Question by : My case for Gold and Silver. Can it be used as currency?
[Just let me know what you think]
In 1913, half an ounce of Gold was worth 10 Dollars (One Eagle). If you had in your possession half an ounce of Gold, you had ten dollars. (As defined in the April 2nd, 1792 Coinage Act)
There was a difference back then, however – 10 dollars was worth something.
What was worth 1 dollar (3/4 of an ounce of Silver) in 1913, was worth over 100 dollars (paper) in 2009.
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But can a Gold Standard be sustainable?
Now, if we use Ten Eagles(5 ounces of gold-$ 100) today to buy something that is worth $ 100 in “paper” money, then no, it is not sustainable.
But that’s not the case. We would need 3/4 of an ounce of silver ($ 1) to buy something that is worth $ 100 in paper money.
The point is to restore the value of the dollar. You would need less dollars to buy more. You would be paid less money, but your money would be more valuable.
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Now, it is very important to understand the word “inflation” and why prices go up. The economic definition of “inflation” for hundreds of years, up until the 1980′s, was defined as:
“2. an increase in the amount of money in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices”
After the 80′s, it has been changed to simply:
“2. A general increase in prices and fall in the purchasing value of money.”
The new definition is false, and it distorts the market. Inflation doesn’t just happen nor is it solely the act of raising the price of goods – it is created.
Currency is like a product; a very rare item is worth more than a very common item.
In simplest form, say for the sake of argument, you have in your possession a rare baseball card, and you are thinking of selling this card for $ 100. Every other card is worth $ 1, but this card is unique – it’s rare.
Now, given the event that the baseball card company decides to print billions of baseball cards, just like the one you wanted to sell, and added them to the normal circulation of baseball cards. You will no longer be able to sell that baseball card for $ 100 – it has become a common item.
~Further information~
Act of April 2nd, 1792 – “The Coinage Act”
Dollars: To contain three hundred and seventy one grains of pure, or four hundred and sixteen grains of standard silver
Half Dollars; each to be of half the value of the dollar or unit, and to contain one hundred and eighty-five grains of pure, or two hundred and eight grains of standard silver.
Quarter Dollars; each to be one-fourth the value of the dollar or unit, and to contain ninety-two grains of a grain of pure, or one hundred and four grains of standard silver.
Dimes; each to be of the value of one tenth of a dollar or unit, and to contain thirty-seven grains of pure, or forty one grains of standard silver.
Half Dimes; each to be the value of one twentieth of a dollar, and to contain eighteen grains of pure, or twenty grains of standard silver.
Eagles; each to be of the value of ten dollars, or units, and to contain two hundred and forty-seven grains of pure, or two hundred and seventy grains of standard gold.
Half Eagles; each to be of the value of five dollars and to contain one hundred and twenty-three grains of pure, or one hundred and thirty-five grains of standard gold.
Quarter Eagles; each to be of the value of two dollars and a half a dollar ($ 2.50), and to contain sixty-one grains of pure, or sixty-seven grains of standard gold.
~~Even further information~~
Purchasing power in the United States of Gold and Selected Currencies: http://www.aier.org/images/stories/research/ch_p5.pdf
If the link above doesn’t work, click on this image link: http://img221.imageshack.us/img221/1255/dollarsha.png
@Scott Stevenson,
How much Silver is there?
First of all, Gold would not have to cover each and every dollar. Gold, along with silver and other precious metals would all be used to make legal dollars as defined in the Coinage Act.
Not every person would use an Eagle, half eagle, or quarter eagle for a transaction. And in fact, since everything would be cheaper, the lower valued coins would be used more often.
Of course, all of this is first met with the legality of Competing CUrrencies, the discontinuing of printing more money, the discontinuing of trillion dollar wars/policing of the world and trillion dollar deficits and trillion dollar welfare programs.
If our government continues things like this: http://money.cnn.com/news/storysupplement/economy/bailouttracker/
or like this: http://costofwar.com/en/
then we will never see recovery of our economy, nor our currency.
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email me at: longtimef@live.com with the subject “gold” if you’d like to continue this discu
Best answer:
Answer by Scott Stevenson
There are two major problems with going to a gold standard (actually there are more than two, but two will do).
The first is that the US doesn’t have enough gold to back the currency. It’s a $ 15 trillion economy, and the US has “only” (at $ 1600/ounce) about $ 3.85 trillion.
I think what you’re aiming at (at least partially) is revaluing the currency back to where it was in 1913, to make it “worth something”. Just to make the math easier, let’s say we increase the value of the dollar by a factor of 100 rather than the 77.2 it would take to bring the price of gold back to the “historic” value of $ 20.67/ounce.
So, 1 “new dollar” is worth 100 “old dollars”. We’d knock two zeros off the price of everything, and the GDP would be $ 150 billion “new dollars”. Sounds great, right?
But the price of gold is now $ 16 “new” dollars/ounce, so our gold holdings would total $ 38 billion, which is still 1/4 of the economy in “new” dollars. We’d have the same problem of not enough gold to back the economy.
The only way to go back to the gold standard would be to contract the economy by 75%. Given that the Great Depression saw a 25% contraction, you can imagine what a 75% contraction would do. It doesn’t matter how you count the amount of wealth in the economy, it’s still four times the amount of gold we hold.
But there’s another problem. Suppose we somehow take 75% out of the economy without too much difficulty, and go to a gold standard. That would mean that the only way you could grow the money supply (and therefore, the economy) would be from gold mined in the US.
You couldn’t buy the gold on the international market, because you’d have to use dollars that are backed by gold, since we’d be on the gold standard. When those dollars leave the US, they no longer contribute to the US economy, but the gold that backs them has to be held “in reserve”, in case the gold seller want to redeem their dollars. So for every dollar of gold we buy to grow the money supply, we have to hold a dollar out of backing the economy. It doesn’t get us anywhere.
So it’s down to US mining. Right now, we mine about $ 10 billion in gold each year in the US (and it’s going down, but assume for the moment that it stays constant). $ 10 billion in a $ 15 trillion economy is a little over 0.5%–that’s how much the economy could grow each year.
Unfortunately, the economy needs to grow by close to 2% per year just to keep up with the growth in population. 2% growth is really a “stangnant” economy, because we’re just staying where we are.
Even if a gold standard would prevent inflation, I don’t think a perpetual recession is an acceptable trade-off.
Edit for additional info: Silver wouldn’t help much. The US government sold almost all of it in the ’60′s trying to keep the price artificially low so we could continue to use silver in coins. And US production is only about $ 1 billion per year in the US
We could control spending if we wanted to (which would help control inflation), but we’ve got to start acting like grown-ups when it comes to policy decisions.
What do you think? Answer below!
