 It is rather surprising that you do not see the clear lessons history has provided. For the sake of argument, let us say that you are correct regarding just how seamlessly Spain was able to adapt to the huge influx of precious metals into the system during the reign of Phillip II. Your points regarding the US demonetization of silver--if i understand them properly-- do not hold up under close scrutiny. While there is a difference between the paper dollars issued prior to 1873 and those from the modern era, what they share in common is that both enjoyed legal tender status and so both were dependant upon the wise stewardship of the government if they were to maintain their purchasing power. Your second point that the value of silver was set by the government, not the market, totally missed the mark. If not for the market discounting silver as vast new reserves were brought on line, the government would not have been forced to demonetize it. But the government had to act precisely because the market was speaking and speaking loudly at that. It was the unwillingness of government to act in a timely fashion that caused people to spend their silver dollars while hoarding their paper ones. As is well understood by pretty much everyone who frequents this forum, while government may attempt to regulate the value of particular markets, in the end it is always the market which wins out. By 1873, the market had spoken so loudly on the true value of silver that the government could no longer maintain its artificial price. The government could have chosen to adjust the official gold/silver ratio to better reflect the situation on the ground, or they could have done what they wound up doing. But they could not continue to maintain the status quo in the face of what the market was telling them. Should you fail to grasp this point, then you are more or less left having the position that the government acted capriciously in this matter, without rhyme or reason. But the reason is not a mystery to anyone who does not choose to ignore the reality of the moment. Suddenly there was just way too much silver around for it to be able to maintain its value in the marketplace. It is simple cause and effect. It really is surprising that you would argue otherwise.
Once this is understood and it is further appreciated that future events can (and almost certainly will) produce similar results, we begin to understand why things with a high intrinsic value are poor representations for money. The fluctuations in the value of the representative substance, as determined by the market, can and have had profound effects on the value of our money. And quite obviously, the more we can do to eliminate the uncertainty around the continued purchasing power of our money, the better we will sleep at night. With regard paper, we need not worry that going forward, the value of our dollars will be diminished because vast new forests have been discovered or conversely, (owing to recycling technology) that paper will become so scarce that we will be required to print our dollars with a whole bunch of extra zeros. By using something such as paper, with its negligible intrinsic value, we have a currency that is structurally sounder. For its continued purchasing power going forward, we need only be concerned with 2 things. Firstly, we have to be concerned with how fiscally prudent our monetary authorities are in managing the money supply. And secondly, we need to be concerned that our respective national economies remain both productive and competitive. The first of these is easily achievable if only we would insist that legislation be enacted to govern fiscal prudence and we then enforce it zealously. The second is far more difficult to deal with (regardless of what is used to represent money) in that you cannot bring about changes to productivity or competitiveness through the legislative process alone. But with gold and/or silver as the base for our monetary system, even with strict laws in place to regulate fiscal prudence and despite having a productive economy, our money is subject to large fluctuations in value due solely to the abundance of said metal(s) at that moment.... In short, the fewer free radicals in the equation, the more certain of the outcome can we be.  Commented 3969 days ago |
| Beginning of the headline :Here's something that Arthur Laffer (who was also working closely
with Chuck Kadlec at the time) put out in February 1980. Of course,
in 1980 the dollar had been declining in value for a decade, and, at
the time of this paper, had just had a real crash which
brought its value momentarily to $850/oz. Mercantilist "easy money"
was a disaster. There was a lot of talk at the time of reinstating a
gold standard system, which at the time had been gone only nine
years, sinc... Read More |
