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Should the US Currency be pinned to a Standard like Weights and Measures are?

Should US Currency be pinned to a standard like weights and measures?


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Misterveritis

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I am reading the 1939 edition of a book called An Inquiry Into the Nature and Causes of the Wealth of Nations by Adam Smith. In the editor's introduction the editor summarizes one of Smith's points. Here is the quote,
Lowering and raising the coins are unjust and pernicious operations. Copious mines abate the value of the precious metals.
The natural sciences really blossomed when standards were created for units of measure. We don't allow the meaning of a kilogram to change from day to day. Should we have the same strict requirement for our money?
 
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I'm just curious, is this post a call for us to return to the gold standard?
 
I'm just curious, is this post a call for us to return to the gold standard?
Not necessarily. Let's say that I agree to work for you at a rate of one dollar per hour. Today, I could buy a one pound loaf of bread with that dollar. I am agreeing to work for you for the value of that one pound loaf of bread. Now let's say the federal government prints another dollar thus reducing the value of my current dollar to one-half of a dollar. Is that any less of a theft from me than saying the new definition of a pound is 8 ounces instead of 16 ounces? Either way the actions of the federal government have diminished the value of my exchange.
 
Not necessarily. Let's say that I agree to work for you at a rate of one dollar per hour. Today, I could buy a one pound loaf of bread with that dollar. I am agreeing to work for you for the value of that one pound loaf of bread. Now let's say the federal government prints another dollar thus reducing the value of my current dollar to one-half of a dollar. Is that any less of a theft from me than saying the new definition of a pound is 8 ounces instead of 16 ounces? Either way the actions of the federal government have diminished the value of my exchange.

A few initial thoughts that aren't particularly organized.

1) I don't believe it to be theft in any real sense of the word, as the government is not taking anything.

2) But yes, it is in principle diminishing the value of that exchange and the victim would be justified in feeling robbed.

3) However, in real terms, at least in the United States, printing money is not a significant factor in inflation. Admittedly, the situation would be different in say, Zimbabwe or North Korea.

4) There are other, much powerful market forces at work that could diminish the value of your exchange just as badly, if not worse. Would that be a justification for returning to some sort of standard? I'm not sure.
 
Zero inflation is usually not desirable. A small but positive rate of inflation stimulates economic growth while still providing macroeconomic stability.
 
A few initial thoughts that aren't particularly organized.

1) I don't believe it to be theft in any real sense of the word, as the government is not taking anything.

2) But yes, it is in principle diminishing the value of that exchange and the victim would be justified in feeling robbed.

Would you also agree then that the kilogram's value should float the currency does? If I am paid with a pound of bread and the government allows weights to float so that my dollar (which held constant) would still buy a pound of bread but that the actual weight of the pound of bread had dropped from 16 ounces to 12 ounces how would that be any different? And yet we do keep weights and other measures constant. But the value of our currency can be simply changed by printing more money (or any of the other variants that do the same thing)
 
Would you also agree then that the kilogram's value should float the currency does? If I am paid with a pound of bread and the government allows weights to float so that my dollar (which held constant) would still buy a pound of bread but that the actual weight of the pound of bread had dropped from 16 ounces to 12 ounces how would that be any different? And yet we do keep weights and other measures constant. But the value of our currency can be simply changed by printing more money (or any of the other variants that do the same thing)

Currency doesn't work the same way other measurements do (and in fact, it has more purposes than just being a unit of measurement, which I think is the problem here). To your analogy, there isn't a market out there for kilogram weights, there isn't a supply and demand for kilograms, there's no "kilogram inflation." The simple answer is that it's an apples and oranges comparison. Money doesn't work the way other measurements do. And imagine what would would happen if there was only a set amount of dollars in the economy, forever (even in the face of real economic growth). That wouldn't make any sense either.
 
Currency doesn't work the same way other measurements do (and in fact, it has more purposes than just being a unit of measurement, which I think is the problem here). To your analogy, there isn't a market out there for kilogram weights, there isn't a supply and demand for kilograms, there's no "kilogram inflation." The simple answer is that it's an apples and oranges comparison. Money doesn't work the way other measurements do. And imagine what would would happen if there was only a set amount of dollars in the economy, forever (even in the face of real economic growth). That wouldn't make any sense either.
Good points. I don't think Adam Smith was arguing for a constant amount of money so much as a constant amount of value. I agree with him on this. The government can take from me in many ways. One is to intentionally devalue the money. The one term president Obama is doing this as a matter of policy right now. Those who borrowed money from us are not going to get back what they loaned. It is another form of theft.
 
Good points. I don't think Adam Smith was arguing for a constant amount of money so much as a constant amount of value. I agree with him on this. The government can take from me in many ways. One is to intentionally devalue the money. The one term president Obama is doing this as a matter of policy right now. Those who borrowed money from us are not going to get back what they loaned. It is another form of theft.

Forgive me, but I don't understand this sentence.
 
Not necessarily. Let's say that I agree to work for you at a rate of one dollar per hour. Today, I could buy a one pound loaf of bread with that dollar. I am agreeing to work for you for the value of that one pound loaf of bread. Now let's say the federal government prints another dollar thus reducing the value of my current dollar to one-half of a dollar. Is that any less of a theft from me than saying the new definition of a pound is 8 ounces instead of 16 ounces? Either way the actions of the federal government have diminished the value of my exchange.

the problem is - what do you peg it to?

what if that item becomes naturally cheaper? more costly?

what if we pin it to bread, but then some scientific breakthrough reduces the cost of growing wheat and turning it into bread by 2/3rds? now our dollar's worth collapses as well.

Pinning it to something that is less volatile - like the supply of gold - is also a non starter, because there's not enough gold, and as production increases and gold does not, you get strong deflation.


I would reduce the Feds' mandate to just holding down inflation, and subject it to more congressional oversight.
 
I'm blanking out on everything I learned in my political economy class.

I'd actually love to hear arguments from an expert for an against the gold standard vis a vis a floating exchange.
 
Forgive me, but I don't understand this sentence.


you borrow 100% at an interest rate of 3%.

then I inflate the money supply by 6%

you are going to see (roughly) a return of negative three percent: 6-3=3
 
the problem is - what do you peg it to?

what if that item becomes naturally cheaper? more costly?

what if we pin it to bread, but then some scientific breakthrough reduces the cost of growing wheat and turning it into bread by 2/3rds? now our dollar's worth collapses as well.

Pinning it to something that is less volatile - like the supply of gold - is also a non starter, because there's not enough gold, and as production increases and gold does not, you get strong deflation.


I would reduce the Feds' mandate to just holding down inflation, and subject it to more congressional oversight.

Agree with everything except the last sentence. I do support a much greater degree of transparency when it comes to the Fed though.

Hey we agreed on something besides AMERICAAR **** EYAH!
 
Zero inflation is usually not desirable. A small but positive rate of inflation stimulates economic growth while still providing macroeconomic stability.


you might try pinning it to growth in GNI :shrug:
 
you borrow 100% at an interest rate of 3%.

then I inflate the money supply by 6%

you are going to see (roughly) a return of negative three percent: 6-3=3

okay I understand this, Veritis's sentence structure just made it seem like the loaners and the borrowers were the same people which confused me.
 
Would you also agree then that the kilogram's value should float the currency does? If I am paid with a pound of bread and the government allows weights to float so that my dollar (which held constant) would still buy a pound of bread but that the actual weight of the pound of bread had dropped from 16 ounces to 12 ounces how would that be any different? And yet we do keep weights and other measures constant. But the value of our currency can be simply changed by printing more money (or any of the other variants that do the same thing)

You have no idea how currency works. There is no such thing as stable value in the economic world, period. The value of anything changes depending on supply and demand. Mining gold increases supply just like printing money does. Fixed standards are impossible.
 
1. Do we need money? Yes.
2. How do we need money? As a measure of value. People intuitively perceive money like that when they "make money".
3. Do we need a single world currency? Yes. It should something like the units of measure ( kilometers, kW, etc). Look how inconvenient is to have even two different systems of measure (miles/kilometers, gallon/litter, etc). So, we need to measure value in a way that there is easy comparison.
4. Who should issue the money? Everyone, not the banks (that's the tricky part). Lets say I take a piece of wood, costing 2 bucks, and with my skills make a sculpture, which I sell for 200. I create value. Why should a banker monetize this money? He has no participation in this value creation whatsoever. Why should my client take this money from the banker (it all leads there) to buy my product?
 
Agree with everything except the last sentence. I do support a much greater degree of transparency when it comes to the Fed though.

the problem is, the Fed thinks that it can create employment via inflation. It's a bad holdover from Keynesian economics, but there you go. You would have thought we would have learned our lesson in the 70's, and certainly we should be learning it now, but :shrug: apparently we are slow learners.

Giving them the twin missions of employment and low inflation gives them goals will be perceived as mutually contradictory, and so Fed policy will lurch from one to the other based on whichever is more politically popular (and hence see's the greatest pressure). This reduces stability in our monetary supply and predictability in our markets - both bad things.

The Fed is not equipped to "keep unemployment low". we should remove the mandate that charges it with destroying other pieces of our economy in an attempt to make itself so.

Hey we agreed on something besides AMERICAAR **** EYAH!

:mrgreen: one of my finer hours.
 
1. Do we need money? Yes.
2. How do we need money? As a measure of value. People intuitively perceive money like that when they "make money".
3. Do we need a single world currency? Yes. It should something like the units of measure ( kilometers, kW, etc). Look how inconvenient is to have even two different systems of measure (miles/kilometers, gallon/litter, etc). So, we need to measure value in a way that there is easy comparison.
4. Who should issue the money? Everyone, not the banks (that's the tricky part). Lets say I take a piece of wood, costing 2 bucks, and with my skills make a sculpture, which I sell for 200. I create value. Why should a banker monetize this money? He has no participation in this value creation whatsoever. Why should my client take this money from the banker (it all leads there) to buy my product?

three and four sound very attractive in theory, not so much in practice.
 
really? how's that working out for the EU right now?
 
really? how's that working out for the EU right now?

Oh, I'm not talking about the current system which is corrupt to the bones. So it's not an EU, US issue.
 
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Forgive me, but I don't understand this sentence.
If you did not understand then the failure is mine.
We sell debt instruments with a certain value in principal and interest. Those who have purchased our debt will be paid back with currency that is of less value than the currency they used to purchase it. You loan me a dollar that has one dollar's worth of value. I pay you back with a devalued dollar that is worth on one-half of a dollar. Have I not just stolen from you?
 
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If you did not understand then the failure is mine.
We sell debt instruments with a certain value in principal and interest. Those who have purchased our debt will be paid back with currency that is of less value than the currency they used to purchase it. You loan me a dollar that has one dollar's worth of value. I pay you back with a devalued dollar that is worth on one-half of a dollar. have I not just stolen from you?

Thanks, cpwill made it clear to me what you were referring to.

To be honest though, inflation (at least in this country) is influenced by much more by other factors than the government printing money.
 
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