Explain the Gold Standard to me

[laterbloomer]

I didn't really know where to post this, so I landed here.

So explain to me why Gold is a better standard than money? I can kind of understand it back in the day but not these days. The only value anything has is the value we give it so what makes Gold a better thing to value than currency. I don't see any reason that gold should be more reliable than any currency.

[bean29]

What I don't understand is Bit Coins.  How do they derive value.  I am highly suspicious, but they do have value.

[tractor]

The gold standard (replaced the silver standard, by the way) means that for every dollar in circulation, the US had an equal amount of gold in the bank to back it up.

Kind of like an insurance policy, guaranteeing with something tangible that a dollar was worth a dollar. Now we are so far off of that standard, that the only thing backing a dollar is the good word of the US. So it’s actual value may be considerably less 🙂. Does that help?

And since you asked, the original Wizard of Oz was a political satire on the switch from the silver standard to the gold standard. The ruby slippers were originally silver, which explains why Dorothy kept clicking them together saying “there’s no place like home”. It was a nod to returning to the silver standard and getting away from the gold standard (the yellow brick road). I know, I’m a geek...

[tractor]

Jul 29, 2020 12:50:26 GMT -5 laterbloomer said:

I didn't really know where to post this, so I landed here.

So explain to me why Gold is a better standard than money? I can kind of understand it back in the day but not these days. The only value anything has is the value we give it so what makes Gold a better thing to value than currency. I don't see any reason that gold should be more reliable than any currency.

OK, so I just re-read your post, and I went way out in left field with my last answer 🙄. Anyway, gold is something tangible that you can hold and it has always had value, taken in different forms throughout history, but it’s still gold.

Paper money is cold, heartless and can be printed in just about any basement if there is a strong enough desire.

[weltschmerz]

Jul 29, 2020 17:14:51 GMT -5 tractor said:

Jul 29, 2020 12:50:26 GMT -5 laterbloomer said:

I didn't really know where to post this, so I landed here.

So explain to me why Gold is a better standard than money? I can kind of understand it back in the day but not these days. The only value anything has is the value we give it so what makes Gold a better thing to value than currency. I don't see any reason that gold should be more reliable than any currency.

OK, so I just re-read your post, and I went way out in left field with my last answer 🙄. Anyway, gold is something tangible that you can hold and it has always had value, taken in different forms throughout history, but it’s still gold.

Paper money is cold, heartless and can be printed in just about any basement if there is a strong enough desire.

That's why you need polymer money, not to mention that it has a longer life span.

[justme]

I think it's more just another variation of the good old times. Things were good back during the gold standard so we need to go back there.

Nevermind the only way to do that is to take trillions if USD off the market or greatly increase the value of gold to where a pound equals a few billion dollars.

And the people that loudly ask to go back usually buy gold themselves... ain't that interesting.

[laterbloomer]

Jul 29, 2020 17:14:51 GMT -5 tractor said:

Jul 29, 2020 12:50:26 GMT -5 laterbloomer said:

I didn't really know where to post this, so I landed here.

So explain to me why Gold is a better standard than money? I can kind of understand it back in the day but not these days. The only value anything has is the value we give it so what makes Gold a better thing to value than currency. I don't see any reason that gold should be more reliable than any currency.

OK, so I just re-read your post, and I went way out in left field with my last answer 🙄. Anyway, gold is something tangible that you can hold and it has always had value, taken in different forms throughout history, but it’s still gold.

Paper money is cold, heartless and can be printed in just about any basement if there is a strong enough desire.

So what if it's tangible? So are rocks.Being tangible does not give it inherent value. It doesn't feel any more "real" to me than cash. I can see a tangible item of limited quantities should be able to keep inflation lower, but using gold as a standard just seems like an emotional decision.

[tskeeter]

Jul 29, 2020 12:50:26 GMT -5 laterbloomer said:

I didn't really know where to post this, so I landed here.

So explain to me why Gold is a better standard than money? I can kind of understand it back in the day but not these days. The only value anything has is the value we give it so what makes Gold a better thing to value than currency. I don't see any reason that gold should be more reliable than any currency.

Tractor’s explanation of the gold standard is dead on.  The reason the gold standard was important is that it kept the government from causing run away inflation by printing a bunch of money.  Think about Germany after WWI, where a wheelbarrow full of money could buy a loaf of bread.  Today, in the absence of the gold standard, only good judgement keeps the government from printing an excessive amount of money.

[laterbloomer]

Jul 29, 2020 23:06:05 GMT -5 tskeeter said:

Jul 29, 2020 12:50:26 GMT -5 laterbloomer said:

I didn't really know where to post this, so I landed here.

So explain to me why Gold is a better standard than money? I can kind of understand it back in the day but not these days. The only value anything has is the value we give it so what makes Gold a better thing to value than currency. I don't see any reason that gold should be more reliable than any currency.

Tractor’s explanation of the gold standard is dead on.  The reason the gold standard was important is that it kept the government from causing run away inflation by printing a bunch of money.  Think about Germany after WWI, where a wheelbarrow full of money could buy a loaf of bread.  Today, in the absence of the gold standard, only good judgement keeps the government from printing an excessive amount of money.

Since it's not the standard, what makes it so valuable now? 

[tskeeter]

Jul 30, 2020 9:53:41 GMT -5 laterbloomer said:

Jul 29, 2020 23:06:05 GMT -5 tskeeter said:

Tractor’s explanation of the gold standard is dead on.  The reason the gold standard was important is that it kept the government from causing run away inflation by printing a bunch of money.  Think about Germany after WWI, where a wheelbarrow full of money could buy a loaf of bread.  Today, in the absence of the gold standard, only good judgement keeps the government from printing an excessive amount of money.

Since it's not the standard, what makes it so valuable now? 

There are two reasons the gold standard remains relevant.

First, even if a nation’s currency is not tied directly to the value of gold, several countries maintain large gold reserves as a means to reinforce and stabilize the value of their currency.  That is why international financial transactions are performed in certain currencies and not others.  I’d rather loan someone money in a transaction valued in US dollars than in Brazilian reals or Argentinian pesos because the dollar is much less likely to be devalued than the real or peso.  The countries that maintain large gold reserves include the US, France, Germany, Switzerland, Italy, and China (note the absence of Greece, Portugal, and Spain in this list).

The second reason a gold standard is relevant is as a point of reference.  If a country starts to issue lots of currency relative to the value of that country’s gold reserves, you can expect massive inflation and an increased probability that the country’s currency will be devalued, as has happened in some South American countries.  If you bought $100,000 worth of high interest Argentina national bonds, and the peso as devalued to 10% of it’s prior value, your $100,000 worth of buying power was suddenly reduced to $10,000.  Ouch.

[thyme4change]

I've never understood why gold is intrinsically valuable. In a dystopia where people are starving and zombies are eating our brains, having a closet full of gold doesn't seem all that helpful. Now, a few of those Costo/Prepper Mac and Cheese buckets, maybe.

[justme]

Aug 1, 2020 11:44:46 GMT -5 thyme4change said:

I've never understood why gold is intrinsically valuable. In a dystopia where people are starving and zombies are eating our brains, having a closet full of gold doesn't seem all that helpful. Now, a few of those Costo/Prepper Mac and Cheese buckets, maybe.

If I'm recalling right it's a combination of it being a finite resource, durable, and I think when it all started out there wasn't really a working use of it - too soft to make tools out of - so it was just a shiny thing.

Similar how diamonds became so valuable because of it being a finite resource (of course the finite part ended up being manufactured, but the concept lol).

And in the US there was a political component of who controlled the gold/gold mines vs the silver mines.

[laterbloomer]

Aug 1, 2020 11:44:46 GMT -5 thyme4change said:

I've never understood why gold is intrinsically valuable. In a dystopia where people are starving and zombies are eating our brains, having a closet full of gold doesn't seem all that helpful. Now, a few of those Costo/Prepper Mac and Cheese buckets, maybe.

This is what I'm trying to say. No matter how much folks try to sound all technical, there is no real reason for it.

[laterbloomer]

Aug 1, 2020 13:22:22 GMT -5 justme said:

Aug 1, 2020 11:44:46 GMT -5 thyme4change said:

I've never understood why gold is intrinsically valuable. In a dystopia where people are starving and zombies are eating our brains, having a closet full of gold doesn't seem all that helpful. Now, a few of those Costo/Prepper Mac and Cheese buckets, maybe.

If I'm recalling right it's a combination of it being a finite resource, durable, and I think when it all started out there wasn't really a working use of it - too soft to make tools out of - so it was just a shiny thing.

Similar how diamonds became so valuable because of it being a finite resource (of course the finite part ended up being manufactured, but the concept lol).

And in the US there was a political component of who controlled the gold/gold mines vs the silver mines.

Apparently it doesn't rust, so that makes it better for making jewellery and decorative things. But so what in the big scheme of things.

[justme]

Aug 1, 2020 13:51:37 GMT -5 laterbloomer said:

Aug 1, 2020 13:22:22 GMT -5 justme said:

If I'm recalling right it's a combination of it being a finite resource, durable, and I think when it all started out there wasn't really a working use of it - too soft to make tools out of - so it was just a shiny thing.

Similar how diamonds became so valuable because of it being a finite resource (of course the finite part ended up being manufactured, but the concept lol).

And in the US there was a political component of who controlled the gold/gold mines vs the silver mines.

Apparently it doesn't rust, so that makes it better for making jewellery and decorative things. But so what in the big scheme of things.

Because you're looking at it through the lens of today. Gold became valuable back when people were trying to move from the bartering system to expand, but the only way for it not be a complex series of barters is to decide on some medium that everyone deemed valuable (I'm sure some had to be convinced of this and this is definitely condensing things a lot) yet not easily replicated. And they're also not going to use a metal that's needed for other things (though I believe those metals were also more plentiful too). 

I mean, think back as if you were around 2000+ years ago. You want some medium to go between so you're not having to trade chicken eggs for leather for a sword for the pig you actually want (or whatever) and think of all the time wasted if you didn't know the exact path to get the damn pig - you just want to go from chicken eggs to pig. Gold for the chicken eggs, gold to buy the pig. You want something that everyone recognizes, yet can't just make themselves (like say paper money back before serial numbers and shit) but that people recognize as having value (possibly increased if people were using it as jewelry - like jewelry was mostly for the wealthy back then)

You're seeing it's lack of use in every day use as a reason it shouldn't be valuable, but instead it's the lack of use that made it valuable. No one's going to accept an iron coin as valuable when you you could just melt down your sword and make 100 of them yourselves. 

I'm sure I'm missing a ton of context here as my economics classes didn't go that deep. People are weird, they place value on things that are illogical all the time. Gold is definitely not even close to the most illogical thing humans have placed value on. 

[Tiny]

Aug 2, 2020 0:54:07 GMT -5 justme said:

Aug 1, 2020 13:51:37 GMT -5 laterbloomer said:

Apparently it doesn't rust, so that makes it better for making jewellery and decorative things. But so what in the big scheme of things.

Because you're looking at it through the lens of today. Gold became valuable back when people were trying to move from the bartering system to expand, but the only way for it not be a complex series of barters is to decide on some medium that everyone deemed valuable (I'm sure some had to be convinced of this and this is definitely condensing things a lot) yet not easily replicated. And they're also not going to use a metal that's needed for other things (though I believe those metals were also more plentiful too). 

I mean, think back as if you were around 2000+ years ago. You want some medium to go between so you're not having to trade chicken eggs for leather for a sword for the pig you actually want (or whatever) and think of all the time wasted if you didn't know the exact path to get the damn pig - you just want to go from chicken eggs to pig. Gold for the chicken eggs, gold to buy the pig. You want something that everyone recognizes, yet can't just make themselves (like say paper money back before serial numbers and shit) but that people recognize as having value (possibly increased if people were using it as jewelry - like jewelry was mostly for the wealthy back then)

You're seeing it's lack of use in every day use as a reason it shouldn't be valuable, but instead it's the lack of use that made it valuable. No one's going to accept an iron coin as valuable when you you could just melt down your sword and make 100 of them yourselves. 

I'm sure I'm missing a ton of context here as my economics classes didn't go that deep. People are weird, they place value on things that are illogical all the time. Gold is definitely not even close to the most illogical thing humans have placed value on. 

Just cause I'm nerdy:
2500 years ago the Roman's were using coins bronze, silver, and gold. I'm guessing a farmer might buy a pig with bronze or silver (that would be some awesome pig!) - not gold. I don't think the government was holding gold in reserve to "back up" the bronze and silver ingots/coins the way we talk about the gold standard.

I'm pretty sure in the 1200's in Great Britain silver was the typical form of exchange - and it might be a coin or ingot. (I have history buff nerd friends...)

Then there's this page: which would be RichardII - so like 1370??

archives.history.ac.uk/richardII/coinage.html.

The silver coinage was that used in daily business, with the groat of fourpence supported by the half-groat, and the penny by the fractional denominations of the halfpenny and farthing. The daily wages of a master craftsman might be sixpence.

I guess where I'm going is the whole idea of a "gold standard" is kind of a modern European thing that a I think a bunch of countries decided upon to facilitate "international" trade amongst themselves... not so much local trade.


No one's going to accept an iron coin as valuable when you you could just melt down your sword and make 100 of them yourselves.    That's not quite right.  100 iron coins (or ingots) made from that sword - still has worth in trade for a merchant or farmer...  once you have 100 of them - you could trade it to a nobleman who was working to arm his mercenaries and was willing to make swords from coins/ingots.  (I know it doesn't work that way when making swords).   there's a chance the original sword "cost more" than 100 "coins" as well. 

A bronze ingot or a silver ingot or an iron ingot has value - it can be collected up and turned into something else.      I think when you go back far enough (when we were all subsistence farmers/herders) that coins had some intrinsic value (because with enough of them - you could make something useful)  and that "possibility" was what gave a single one some sort of 'street cred' or value.  
Gems/pretty stones had value - but it's hard to trade 1/4th of a gem stone for something.  

[justme]

Like I said I'm missing stuff 😉 and it's not a direct line from moving to using money to gold standard. Remembered gold coins in Rome but didn't remember other materials! But I didn't pay too much attention to history in Latin class and my last world history class was in high school. Interesting to know iron was used too and not just semi precious metals. Though I guess maybe they needed it if there wasn't enough gold or silver?

Definitely not a straight line from gold being discovered to the gold standard, but definitely rooted in gold being deemed valuable for centuries and even being used as money.