Quote from: evoorhees on June 30, 2011, 03:12:45 AM

Quote from: Jaime Frontero on June 30, 2011, 02:32:35 AM

what is the real, practical difference between a currency backed by gold, and a currency with which one may buy gold at market rates? i can't say i really see one.

Sir, there is a very very big difference! Backed by gold (when properly defined) means that your dollar is SET at a specific weight of gold. You can hand in the dollar, and receive a SET amount of the gold, like 1 gram or whatever. What this means is that the money unit (dollar) is essentially just a measurement of weight. 1 dollar = 1 gram of gold, in this example. This is proper "sound money" in the traditional sense.

When dollars equal gold in this way, the government is restricted from printing them at whim, and this is all the difference in the world. The government cannot arbitrarily increase the money supply, as it does now. This means inflation is non-existent (or at least is bound to gold production capabilities, not political whims). The value of the dollars in your bank account, under a gold standard system, cannot be stolen from you by the politician who makes use of his printing press. It means savings is encouraged, not discouraged. It means spending is not artificially encouraged. It also means interest rates cannot be as manipulated by central banks, but that starts getting more complicated. Suffice to say, the housing crisis in 2007/2008 would've been impossible under a hard money system in which interest rates were set by market forces, not politicians.

We live now in a world where Bernanke is continually printing dollars, thereby devaluing every dollar in existance. This is why you see prices rise over time - it's not a phenomenon of nature, it is the result of printing money. Gold standard prevents this.

Perhaps one of the greatest articles ever written on this subject, was written in 1966 by none other than Alan Greenspan. It is truly a must-read, and raises some amazing questions in light of Alan's latter career. http://www.constitution.org/mon/greenspan_gold.htm

That was very interesting reading, coming from Greenspan as it were. However, Greenspan does seem to have a bias against the welfare state. More government debt is contracted during war than during any peace times, and government debt due to war is as old as the art of warfare. Also, when people lived scattered on vast areas of land, and farmed the land, each family was subservent. However, after the industrial revolution, people lived in towns and workers did not receive enough income to pay for all their needs. With every increase of income disparity the need for welfare increases. Very few people choose actively to live off welfare, but instead require welfare in order to subsist, or at least with some degree of comfort.