From: jwales@silver.ucs.indiana.edu (jimmy donal wales)
Subject: Re: why gold
Organization: Indiana University
Date: Fri, 18 Dec 1992 09:28:29 GMT

Jamie <PL436000@BROWNVM.BITNET> writes:
>First, how could there be a gold standard if the government didn't
>put its hands into gold? I mean, the government would have to OWN
>at least a huge fraction of the gold, wouldn't it?

Not necessarily.  Suppose the government just decided to get out of
the money business altogether.  Suppose the government just said:
Hell, we're not printing up any more money, and we basically don't
give a damn what the rest of you do, so long as you honor your
contracts.

Of course, the government might want to specify that it does its
own trading in gold, which could have a significant impact on the
choice of gold as money by others.

This is also why 'fixing' the price of gold at 35.00 is not the same
thing as general price fixing.  The idea here is that we really wouldn't
HAVE dollars in the way we do now... we would just have a 'special name'
for 1/35 ounce of gold, see?

(Of course, I don't think that even the most diehard advocates of the
gold standard would advocate that we translate our current dollars
directly into 1/35 ounce of gold.  1/350 would be more like it.)

>Second, do you advocate a government-set price for gold, or not?
>If you do not, then the price will not be constant, and in that
>case it is not at all obvious that the money supply is constant
>when the gold supply is constant (in ounces).

If he does not, then he isn't advocating a gold standard.

>I'm going to stop talking about this subject now, though, because
>Caius has not explained in what way the standard manipulations of
>the money supply would change or be prevented if there were a gold
>standard, and it appears that he isn't GOING to explain it.

I'll try to help him out.  If the government got out of the business
of printing up currency, and we were all going to use gold (or, more
likely, privately issued notes denominated in ounces of gold... or
whatever), then some of the ways that the government currently manipulates
the money supply wouldn't really work anymore.

But the government is creative.  And so long as they regulate (for
example) the reserve requirement, they can still control the money
supply.  And I'll bet that they could think up mechanisms other than
that to manipulate the money supply, even if gold were used as money.

The gold standard would not achieve the effects intended by those
who advocate it.  And there are some serious drawbacks to the whole
idea.

But I do agree with the underlying motives, if I understand them.
The idea goes as follows: no one really understands very well what
the overall effects of messing around with the money supply are
over the long haul, most of the effects that we do understand are
such that they count on people not anticipating things, we therefore
have good reason to think that these money supply changes are disruptive
to the flow of information through the price system (which, a la
Hayek, is one of the most important (if not THE most important)
functions of the price system), etc. etc.  So maybe we would be better
off if the government didn't try to manage the macroeconomy through
the money supply.

--Jimbo


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