Post
Topic
Board Politics & Society
Re: The price of gas is still 20 cents, in 90% silver dimes.
by
ansible adams
on 14/08/2011, 20:24:47 UTC
If the market always "decides" gold is great, why don't cell phone contracts, insurance policies, mortgages, employment agreements, car leases, etc. specify payment in gold?

Because of legal tender laws and Gresham's law.

You can write a contract and specify payment in gold but if the other party doesn't pay and you sue them, you're required to accept payment in legal tender. You can't say "but I wanted gold!" Likewise, since you are forced to take legal tender if you want protection from the courts, according to Gresham's law, people would rather save their gold and pass off their paper currency to you. All of this serves to reduce the amount of gold in circulation as money and we get to the state of affairs like today where very few people could even pay in gold without first buying some with paper. That makes it hugely inconvenient and businesses don't want to shrink their market share. Remove the legal tender laws and have courts honor gold contracts and then you can make an argument. As it stands, when there is a truly free market, without government threats, the market prefers gold. You claim to be big on evidence so let's not ignore thousands of years of history.

You may have to take legal tender, but you can link the amount of tender to the exchange rate with gold. A gold clause still lets you do that and it's been perfectly legal to enforce since 1977. See 216 Jamica Ave. LLC v. S&R Playhouse Realty Co.. Gresham's Law makes sense but it also contradicts the idea that the market will always choose gold. You just named some important reasons that market participants will continue to contract in fixed quantities of fiat currencies instead of gold-linked quantities, such as convenience and retaining market share, even though it is legal to specify payments in terms of gold.

If market participants prefer gold, it's even more puzzling that gold doesn't dominate savings. Right now Apple is sitting on more than $75 billion in cash. Microsoft has more than $50 billion and Google more than $35 billion. They don't appear to be in a hurry to spend it. There are many large companies with multiple billions in cash on hand. Why not convert it to gold if gold is stable and fiat currencies are unpredictable? They don't need to worry about any market share loss or customer inconvenience from what they do with their savings.