Gold standard

In reply to BB:

In today’s baseless monetary system labor cannot save its wages because banks may issue infinite credit that raises the general price level (GPL) above where it would naturally gravitate. If left to its own devices, prices would naturally fall, not rise, due to population growth, innovation, economies-of-scale, and productivity improvements. This would benefit all wage earners because a lower GPL would make wages more competitive vis-à-vis the goods, services and assets available for purchase. Affordability would rise for all economic participants, and would be especially beneficial to those at the lower end of the wage scale.

Obviously this is not the monetary system we have, which is premised on continually rising prices and policies that seek to ensure that. The current monetary regime issues credit and creates systemic debt. In this system asset price growth can outpace wage growth for long stretches of time. Asset prices, however, may be driven higher by the availability of credit, not rising demand or productivity. The debt build up that goes hand-in-hand with the credit build up creates a drag on demand and productivity. Unemployment rises. Debt cannot be serviced or repaid easily through wages.

Central banks must ultimately dilute the purchasing power of their currencies by manufacturing more currency with which debtors can repay their debts or with which creditors can extend new credit to debtors so they can roll over their debts. Any saved wages lose their purchasing power if held in that currency. This gives incentive to laborers not to save in the currency in which they are paid. Rather, they are forced to speculate in financial asset markets (directly or indirectly).

Lee Quaintance & Paul Brodsky
pbrodsky@qbamco.com

Dave Birch "The Future of Money" 24 Nov 2011

I blogged this once before.

Re-listened today, which brought some fresh perspective.

Money has different functions (store of value, medium of exchange, unit of account). Technology affects each of these differently.

Checks, for example, transform a store of value (bank account) into a medium of exchange.

The Tally Stick government debt market discounted debts across both time and space.

Cash money is a stealth tax, since what is really exchanged is government debt.

The Euro is a doomed currency. So what about the "galactic credit" of science fiction fame?

Tech again puts money creation into everyone's hands.

Should a currency be resource-based (gold standard) or reputation-based (debt standard).

Payments and banking are two seperate functions which our current monetary model conflates.

In a world without cash, what happens to prices?

Statistical mechanics of money-- Dragulescu 2000

Meh.

If you make a large number of unrealistic assumptions, then you can treat money as a closed system in which the Boltzmann-Gibbs law applies. This law says that the probability distribution of X (originally energy, but here money) follows a power law:

C e^{- epsilon/T}

T is temperature, and C is a normalizing constant

In short, any conserved quantity in a large system will/should have an exponential distribution at equilibrium.

This paper would be interesting if:
money had an equilibrium
money was conserved

History of International Currencies Christopher Weber

C. Weber writes an investment newsletter, lives in Monaco so apparently makes a good living off of it. I got ahold of a pdf called Historyofmoneycompleter.pdf. The following are my notes on his opinions. When I think it important enough to disagree, I will do so in italics.

The Mayans were in their golden age from 250-800 AD, the Dark Ages in Europe. We do not know what they used for money.

World currencies can utterly lose value, and fairly rapidly. The idea of the dollar losing its reserve currency status was laughable 3 years ago.

Money must

1. have accepted value
   
2. be durable
   
3. bedivisible
   
4. consistent quality (even after division)
   
5. convenient
   

The standard has almost always been either gold or silver. Paper money is only valuable when people trust the issuer. Greeks made the first international currency, the silver Athenian Drachma. Its weight and quality stayed at 67 grains of fine silver (480 grains == 1 troy ounce) from Solon of Athens (600 BC) to Alexander the Great (circa 300 BC), falling to 65 grains as Greece declined and was absorbed by Rome. The Roman Denarius was an exact copy (in size and weight) of the Drachma. It declined only modestly for 250 years, declining to 60 grains at the time of Julius Ceaser. But the Roman economy pushed first the poor and then the middle class into debt. Nero began debasing the currency in 54 AD. The final straw came in 193, under Septimus Serverus, who reduced the denarius to 26 grains of silver. At this point, the coin was no longer accepted as currency in the outside world. The flow of imports (Inda, China) stopped. Trade, economy, and living standards went into a tailspin. One historian, writing in 1934, described it thus:

a condition of depression and despair to which the modern world ... can present no parallel ... Everywhere land was falling to waste untilled, empty, gaunt, the water courses dried and the poplar sere and yellow ... the slaves running away and revolting, the hired managers ... hastening to line their pockets ... and the patrician owners hiding their gold and silver and jewelry against the day of inevitable collapse

We should also here note the role of disease, which drastically reduced populations. Horrid times indeed.
The fall of Rome lead to the rise of Byzantium. Along with many other things, Constantine introduced the gold Solidus, 65 grains. The idea of stable currency (which had not existed for some 500 years) remained alive. He also saw that debt had ruined the Romans, so outlawed interest. This coin lasted over 750 years.

Next in line was the Islamic Dinar, again at 65 grains of gold. It lasted 450 years.

Islamic world domination ended when they introduced paper money.

Kilowatt/hour currency

Dear Mike,

I appreciated your enthusiasm for the idea of a currency based on the kilowatt/hour standard. Nor was I surprised by your concern that the currency's "value" would be reduced if the underlying commodity, here electricity, became more abundant.

Snarky reply: The US Dollar is currently backed by the full faith and trust of the US Government. That commodity seems to be decreasing. Does this mean that the dollar is worth more now than it was in 1971?

Wonky reply: are you looking to create a "store of value" or a "medium of exchange"? Which monetary function to optimize?

+glenn

"Capital is not a free gift of God or of nature. It is the outcome of a provident restriction of consumption on the part of man. It is created and increased by saving and maintained by the abstention from dissaving."
-Ludwig Von Mises

Electricity based currency

Who needs a gold standard? Let's price everything in kilowatt/hours. Electricity is something we all depend on. When the third industrial revolution really kicks off and each house generates its own power, then owning land again becomes a source of income.

Will the currency devalue as thongs become more energy efficient, or as energy becomes easier to produce/cheaper? Look buddy, if you want me to take that line seriously, tell me what you think of dollars or fiat currency as a store of value m

Gold standard or competing currency?

A quote with no easy source:

When the same medium is used both as a store of value and as a medium of exchange, the result is an ineventable conflict between the interests of debters and savers.
...
In modern America, most people are both, with their savings equal to their debts, giving a net worth of zero.

The question on the title asks if the US should return to the gold standard OR allow a second gold-backed currency, which would be legal tender.