed won’t give them any money and help bail them out, so that is how he is gaining traction at the state level to get policymakers to return to a gold standard.
Wow! This is outstanding rhetoric Warren. It cuts through the fairy dust regarding the gold std and other fixed-rate exchange regimes
“The ideological issue is whether the primary function of the currency is to be an investment/savings vehicle, or a tool for provisioning government and optimizing real economic performance. ”
Bingo! I’ll add an emphasis differentiating “private savings” vs adequately provisioning the incredibly dynamic capabilities of a constantly and rapidly scaling nation. That decision comes directly down to personal hoarding vs social growth, and there are simple reasons why cooperative, social species have won vs solitary hermits, no matter how heroic. Return on coordination swamps all other returns.
Having a dynamically scaling currency system is a requirement for denominating all the complex transactions that a dynamically growing society executes. In going from fixed (aka NOT agile) to floating (aka, agile) exchange regimes, we’re simply voting with our feet, to voluntarily swap SOME, limiting personal options for SOME, enabling group options.
Once people viscerally perceive the options of personally perishing vs banding together to flourish, the decision to go with agile decisions and rapid, floating, changes in local valuations gets very easy. It’s a no brainer.
The fact that we currently have millions of people who don’t grasp the personal vs group options is a sign of our social dissolution, not of our potential.
ps: This all gets very simple from a systems point of view. To do more things, new tools are always nice. To rapidly invent & distribute new tools as needed, we need toolmakers. To both develop toolmakers & ensure safe vs unsafe use of proliferating tools … we need processes to develop (educate & train) both toolmakers and tool-users.
That’s how complex societies or any systems compete and evolve. The only option is group suicide, which always looks attractive to those individuals who don’t yet see the next train coming down the tracks, nor the need to rapidly distribute & efficiently use totally new tools to escape it.
Yes, there is ALWAYS a lot of noise, with people crying “wolf” and offering a huge range of new tools, mostly not needed. Yet the only choice is to SELECT carefully from the palette, to SELECT to train the right toolmakers, and to SELECT to use the right tools well … soon enough. We can’t abstain from natural selection, except by group suicide.
That’s how complex societies or any systems compete and evolve.
Read Joseph Tainter’s The Collapse of Complex Societies.
Some collapse. So what. Not all ever have – or you wouldn’t still be here spouting inanities. I shouldn’t have to tell you to focus some attention on the ones that haven’t, then peruse the few reliable differences between extinct & surviving systems.
That list grows continuously, by natural selection.
Studying dead systems is called archaeology & paleontology. It’s a rich field, maybe necessary but certainly not sufficient.
@roger erickson, Read the book.
What on earth makes you think I haven’t years ago? What difference does it make to the present discussion?
How about YOU read more about monetary operations before spouting ONLY about economic theory. That’s what problems always boil down to, failure to keep theory & experimental results aligned.
@roger erickson I guess you’re right, the British are still sending taxes to Rome, the Ottomans are even now conscripting Serbs to be janissaries, flocks of Mongol sheep graze in the parks of Kiev and the Khmer keep plugging away at building more temples at Angkor Wat.
@chuck martel, “That’s what problems always boil down to, failure to keep theory & experimental results aligned.”
Erickson, I am beginning to detect whiffs of frustration and stress, you are above that, let me get all emotional 😉 The sheep are confused and emotional, more emotion and stress direced at them will only lead them to the darkside.
Erickson – delong, krugman and others have done an excellent job on your quote above regarding Paul Ryan, not only wanting to return to a gold standard, but literally gold coinage (if his love of ayn rand fictional characters is true).
They go on to say how dangerous Paul Ryan and people like him are, they don’t base thier ideas on provable history, or empirical data, but on fiction, on belief, not fact. There is no way to change thier thinking since it is not based in science, history, or data, but on fantasy. There is no “feedback” mechanism to adjust thier minds. No matter what facts or science you feed into them, thier beliefs will remain.
If romney does win and then fall off his boat in a fishing accident, we will have such a person as the president, one whose core beliefs are shaped by fictional characters, not science. I am gonna go watch some star trek and star wars reruns now 😉
http://www.youtube.com/watch?v=ANox3_QNp0k&feature=fvsr Ryan says he never listened to rand, but aquinas, but this video destroys him and the lie he has tried to foist on the people. It makes me as sick and emotional as when hillary said she was under sniper fire attack in bosnia. The whole government is one big colossal failure because the electorate just don’t care anymore.
Great post. Worth being a mandatory reading
Agree that it should be promoted. I posted a link as must-read at MNE.
I mean it. You sometimes come up with very interesting long posts that go beyond current events but that eventually get “lost” unless someone bookmarks them for future reference, which is a shame. You should consider making a permanent link under the mandatory readings or other section if there is enough interest.
And in this case I would even consider polishing it a bit and try to get it published at huffington post, to take advantage of the interest in the discussion to bring attention to MMT and your website.
why huffpost? warren’s too good for them. and, i don’t think goldbugs tend to read it, and they’re the ones could use the disabusing.
totally agree with Mammoth–i think you should “polish” it up a bit and then repost it on huffpo, warren.
@WARREN MOSLER, When mosler went from the old board to the new one, I had high hopes. He has been getting complaints about the “reply” structure/system on this current format for years. The nesting becomes needlessly obstructive.
I believe mosler when he says he is losing his behind in cars and planes and is a failed businessman who can’t even buy gas for his MT900, otherwise you would think he could hire IT folk to leverage technology better than they have.
This board needs a vast overhaul in how it functions. I can go into google and do a site search, but is there a search function on this board with relevant meta tags?
Erickson you are an information guy, you should give mosler shit on this to no end, what an EPIC FAIL his blog is doing in archiving, referencing, and retrieving data that is here.
When he was running his campaign against schiff, schiff was bright enough to have a media crew come along and take videos and marketed them successfully on youtube, mosler didn’t do the same. Rickards is getting approached by NPR monetary shows because he keeps his twitter alive and growing, not mosler.
When approached about a serious succession plan, mosler goes silent, does he think his MMT memes should die with him?
There is a lot to criticize mosler for regarding “return on coordination” information archival and dissemenation, hopefully you and erickson and others will pester him to no end to bring modern technological “productivity” to this experience. A real cost is that as new converts come to “learn” the rest of us have to take needed time and resources to re-educate, he has no policy that I can see of constantly adjusting the board, mandatory readings, videos, etc to make it easier for new people to come on board, in an erickson/wiener “cybernetic” loss of feedback nightmare.
Here is a FED paper about the so called gold standard, It seems they printed money like there was no tomorrow.
The Debasement Puzzle: An Essay on Medieval Monetary History
It was fiat money that happened to be printed on gold and silver like Wray says. Also It seems like heving had nominal value. I suggest every gold bug to read this paper, to see that they woult happily surrender their gold and get back debased gold coins. Gold confiscation in 1930-s was not necessary.
good stuff! would have made more sense to the authors if they had understood mmt
Can one of you smart fellas here explain how all this fits in with Mies’ regression theorem?
I’ve had friend’s recently accost me with this Austrian stuff. Seemingly it’s revolutionary….
I’m not in favor of a gold standard, but anyone older than 25 or so has seen their purchasing power for many items be relentlessly diluted. In addition with ZIRP, savers are further losing real purchasing power.
As such, I understand the appeal of gold. So for those who want money to be a savings vehicle, have at it, buy some gold. It’s not for the tin foil hat types, but it’s not the basis for a viable currency either/
wrong. you could blame the loss of the purchasing power of the currency on the fact that it’s fiat money, but not the loss of your purchasing power.
If gold as a monetary standard is so much in error, why did Nixon (on the advice of experts) close the “gold window”? If gold didn’t or doesn’t mean anything, why not let other sovereigns have all that gold in exchange for scraps of paper? Aren’t the scraps of paper that represent dollars in reality worth more than the gold? And now, with gold at over $1500/oz, why doesn’t the federal reserve or treasury or whoever is in control of all that bullion, sell it on the open market while the price is high? Let some other central bank go through the agony and expense of protecting that inert element.
Sure, the government can write checks for money that they’re creating out of thin air. They don’t need tax receipts to make payments, at least not yet. And, if this is so, why do they need to collect taxes at all? Why not let everyone keep every dollar they acquire, to be re-injected into the economy, while the government prints even more money to make the same economy grow? If it’s indeed a lack of negotiable funds that keeps an economy from growing and printing more money makes the economy bigger, why aren’t the citizens of Zimbabwe the richest people on earth?
why didn’t you read the mandatory readings?
@MamMoTh, I did. Why don’t you answer my questions?
@chuck martel, Why don’t you answer mine? I needed your help Chuck, I asked you what was Degaulle supposed to do if the boat with all the gold had sunk? Why you leave me hangin bro? Dat not cool…
http://www.heritech.com/ymagchy/ If you will read every book here (very ancient monetary books hard to find anymore) you will do a lot to help yourself understand the mysteries of the universe.
$50 from Yamaguchy books? $50? what charlatans!
WILLIAM GOUGE, ADVISOR TO PRESIDENT JACKSON,. ON THE PRINCIPLES OF THE BANKING SYSTEM. ‘ 1833.
also here, as a Google eBook, from a hard copy at U-Michegan
“If it’s indeed a lack of negotiable funds that keeps an economy from growing and printing more money makes the economy bigger, why aren’t the citizens of Zimbabwe the richest people on earth?”
Real goods. Did you miss the part in 7DIF where it was explained that too much deficit spending will cause demand-pull inflation? You can hit that point by increasing spending or cutting production. If you really want to throw gasoline on the fire, borrow foreign currency. You won’t be able to control the interest rate on that loan.
@Unforgiven, Exactly. There were no real goods or services to buy with all that spending. We are in a different situation whereas business cannot sell enough.
@chuck martel Stop thinking only in terms of the money chuck. What matters is the underlying trade. The government wants to aquire some of that trade and that is the point of a fiat monetary system. Spending money transfers some of that trade to the government. This needs to be balanced by taxing the ability of other citizens to buy that trade. The aggregate amount of money in the economy has nothing to do with it. Printing money alond doesn’t create inflation because it has nothing to do with real trade.
We could view the resurrection of gold standard advocacy as a misguided effort to avoid the next stage of economic empowerment. It seems to me that the primary purpose of a gold standard is to relieve, or rather deprive, all of us of the responsibility and power that comes with fiat money. Advocates of gold seem to truly believe that we cannot handle the budgetary rigors of a republic without constant inconvenient irrational ritualized transfers of this metal.
@Alan Rhodes, How does fiat money give me individually more responsibility and power? If I stashed $1000 that I earned through wages or by the sale of a fine quarter horse in 1975 under my mattress, 40 years later it would be worth a little more than $200 in 2010 dollars. Where’s the responsibility and power? Four hundred percent inflation in 40 years isn’t the natural scheme of things, it’s the government stealing wealth via the printing press (or computer). This insane inflation has become so ubiquitous that it’s now considered normal and, in fact, is considered no inflation at all. All but the shortest contracts have multipliers built in, COLA is the norm for wage deals. The issue isn’t necessarily a “gold standard”, it’s government control of the medium of exchange, which, as you point out, is due to the government demanding payment of taxes in their own scrip. The idea that the government can print as much money as it wishes to finance things like wars 12,000 miles away is sick.
@chuck martel, Deflation is a transfer of wealth as well. It seems that as long as the trasnfer benefits you it is o.k.. I don’t know where you get your info from but four hundred percent inflation is wildly off the mark.
@rodney I didn’t mention deflation. However, I have seen the light. You MMT folks talk about the “government” doing things. The government in actuality is an abstraction, nobody can grab the government or paint the government orange or give the government a hickey. But the government enacts laws and makes policy decisions. How can an abstraction do that? Well, it isn’t the government enacting laws and making policy decisions, it’s PEOPLE. Who are the people, and how many of them, that make decisions on taxes and the creation of money? It probably isn’t just one “Wizard of Oz”, there might be a committee or council that makes monetary decisions for the whole country, a committee or council perhaps dominated, however, by the wizard, that decides monetary options that dramatically affect over 320 million in the US, each of whom has unique needs, wants and resources. Somehow the wizard and his elves are supposed to weigh each of the 320 million denizens’ individual situations and come up with a policy that’s positive for as many as possible. That’s beyond hubris. Or it would be if that was the actual goal. But since the goal is to make things as expedient as possible for the government and their cronies in the financial industry and whoever they can bribe for votes, there is the possibility that those particular ends can be met.
@rodney, Chuck, now you are making progress, it isn’t about gold or fiat, it is what your friend Erickson keeps telling you, the electorate are not putting in the right government.
http://www.fcpp.org/publication.php/1134 Read this short piece, it will go along well with the beliefs you already hold about government corruption.
People in Russia are not happy either Chuck:
Now Chuck if you can go tell all your goldbug friends, they will be just as much a SLAVE under a gold standard as the one we have now, its not about the gold, its about feedback from the masses to the decision makers. PS Chuck, I am not even going to vote in the next election, waste of my time.
@chuck martel, Chuck, I wish I could hit a meta tag on this site and show you how many times Warren Mosler has claimed that the 300 million “people” are in control of the government, through congress, who give orders to bernanke. Either by ignorance or intent though, he has a bad IT policy that is slow to progress and I can’t do that, so you will have to trust me.
He has said it an amazing number of times though. And everytime I have caught him saying that, I tried to debate that. I wish I could pull up a meta tag of how many times I have pulled out Kling’s 250 state idea, but again you just have to trust me.
You hit it on the head Chuck, you are as smart as any guy here, 300 million agents cannot be represented by the way our current government is structured. Even if we sent you Chuck to DC, you could not fix what is broken under the current government. So Chuck, how long do you think it will take you to convince a majority of the electorate (all 300 million) that it is in their best interests to dissolve the USA and her government, and retool under an entirely new system to better serve 300 million? I don’t think you can do it Chuck, warren sure has criticized me when I bring out kling’s article, and even Kling himself says in the piece it is not possible, and Yesterday Kling withdrew from the blogosphere, he personally has come to the conclusion it is a waste of his time. If Kling has come to that idea, how long before Moslers and other bloggers and Ericksons also come to that idea and just EXIT the internet?
http://twitter.com/kristianiaclark – Warren, Rickards is winning new converts, you have to work harder. This reporter just interviewed him.
She is with marketplace on NPR email@example.com, needs some anti-rickards gold communications. Why don’t some nice folks here email her and convince her that rickards is wrong when it comes to gold.
First I want to say that I think going back to the gold standard would be disastrous but I do have a question that maybe one of those more knowledgeable than myself could answer so I can better debate the gold nuts.
My understanding is that the gold standard limits your ability to deficit spend… correct? If we went off the gold standard in 1934 how did we deficit spend in 1933 when the economy started to recover?
the deficit spending wasn’t sustainable
If running deficits wasn’t sustainable under the gold standard how come the US government’s budget managed to be in deficit about 90% of the time from 1790 to 1934?
new gold being mined?
and there were numerous devaluations? that’s what ‘unsustainable’ means. a devaluation is the act of letting the currency float for that instant
also, the govt went on it’s own form of ‘fractional reserve banking’ by issuing/spending more gold certificates than it had gold, hoping no one would cash them in.
I think the ratio had gotten to 4:1 when Nixon closed the gold window
@ Warren Mosler
Great points, thanks.
Judges and Sherriffs that want to arm people against an invasion of UN troops? Politicians who want to return to a gold standard? (As archaic as blood letting, a flat earth and not knowing where the rain comes from)?
What is happening in your country?
MarshallA says your only hope is your lady voters! Which means the missing quality is …..
“Gold would not have prevented the pre 2008 sub-prime boom, but it would have made the consequences far more severe.”
Warren – I’m somewhat embarrassed to say that I am only just now reading Michael Lewis’s book “The Big Short”. The credit bubble which appears to still be deflating, was predicated upon the biggest expansion of credit the world has ever seen. Do you think the proliferation of all those hundreds of billions of dollars worth of fraudulent sub-prime CDO/CDS toxic assets would have been possible if credit creation had been more constrained by a dollar linked in some way to gold?
That aside, if Mitt Romney is elected (unlikely) and he follows through on giving the green light to a new gold commission, (also unlikely) don’t you you think it would be a good idea to have MMT representation on the board? Just to make sure that all sides are represented? If there is a gold commission, I reckon you should be the official MMT spokesman
@Ed Rombach, Ed Rombach, you are a fascinating person to me. The years that warren has personally spent into rewiring your axons and dendrons, yet your austrian roots still persist, quite possibly represent one of his greatest personal failures with this blog. Instead of pegging currency issuance to employment, you still want to peg it to gold molecules.
Unlike other gold buggers, you have read warren’s thoughts for at least a decade and had much time to ponder all his ideas, yet he can’t seem to get that gold bug thinking weeded out of your neural pathways. I lay awake at nights trying to understand the entity “ed rombach”, how he was formed, what cultural, spiritual, educational etc roots he was birthed from. Don’t let me die without solving the mystery and having my curiosity satiated. How was rombach’s mind shaped and formed, what feedback loops reinforced your thought processes, what does oldman rombach have to say about his memories of youthful rombach? Most people like to talk about themselves, I am all ears (eyes) Rombach, I want to know everything about you so I can understand you better, and more importantly understand warren’s failure to influence you to his way of thinking.
Many goldbugs I meet are filled with cynicism and mistrust, they confuse a return to gold standards with putting honesty back into government systems, with time and effort I think they can be converted. Others are just religious about the gold, no amount of science or data is going to change thier thinking.
Warren painted a good example for you about a ship of gold sinking in the ocean, and I asked chuck but I will ask you. Degaulle had lots of gold shipped over to him from nixon, what should he have done if the ship carrying the gold sank 10 miles down into the ocean, unrecoverable?
Rombach, have you been able to read all the required readings? Everything warren has here, all the information his cfeps friends have put out, old monetary works like McGeers?
I think if warren’s blog has done anything, it has shown a lot of people come here, get certain ideas in thier head, and are told to read this or that, but they don’t do it, they don’t have the time to invest or are just intellectual lightweights and can’t comprehend the massive amounts of data, but they still want to argue thier point with a lack of perspective.
You are a bright guy, it frustrates me to no end that you hold steady to your austrian roots. Warren’s failure to convert you should be analyzed to understand where he needs improvement.
You make me laugh!
“The years that Warren has personally spent into rewiring your axons and dendrons, yet your austrian roots still persist, quite possibly represent one of his greatest personal failures with this blog. Instead of pegging currency issuance to employment, you still want to peg it to gold molecules.”
Warren has not failed in my eyes…. in fact he has opened my eyes! You’re getting a bit personal, but I’ll indulge you some. FYI… My roots are not in Austrian, but rather Marxist going way back to the checkered past of my youth. Supply Side came later then MMT, while I am relatively new to Austrian thinking…. although there is clearly some cross pollination going between Supply Side and Austrian. Moreover, I aim to see some cross pollination going on between MMT, Supply Side and Austrian. I’m very eclectic that way. I like to cherry pick what message and policy agenda works for me and therefore what I can sell.
This is why I want Warren to sit on the new gold commission…. that is if there is one. Not sure what he thinks about that though.
“what does oldman rombach have to say about his memories of youthful rombach?”
Not sure I like being called old man rombach, but if you must know I reckon that anyone who’s not a communist when they’re 18 has no heart and anyone who still is when they’re 30 has no head. Get my drift?
“Rombach, I want to know everything about you so I can understand you better, and more importantly understand warren’s failure to influence you to his way of thinking.”
Wrong again. Warren has had a huge influence on my thinking.
“Warren painted a good example for you about a ship of gold sinking in the ocean, and I asked chuck but I will ask you. Degaulle had lots of gold shipped over to him from nixon, what should he have done if the ship carrying the gold sank 10 miles down into the ocean, unrecoverable?”
Maybe they could have insured the gold shipment? Like in a credit default swap?
“Rombach, have you been able to read all the required readings? Everything warren has here, all the information his cfeps friends have put out, old monetary works like McGeers?”
I confess no. My bad as the kids say. However, it’s on my list of things to do.
“You are a bright guy, it frustrates me to no end that you hold steady to your austrian roots. Warren’s failure to convert you should be analyzed to understand where he needs improvement.”
Once again my roots are not Austrian. I don’t think Warren is selling a religion. Therefore, the analogy about his failure to convert me seems inappropriate. Don’t want to offend anyone by referencing Marx, but I see a dialectical interplay between MMT, Supply Side and Austrian economics. Areas of common ground could reshape the political landscape going forward. When I try to educate Supply Side and Austrian friends about MMT, I often get the same kind of push back as I do here when I raise Supply Side and Austrian issues. If I’m pissing people off on all sides of this polemical debate, it tells me that I am onto something and that’s the space I want to occupy.
In the the realm of physics, there has been on ongoing attempt over the past century to find a grand unified field theory that unifies Einstein’s Theory of Relatively with Quantum Mechanics. That’s kind of how I see the challenge in the domain of political economy.
Don’t want to offend anyone by referencing Marx, but I see a dialectical interplay between MMT, Supply Side and Austrian economics. Areas of common ground could reshape the political landscape going forward. When I try to educate Supply Side and Austrian friends about MMT, I often get the same kind of push back as I do here when I raise Supply Side and Austrian issues. If I’m pissing people off on all sides of this polemical debate, it tells me that I am onto something and that’s the space I want to occupy.
In the the realm of physics, there has been on ongoing attempt over the past century to find a grand unified field theory that unifies Einstein’s Theory of Relatively with Quantum Mechanics. That’s kind of how I see the challenge in the domain of political economy.
Agree. I also think that the way historical development occurs is dialectically, although my background is more Hegelian in this respect than Marx. But neither Hegel nor Marx discovered dialectical logic. It goes back at least to Socrates, and both Hegel and Marx were philosophers who had been educated in the classics and knew their ancient Greek philosophy well. Marx’s doctorate was in philosophy and he wrote his dissertation on an issue in ancient Greek philosophy. Hegel’s innovation was seeing historical development in terms of a debate among opposing ideas, the opponents being those who espoused those ideas and attempted to put them into action.
The prevailing idea, now neoclassicalism in economics, always tries to marginalize its opposition, but ultimately is unsuccessful not because of the strength of the opposition but because of its own weaknesses (Hegel and Marx’s internal contradictions) that lead to failures and eventual replacement by the next strongest idea. There is a jockeying for position among contending ideas to be the next strongest and in this contention, the victor is influenced by its own opposition.
The weak (rigid and dogmatic) try to marginalize opposition, whereas the strong (creative and adaptable) incorporated good ideas regardless of where they are found or from whence they emerged. One of the chief indicators of weakness is the “not-invented-or-discovered-here” syndrome. To paraphrase what Milton Friedman said about schools, There is good economics and bad economics. We should be focusing on the good economics and why it is good, and showing what the bad economics is and why it is bad. E.g., dismissing Austrian economics as bad is myopic. There are good Austrian economists that have some good ideas, and bad Austrian economists that have bad ideas.Distinguishing them, as Lord Keynes has done at Social Democracy for the 21st Century, is a worthwhile pursuit.
Tom Hickey – Of course you are right. I should have been referencing Hegel rather than Marx. I guess my slip was showing a bit.
@Ed Rombach, I am glad I can still make someone laugh, every court needs a jester, too many here get worked up and emotional perhaps (myself included) and take things too seriously.
“anyone who still is when they’re 30 has no head.”
I trust no one over 30, they have become too jaded and cynical, and I won’t date any women over 30 either, have become too wise to my tricks 😉
Thanks for the introspection. You were at the old board 10 years ago, to me it seems if in 10 years you have not been converted, I am not sure I think you will ever be. I don’t know that there is any more information you can be influenced with if after 10 years of talking with Mosler you are still sitting on the fence. I like to remain open minded too, but it just seems so fundamental to me how silly a gold based system is that there is no further wisdom to going down that path for our future. If all the precious metals on the planet vaporized tomorrow, we could still operate our societies. Is that true if all the oil/coal vaporized tomorrow?
A long time ago I read about the silver market during the time of the manhattan project. They needed lots of silver to build the cyclotrons, and one of the generals in charge was able to manipulate the entire market so that the enemies wouldn’t get wind of our plans. After the nuclear material was made, he had the cyclotrons torn down and the silver returned to “the market” I forget the length of time this was, but it was a very long while.
I always thought wow, so much for price discovery in global markets. If they could manipulate markets in wartime, they will do it in peacetime too. How silly it would be to base the currency on metals that could be so easily manipulated by governments.
I guess one major problem I have with warren, is he talks about the regulatory aspect of fiat as being slow to react and something we should all just deal with. McGeer was the polar MMT opposite, regulation was job 1, and without transparency and regulation, monetary systems would become the evil tool of evil men. How McGeer and Mosler, both MMT advocates, have such a HUGE difference on the importance of regulation as being the KEY underpinning to the whole system is interesting. Today little kids are quoting the bank of canada founder and not mosler.
“Instead of pegging currency issuance to employment, you still want to peg it to gold molecules.”
Did it ever occur to you that the two may not be mutually exclusive?
wouldn’t have mattered
yes, that pesky ‘should’ word…
“yes, that pesky ‘should’ word…”
If I get your meaning, you would at least be willing to mull over having a seat on a new gold commission if it was offered to you?
and fly to the meetings on a cow…
Can you guys supply a point-by-point refutation of this: http://lewrockwell.com/north/north1183.html?
These discussions have been going on a long time.
A Scientific Exposure of the Errors in Our Monetary System – Mary Hobart, 1891.
“Our government exacts taxation, but devoid of justice, fails to provide the means in sufficient quantity to meet these exactions. A government “by the people, of the people, and for the people,” demanding from the people that which it is impossible for them to obtain !
Can human tyranny sink to lower depths of infamy ? And has it come to this in our free Republic, that the people, armed with the ballot, have not the power to provide themselves with a currency sufficiently large to pay their taxes ? Have we no right as a people to establish a currency which will be sufficient in quantity to adjust our social debts and credits ? ”
Sounds like a very smart lady. What happened, the banking lobby?
@roger erickson, Well there was the oil lobby in 1922:
http://www.yamaguchy.com/library/cikkek/consp.html And the Gold lobby in 1890
Mr. Chairman:— Amidst the conflict of monetary theories, doctrines and assumptions which divide the American people — nay, the entire civilized world today — I can discern but a single principle upon which all parties unite. That principle is stability. Those who hold that like other measures the measure of value should be of dimensions prescribed by law; those who would leave such dimensions to the chances of mining discovery, the vicissitudes of war, or the caprices of fashion; those who are willing to trust the government with the regulation of money; those who have no faith in the virtue of prudence of congress and demand a metallic pledge behind each fraction of the monetary measure; those who regard the whole number of dollars as the measure of value; those who regard the material of each separate dollar as the true measure of value; those who regard money as a legal institiution, as well as those who view it only as so much metal — all these agree in the cardinal principle that a monetary system, if it is to be just and equitable in its operation, should be stable.
It finally dawned on me that economists actually do have a fixation on the mirage of stability. That’s actually bonkers in a dynamic world.
see “Economics: A Gaping Separation Between Theory and Operations”
@roger erickson, Erickson says: With more feedback and analysis, a growing system can further de-centralize both feedback and decision-making. The goal of a growing system is always to further de-centralize decision-making enough to accelerate exploration of its own unpredictable, rapidly scaling & increasingly distributed adjustment options.
This is exactly what Kling was trying to describe with his 250 state proposal, as our democracy has grown, the decentralization of powerful government has not scaled with it. He concluded there was no real way to implement this policy because people were not willing to destroy the sacred cow of the USA and her government to rebuild.
Erickson Says: Without such coordination, our growing population becomes inevitably less coherent. Individual hoarding of what our group has is a result of a bored, frustrated group not reaching for more. That dissolving trust only slows our growth loop.
I linked a video for you about chris hitchens on youtube saying we are geared for war, that as our populace becomes bored or restless, a good war is actually something they begin to crave to break up the macro monotany.
@roger erickson, From the banking sector side of your Above memes Erickson, there is the fed paper that says the USA is not an optimal currency area and we need to bust that up too.
So let me ask you wise master, how do we get the electorate to implement the 250 state idea of kling for our government, annihilating the current power structure of DC, and then bust up the financial system over those 250 states into multiple optimal currency areas? Even warren moslers who should be at the forefront of this kind of thinking have ridiculed these ideas, kling himself has ridiculed it, there just aren’t enough of you Erickson who understand system design and feedback, unfortunately. Its an impossible problem that is not going to be solved before the empire collapses. I think world war comes first, everything goes nukular, and the cockroach beings that spring up 200 million years from now don’t learn our lessons and benefit from the feedback and repeat the mistakes all over again. The founding fathers said be eternally vigilant, but its just not in our DNA, we are really lazy.
Then lets take an erickson and security guard class 4, and put them into the halls of power where they are like gods compared to the average citizen, and tell them OK, no blow up everything that makes you like a god so you can equalize the borg. I don’t know any man that can resist so much power. The system has to be reset FIRST, cause the current system will corrupt even Jesus, but it would take an uncorrupted group of Jesus to go up there and reset stuff, its a catch 22, the empire will have to collapse like rome and egypt before it. We are caught in a recursive loop of repetitive mistakes, and if you watch that 1000 year video of war (yah he admits it misses non european stuff) the explosions get bigger and bigger the more we go into the future, until finally someone like a north korea says hey that tesla guy was smart, we just have to put a nuke bomb at the right crust area of the earth and split the whole damn planet in a vibratory physics wet dream, it was nice knowing you Erickson. LOL!
@Security Guard Class 4 ,
ST says: “This is exactly what Kling was trying to describe with his 250 state proposal.”
Kling’s idea is a start, but as we discussed here last winter, we can’t scale up agility by scaling up politicians and Congresses alone.
Example: We can’t put enough cop cars on the road to keep other cars from speeding; alternative is a black-box recorder in all existing cars.
Think of the example of genes making proteins, and proteins regulating the genes that make them. Self-regulation-with-self can’t scale – you need shortcuts to scale regulation.
An example shortcut: Eukaryotes invented siRNA as an order of magnitude more efficient way to regulate genes with tiny slivers of RNA.
Following that line of reasoning, the % of generals per soldier isn’t kept stable in larger armies. Instead, efficiency = shrinking or stabilizing the ratio of Generals (policy staff) to troops, while letting the ratio of lower-ranking-officers/troops rise a bit. [That and Outcomes-Based-Training. http://www.lesc.net/blog/theirrsquos-reason-why-don-vandergriff-ret-majand-col-casey-haskins-us-army ]
In politics, what seems more attractive is to keep Congress & states as is, and delegate more decision-making to the existing local county councils, city councils and mayors.
[Not to mention more training of politicians, and demands on their performance.]
We have more than enough politicians. What we need is more practice & experimentation distributing decision-making throughout existing delegates.
If we start adding layers of bureaucracy, it should be below the level of existing counties. AND … whatever we do, it has to also involve BOTH more de-centralization of decision making (delegation) and improved quality [and pace] of distributed decision-making.
“An example shortcut: Eukaryotes invented siRNA …”
Eukaryotes didn’t build that. Mutations and natural selection made that happen.
“In politics, what seems more attractive is to keep Congress & states as is, and delegate more decision-making to the existing local county councils, city councils and mayors.”
That’s a fundamentally conservative idea.
“Eukaryotes didn’t build [siRNA]. Mutations and natural selection made that happen.”
Splitting hairs. Eukaryotes invented a novel way to use it.
‘In politics, what seems more attractive is to keep Congress & states as is, and delegate more decision-making to the existing local county councils, city councils and mayors.’
“That’s a fundamentally conservative idea.”
Indirection, my good man. If you can think outside the box, you can find novel operational paths that cut across any & all boundaries, while not being limited by any of them. 🙂
@Save America, http://www.guardian.co.uk/commentisfree/2012/aug/29/correspondence-collusion-new-york-times-cia
And here we go Erickson with the free press side of information dissemination. People want stability, this kills thier societies in the end, they don’t want change, not REAL change, they don’t really want a dynamic government or banking system or other institutions, even warren wants to join congress instead of blow up congress and reset the government, do you see the obstacles? And warren is a renaissance man, we still have people here telling him he is an idiot for wanting to do things for “public purpose”
It is BLASPHEMY to talk about changing congress to have 5000 seats instead of 500, to have representative voting instead of direct voting, I sat down with the GOOOH guy and asked him what does term limits do to decentrailize the concentrated power of 500 seats in congress, he said kling was a fool and that idea could NEVER get traction. But here comes erickson, even chuck martel tells you it is total HUBRIS to have 300 million lives decided by 500, but as I often asked many people before, how much oppression or bad decisions does it take before a chuck martel picks up a gun and starts shooting some bernankes and others before he says NO MORE, we must have real change, I think we are a long way from chuck martel being so disgusted he is willing to do violence to the right people to get real change. How about you Erickson, how fugged up do things have to get before you say ENOUGH, I have to wake these people up, have to go shoot some key people so that my feedback will be taken seriously. You wont do it Erickson, even if the “system” crushes you into death from starvation, disease, poverty, you will not react or give feedback in a way of violence like the founding fathers commanded, so we are FREAKING DOOMED! LOL! 🙂
@roger erickson, http://www.yamaguchy.com/library/pettigrew/pettig_index.html
The plutocrats of 1870 (moyers would really like this book)
We remember the neil armstrongs, but who were the other guys who walked on the moon Erickson?
Good find, SA. Most things that need to be said have already been well said. Our problem is getting that key info to key people in key institutions, within critical time periods (say, most students, by 5th grade?).
“Houston, we have a distribution problem!”
the last sentence here is a killer, in this quote from RF Pettigrew, on “Bryanism”:
‘It is not easy to characterize a complex political situation in a brief and comprehensive manner. If such a thing can be done at all, I believe that it can be done most successfully through the personality of two men who typify the two extremes of American political life. One of these men that I shall select for the purpose is William Jennings Bryan. The other is Joe Cannon of Illinois. The first is a Democrat—the second a Republican.
I have known both of these men for many years. Neither is a statesman in any sense of the word. Both are lawyers and suffer from the disqualifications that go with the study and practice of the law. Bryan has integrity, of a sort ; Cannon has a keen mind. Both understand the political game, and both play it according to their lights. Bryan plays prohibition politics ; Cannon plays plutocratic politics. Neither has any real grasp of the meaning of the phrase “ the public welfare.” ‘
@roger erickson, Erickson I am lazy and my eyes are going bad, so why don’t you find a good text to speech engine and convert all these books into audio format and then post a link so everyone can listen to the MP3 while they jog around coronado beach.
Isn’t MMT just putting the currency on the ‘unskilled labour’ standard?
Neil – Your comment made me wonder about whether or not the price of gold would more or less stabilize around some equilibrium value if Warren’s ELR program were enacted.
Gold is just an asset in short supply and bubbles like any asset in short supply depending upon fashion. Van Gogh paintings are the same. So is vintage wine.
Blue John is similarly in short supply, but it ain’t anywhere near as fashionable.
Whitby Jet was about the most expensive jewel on the planet when Queen Victoria was in her mourning phase. These days most people probably don’t know what it is.
“Gold is just an asset in short supply and bubbles like any asset in short supply depending upon fashion. Van Gogh paintings are the same. So is vintage wine.”
The most compelling reason I have heard about why gold evolved over thousands of years as a monetary asset is the above ground supply of gold only expands at an annual rate of about 1.75% to 2% per year due to its scarcity, which is roughly the same rate of human population growth over the long haul. My understanding is that no other commodity has so close a correlation.
That’s right. Our very own Djp once posted a calculation showing that the amount of gold per capita has remained roughly constant over many centuries.
Also, gold is very shiny.
Govts go off gold standards so they can spend more, that is all. Spending to buy elections is the only way to win and gold standards limit govt spending. Politicians like no accountability and dumping a gold standard gives them that. Now they can steal and spend at will, leaving the future to pay the bill.
The Constitution established a gold standard so the govt could not steal your money, now they can and are.
the constitution didn’t establish a gold standard.
and you’re missing the point in my article about trying to fix two prices in a market economy
Dear Mr. Mosler: I had to do several double-takes while reading an opinion column on gold published earlier today by the Wall Street Journal. This in particular left me speechless:
“In the ferment within today’s Republican Party, the gold standard has become almost the centrist position. On the left would be those who favor a system of discretionary activism in which brilliant technocrats, such as Ben Bernanke at the Fed, use their judgment in setting interest rates. A bit to their right would be advocates of a rule, such as John Taylor’s rule linking interest rates to various conditions, or one that requires the Fed to target the price of gold but stops short of defining the dollar in terms of specie. In the center would be advocates of a classical gold standard, in which a dollar is defined as a fixed amount of gold. These include, among others, Mr. Lehrman, James Grant of Grant’s Interest Rate Observer, publisher Steve Forbes, economist Judy Shelton, and Sean Fieler of the American Principles Project.”
Is this for real? It’s completely NUTS.
yes, and yes, completely NUTS
BWAHA! Miners charged with the murders that the police brutes executed! Because they chose to STRIKE, it forced the police to have to kill innocents!
We are so FREAKING DOOMED! That something like this can take place in the world – anywhere – DOOMED I tell ya!
Sweet blog! I found it while browsing on Yahoo News. Do you have
any tips on how to get listed in Yahoo News? I’ve been trying for a while but I never seem to get there! Cheers