50th anniversary of the end of gold

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Please excuse my ignorant question: Old forms of money (gold, cash, commodities had a backup method of determining who owned them including "possession is 9/10s of the law." In the US, states have people whose job it is to seek out heirs to abandoned bank accounts as defined by them usually based on inactivity. Cash could be saved as mattress stuffing or pots of coins buried in a field (the popular form of secretion for our coins). What is the crypto currency fall back plan for ownership transfer? If grandpa opens an account and 'buys' a million Bitcoin but tells no one he did it (other than the entity from whom the purchase was made) what happens to that money if grandpa dies? Does it disappear? A good part of the lasting value of gold is based on the belief that it does not disappear as readily as other cash formats. Even if it is not traceable to a previous owner, laws establish a current owner so the value outlives the human. If crypto currency is only a number sequence and that number sequence does not exist in any human mind, in what format does the value represented exist? Is it like an idea than disappears when forgotten?

While I agree that gold has been an item of value for millennia, I am concerned that economists act like it has a value beyond 'idea' status. When there is no water or food available for purchase, the rich and poor both die. History is full of examples of example where someone (Romans) paid large amounts of gold to someone (barbarians) for the privilege of continued existence. It is also full of examples of that continued existence not being available for sale. Fifty years ago, people worried about that more than they do today so a bomb shelter added more to the price of a home than did a swimming pool. Gold is worth exactly what you can find someone to trade you something you want or need for it. Thirsty people do not buy swimming pools or bomb shelters. Modern wars seem to have avoided the ancient concept of killing them all replacing it with rebuilding and guilt concepts that would be strange to previous cultures.
https://en.wikipedia.org/wiki/Caedite_eos._Novit_enim_Dominus_qui_sunt_eius.
Food and water seem to be valued by environmentalists but most economists assume there is always someone willing to accept their gold for continued existence, commodities or whatever they desire. In the end, is there then a difference between the idea of a gold standard and the idea behind fiat, crypto or any other convenience of exchange? What did Atilla the Hun do with his gold gained by selling continued existence?

Like I said, I do not understand economic theory. Most, I do not understand theories based on ideas and all theories are just ideas with footnotes.

 

The lack of divisive anti-academic posts have been a great improvement over the past six months.

 

I agree, and that's why I've moderated my position from its original "gold is a commodity, period." Yes, every commodity has unique properties that make it different from other commodities -- but with gold, those unique properties are a fairly big deal.

Our government manages ("manipulates") the money supply in an effort to maintain a low but positive inflation rate. As a result, the value of the dollar is forced to decrease over time. So the price of gold, or land, or corn, or labor, will tend to rise over time.

But those prices will fluctuate against each other as well, with an hour's labor earning more or less gold or corn or land. So saying "gold is the standard of value" and "gold's value doesn't change, it's the dollar's value changing" -- well, that definition of value is valid, but it isn't useful, at least to my mind.

 

I don’t think its that simple Doug. Back when maybe 80% of world gold stocks were in Fort Knox then surely the US had a lot of control over its price. The US and Germany still hold thousands of tons. Like it or no, the political ideology of gvts is still very much part of the equation

To quote Keynes – “In the end, we are all dead”. Meanwhile, the inherent ability of any gvt to manipulate the value of its paper (or plastic) obviously far exceeds its ability to move the gold price. If you ignore that then you are just not engaging with the key point

Thoughtful readers of my posts will have noticed I am supporting the position of the eminent academic Professor of History, Arthur Marwick. The key point being that people need to think for themselves rather than be led by the nose by just any old professor that comes along.

Hardly a novel suggestion

"Although only a few may originate a policy, we are all able to judge it." (Pericles)

Rob T

 

When nations adhered to a gold standard, the agreement to swap a nation’s paper currency for gold from the government’s reserves served as a brake on the issuance of that currency. Once the gold price is allowed to float, that brake is gone.

The next mechanism to prevent profligate government spending was an functional bond market. Purchasers of government bonds are essentially loaning dollars to the government, with the assumption implicit that when the bond is redeemed, the dollars returned to the purchaser retain the purchasing power they had at the beginning of the loan. If the dollar is forecast to lose purchasing power, the interest rate demanded will be higher, of necessity, to cover the loss.

Once the government becomes the major purchaser of its own bonds, it controls the interest rate. The right hand of the government (Treasury) can issue bonds ad lib, while the left hand (the Federal Reserve) manufactures dollars to buy them, also ad lib. And the price of the bond can be set to peg the interest rate wherever one desires.

Since the dollar is pegged to nothing, to say it is backed by the full faith and credit of the government is really a verbal sleight of hand. Nothing about that promise precludes the purchasing power of the dollar falling. One of the commonly accepted functions of money is to serve as a store of value. On this score the dollar is unsuccessful. The meager consolation is that most other fiat currencies, e.g., the Turkish lira, are even worse stores of value.

 

Thats one beautiful Saint!

 

If a wallets private keys are lost or the owner can no longer claim them, the tokens within are no longer accessible. They still exist on the blockchain adding value and visible by everyone but can't be spent or transferred. In theory "lost tokens" never dissappear but add value to the overall network. In other words those tokens value are absorbed by everyone's else's. That is one reason bitcoin can never go to zero, because they can never be sold.

 

Many thanks - that is exactly my understanding too. And its troubling to me.

Here are some further thoughts. Bishop Berkeley wrote "The Querist" in the 1730's - (it should be easy enough to find on line.) He was promoting a version of the money supply which he saw in China and wanted for Britain – it would have two components

1) Low value base metal coins

2) High value mortgage backed paper banknotes

This seems to me to broadly resemble what the UK actually got over 200 years later in 1947, and in fact was spreading worldwide at around that time.

He made one specific proviso – care must be taken to avoid bubbles in mortgage values.

So something that was completely obvious to an 18th century clergyman somehow eluded most of the world’s banking elites in 2008.

Personally – a decade on - if we want to understand the fundamental anti-democratic problem with QE - I think we can go back further still – to the things Juan de Mariana (1536–1624) said on the question

“Does the king own his subjects goods?”

https://www.marketsandmorality.com/index.php/mandm/article/viewFile/550/541

Anyhow – my general point is a rise in dangerous monetary practices over recent decades seems to be inversely proportional to a fall in critical inclination in the general population over the same period, as is frequently instanced on this group. Where I get tarred as a naughty boy while pointing out that professors of history (and archaeology) are frequently engaged in spreading political propaganda rather than objective analysis.

Rob T

 

Thank you for posting the link to Juan de Mariana’s treatise. I have just finished reading it. How refreshing, and how true! What a pleasure to follow an economic argument based on moral principles. The intellectual poverty of most modern economic and political discussion stands in stark contrast.
Sadly, no one in Franklin Roosevelt’s cabinet was a fan. Nor anyone since.