Annals of the gold standard: medium of exchange, store of value

My dollar seems to be losing it’s ability to buy beef, gasoline, and cigarettes rather rapidly over the past 5 years; it’s been pretty stable over the last week though.

Jim Rickards. Funny man. ;)

Robert P @ 5

I’m cherry-picking commodities and endpoints. Everything I list has doubled in price since it’s lowest 2008 price.

My grandfather (d. 1969) used to say that when he was young he could buy a custom-made suit with a $20 gold piece, and now that he was old he still could. Since the custom-made suit was actually useful, it seemed to me that we should go not to the gold stabndard, but to the custom-made suit standard.
My grandfather always thought I was a bit of a smart-ass.

I think “charlatanism” is a pretty easy call here.

Aristotle didn’t really get there, and Schumpeter is too late. As he says in the quoted passage, the standard definition emerged in C19. Marshall points to Menger as the standard treatment, but I haven’t gone back any further

I’ve never really quite understood the store of value part. It doesn’t make any sense. The only real store of value are real investments.

Money should have a reasonably stable value, but if all people would try to use it as a sole storage of value, the result would be a catastrophe, no matter what, because ultimately saving equals investment.

Hoarding of money should always be discouraged to ensure that people who save also invest, either directly or by proxy. A steady slow inflation is a quite suitable means for that. Unfortunately too much savings have been diverted to consumer credit instead of real investment.

Apparently, because of actions in the market for gold, bread is volatile.

I have seen the gold/suit comparison before. I seem to recall several years ago seeing a comparison between prices of wine and gold in the days of the Roman Empire to “prove” that gold has been stable since antiquity, but I cannot find it with a quick search now.

What’s the value of gold in relation to other commodities over, say, the last 150 years? You could compare to currencies also. The study group would need to be commodities that have been sold since before the start of the period examined. Some group like bituminous coal, zinc, pine boards, iron nails, Portland cement, sulfuric acid, sodium hydroxide, wheat, butter, pearls, indigo, cotton cloth… Perhaps it is sulfuric acid that comes closest to moving in concert with all other commodities, rather than gold. A sulfuric acid standard might be difficult when it comes to convertibility, but so long as most transactions happen via paper or electronic signals, all that’s really needed is assurance that the central acid vaults have enough acid to back the paper commitments. Perhaps have an occasional audit by a chemist to ensure that bankers aren’t artificially lowering the pH of the currency with inferior substitutes like hydrogen chloride.

I’ve never seen a gold enthusiast present data to the effect that gold wins the basket-of-commodities stability bakeoff I described above. It’s about cherry picking a couple of goods and a couple of points in time if any proof of stability is needed. If you can find lots of other goods that were stable while gold zig-zagged (like back in 1980), it devolves to an axiom that gold was stable and everything else was undergoing wild but highly correlated price swings.

Brad DeLong has on various occasions tried to translate Darby’s fabulous income into modern terms, illuminating the difficulty of comparisons across a period in which the rate of technological change has become noticeably exponential.

I have a pair of American-made Levi’s 501 jeans in my closet which, by some miracle, are still in decent shape; they may be in some sense worth more now then when I bought them. The same may be true of the pairs in the rag pile with holes in the butt. Not a medium of exchange or a unit of accounting but perhaps a better store of value than gold, but, if so, only as a result of the changes in where goods are manufactured and how they’re valued.

Maybe sand has a constant value.

the tailor he dealt with still would have taken the coin in full payment. I assume he either planned to hold it for the looming breakdown of civil order or had some, shall we say, alternative method of getting a custom suit’s worth of money for it.

“If he had some method of getting someone to give him (say) $100 for something whose value was, by definition, $20, I don’t know why he was wasting his time in the tailoring business.”

The thing is, a $20 gold piece might have been defined as worth $20 in the USA, but it was still a hunk of gold with a market value as such in places that didn’t accept the US definition. It wouldn’t have been that hard to find someone who would take it off his hands, at a discount from the coin’s market value as a hunk of gold to cover certain risks, with profit for all involved. Being in the business of doing that is a more difficult proposition, so the tailor wisely kept his day job.

It wouldn’t have been that hard to find someone who would take it off his hands, at a discount from the coin’s market value as a hunk of gold to cover certain risks, with profit for all involved. Being in the business of doing that is a more difficult proposition . . .

So difficult that we couldn’t possibly ask those masters of the universe, who do make it their dayjob, to pay taxes at the rates imposed on, say, a tailor, or to refrain from, say, wrecking the world economy or driving unemployment to 25% or to comply with reasonable regulations prohibiting usury or systematic fraud . . . good as gold, gold is.

Maybe we should go to the 24 cent, upside down biplane, stamp standard.

It’s been thought of before – by Terry Pratchett, and presumably many others.

Gold’s attraction is its deflationary potential. The only thing that’s delusional about that, is the idea that deflationary potential is a virtue in a money, and not an infection vector for parasites.