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I have done alot of research myself on the Fed as I thought it was just a scheme by the ultra rich to take from the world society (for the most part that's correct)
Actually the price of gold would just adjust. Read the papers on how the math works. I could do it here but theres about 10 pages of explanation and math and thats to much to reproduce here.
Simplicity is the ultimate sophistication, Leonardo da Vinci
Most people chose unhappiness over uncertainty, Tim Ferris
Outside of neuro-plasticity and primal living, Austrian economics is my absolute Favorite subject. I do not claim to any kind of expertise, only reading books of masters.
I consider these 3 to be my absolute goto references that I have presented to people as gifts hoping they would read them. These are not easy subjects. Indeed, I have not completed neither Hayek's nor Smith's books in completeness. And not because I didn't try, but simply there far too much to comprehend and absorb. It's a slow process
Yet, every time I bring it up, in either conversation or in forums I run into much dogma. I have simply given up talking about it. Instead preferring to drown myself in their sage words.
The Cato institute and Adam Smith Institute are othe great reads from time to time along with Mises.org. Pick anyone and ya can't go wrong. You will only wonder where to start...
I started with Friedman's Free to Choose and then worked my way up.
You don't have to agree to any notions, just an open mind - as Thomas Sowell would say
"To build a better world, we must have the courage to make a new start. We must clear away the obstacles with which human folly has recently encumbered our path and release the creative energy of individuals; We must create conditions favorable to progress rather than "planning progress. " It is not those who cry for more "planning" who show the necessary courage, nor those who preach a "New Order," which is no more than a continuation of the tendencies of the past 40 years; and who can think of nothing better than to imitate Hitler. It is, indeed, those who cry loudest for a planned economy who are most completely under the sway of the ideas which have created this war and most of the evils from which we suffer. The guiding principle in any attempt to create a world of free men must be this: A policy of freedom for the individual is the only truly progressive policy." - Hayek
Economies are systems that require flexibility. Brian, I know that no great country has survived a fiat currency, but show me the one that survived the gold standard. Every major country in the depression era was forced to leave the gold standard to save their economies. All prices are relative. Gold does not create price stability, in fact, it is shown studying the facts to do exacerbate business cycles and to create price instability.
I would embed this graphic but I don't know the code to do so.
This issue is really complicated actually, and I can't explain my understanding of it it five minutes in this box. I think it would be a great idea if we were living in little communities 500 years ago. But we live in a world with a credit transmission cycle and extremely complex business cycles. Do we close the futures markets and only deal in hard goods, no more hedging, no more leverage. What about trade, we go back to moving ships full of gold around the globe?
Just going to copy and paste a few good points from an article at econbrowser and get back to trading.
Things that don't make sense to me about returning to the Gold Standard:
1. So you don't trust the Fed with fiat currency, but you do trust them to maintain the gold standard (ie, not lie about gold holdings, not change the fixed rate, and to always honor the exchange). That trust seems arbitrary.
2. WHAT is backed by gold? The monetary base? Most people's money isn't held as currency, so, what, like 10% of my money is backed by gold, the other isn't? Or, do you have to print new paper money so that every 1 and zero in a computer at a bank has a corresponding piece of paper then end fractional reserve banking? Do you do this for M2? M3?
You don't trust the Fed to not print money, so instead they should print money...hmmm...
3. Given the US holding of gold and given the number of dollars out there, what is the implied value of gold backed by dollars? My guess is that it's thousands of times higher than the present price of gold, but that depends on if you're backing MB, M2, etc. So do all current gold-holders suddenly see their wealth (in dollars) shoot up by a thousand fold? The Fed just instantly declares them gazillionaires? My wedding ring is suddenly worth $100,000? Or does the gov't have to first confiscate all private gold holdings as to not unfairly declare people with certain assets to be instantly super-rich?
4. What about gold holdings outside the US, say the 18,000 tons held by people in India. Can they exchange that for billions or trillions in US currency? Can China redeem their bonds for dollars, then those dollars for gold and force the Fed to ship tons and tons of gold overseas to their vaults? Or is this "backing" just in word only, and not actually redeemable? (which leads back to point 1).
5. And, in general, what about the global gold market? Newly rich people in Brazil, China, etc. decide to buy more gold jewelry, changing it's market price, which then changes the real value of my dollar-denominated US paycheck?
One key aspect (to me) between now and older gold standard areas seems to be widespread use. When other countries are doing it to, some of these problems sort of go away (although not really), but when the US does it unilaterally and the rest of the world maintains a free-market on gold (and floating exchange rates), wouldn't this push the US into a situation where it's constantly buying, selling, printing, exchanging, gold and dollars in order to "defend" it's pegging? Wouldn't the US end up handing over many aspects of the control of it's business cycle to the whims of other markets, countries, and industries all just to maintain some arbitrary number?
The fact that the Fed does not get “appropriations” from Congress basically means that it gets its money from Congress without congressional approval, by engaging in “open market operations.”
The Fed generates profits for its shareholders.
And we aren't even allowed to know how these shares are divided up, for all we know there is black market for them....
The problem with Keynes vs Austrians debate is dogma. Pure and simple. Both sides do it and both leave their senses and their rationality in pursuit of ideas.
Friedman was more a monetarist than an Austrian, Mises was pure Austrian. But Friedman never claimed to be an Austrian - he was okay with existence of the Fed, but he was not okay with the way it was run then and later. He decried its existence as either a corporate tool or a statist tool...both of which impede the basic tenets of Rationalists - true liberty and minimal Interference as long as just rule of law existed.
Many people skim over those little details.
Ironically, Alan Greenspan believed and even touted the same way of thinking until he went nuts and broke the no-interference rule by aggressive monetary expansion that far exceeded actual growth in order to stimulate growth. The whole discussion involving Rationalists, Austrians, Keynesians and Monetarists is not hard but a bit long winded and fragile. And obviously there are no bad guys here (other than Keynesian nut jobs!!! who think monetary expansion solves every problem)
Sorry, couldn't resist the jab! But only because the pursuit of Keynesian expansion is nasty credit fueled price inflation and followed by cruel inevitable unwinding that tortures creditors, debtors and savers alike! That should be no comfort to Austrians as many of the dogmatic ones simply ignore that it is indeed possible to have natural growth stifled by a strictly controlled money supply (such as that would be theoretically possible under a strict gold standard)
Not saying it would happen but it is possible.
Friedman and Irving fisher both understood that, and therefore they never propagated the gold standard. Even a cursory read on Wikipedia would be helpful for those truly wishing to enlighten themselves versus sticking to hearsay or arguing text book written BS coming out of universities and all that!
The first step of so called Austrians would be to look at their own proclamations though - here's one, not all arguments in this article actually hold to be true but definitely a read
Of course, Austrians can come right back with some understandable vigor on why deflation (contraction of money) is a good thing until excess credit has been wiped out. And they are not entirely wrong either.
Having said all that, I would consider the Austrian point of view before other views (but not entirely convinced of a gold standard). My fear is that a gold standard would be impractical to deploy and maintain rather than anything else. I certainly do not share my views with Keynesians (who I regard as little more than idiots).
So what do I do:
Live in the smallest house that I can.
Live as cheaply as I can. Eat, wear and consume simple cheap things (not sacrificing quality)
Abolish use of credit in my life (soon I will be mortgage free) and that is it.
Live where taxes are low and food is cheap, and it doesn't cost and arm a leg for simply live.
Simplify. Stop spending - question the need to buy shit. What do you take to your grave? When I consume less, I pollute less, the windfall effects are smaller, tinier and more marginal. I have little need for credit.
I learned from my father well. He never had a credit card. Bought his first car when he was 35, his first house when he was 38! Today at 70, never had debt, never had to pay interest. Now he has more money than he wants. And he isn't a financial whiz by any means!
Point is, this attitude (I think) needs to gain traction - of simplicity in everything. No need for intricate solutions from economics wizards. The answer exists and is old as hills. The truth however is simple and unspectacular. How many adopt it to change the face of society?
These banks and institutions exist they way they do because they have a reason to exist in that manner. Destroy that market and things will change by themselves.
The other thing is education, TV destroys our minds, poisons our complete ethos, so does media. However, things as they stand as in better shape today than at any point in history. I have tremendous hope for the future. Education and knowledge will free us all. Utopia in my mind can be had when we are ready for it. I don't really know what the key is to open minds and allow information in without bias or adding color to it. I suspect that is an impossible battle. In this day and age when I read about people like Todd Akin I fear the worst for humanity. The battle for everything begins and ends in our minds. And that is much harder to overcome than economy or banking which I suspect are much simpler to resolve.
What would be better -
We could elect Ron Paul types
We could abolish or make illegal fractional banking.
We could make governments smaller but more accountable to the public
We could give our judiciary more teeth that would be capable of more severe penalties to all classes of crime (white or blue collar).
We could teach our kids that there is a right and wrong.
We could stop these wars and marginalize organized religion by completing de-lining religion and state.
We could ban TV and newspapers
We could enforce complete de-linking of corporate lobbying with state affairs.
etc.......
These are harder no doubt I could ramble on for a few pages, but as it is this is nothing new or revolutionary.
who think monetary expansion solves every problem)