This need to control and regulate manmade inflation simply wasn't necessary when we were welded to a gold standard, which, given inherent intrinsic value or worth, self regulated through the power of the supply and demand market!

So something worth 500 ounces of gold in 1950, (a three bedroom house on a quarter acre block) would still be worth 500 ounces or less, given organic depreciation, today!

This did not suit our cadre of would be rockefellers, who need inflation to transfer the wealth of the masses by entirely unearned means to the privileged few!

Let me explain, one buys a house with a minimum deposit, then puts tenants in who pay rent, which eventually becomes far more than the mortgage payments and ever more desirable as the city expands.

This simple strategy can be repeated over and over on the periphery of any expanding area of more than 100,000 souls. The magic number that all but guarantees the area will never go backwards!?

Even so and given a minimum deposit of say $30,000.00, the only and the total capital investment over the life of an investment which today hits the market as a ruin with a roof and a 3 million dollar price tag, the privileged class wanted more.

And wanted other less sophisticated taxpayers to offset their depreciation and cost of subsequent repairs as well? [And we wonder why housing affordability has become a dominant issue?]

All doable by the opaque nature of the alluded to new gold free, highly manipulated to create inflation, monetary system.

While this greed is good explaination is made simple in the example, it's one the average six year old can understand as a concept, even though the need for it? Remains a money for nothing mystery?

But particularly for all those wealthy folk now permanently occupying a six by four plot of their very own in an upmarket graveyard!
Alan B.

Alan B: There's simply not enough gold in the world for the world to return to the gold standard.

To single significant digit precision, the total amount of gold in the world is about 200,000,000kg with about 10,000,000,000 people to share it between. The value of all the worlds current money in circulation (using a broad definition including coins, notes, and money at bank accounts such a savings, etc.) is about $100,000,000,000,000US.

If all money was to be backed by gold then a single small piece of jewellery such as a wedding-band would be more than a year's wages for the majority of the planet's people.

Thinkabit: we've never ever had enough actual gold to back our currency, which was even so, deployed as our standard, when we were the third wealthiest nation on the planet and a creditor one at that!

I know it is hard to tolerate that burning smell emanating from previously unused cerebral circuits, when you think a bit, Thinkabit? But is it possible that older wiser heads got it right way back when?
Alan B.

Look, the chinese yuan is pegged to the USD, and that operates as their standard even if they don't own enough dollars or American bank bonds to actually cover their currency requirements!

The US has a very large gold reserve in fort knox, which even when they were on the gold standard, and just after the second world war when they were going through period of unprecedented prosperity, they still retained a gold standard briefly; but to this day, retain the billions of appreciating bullion in fort knox.

If we returned to the gold standard and automatically pegged our currency to the value, up and down to the price of gold, we'd still have a floating currency for internal domestic purposes, while retaining an export market paid for in USD. Which would also serve to moderate and or control inflation and the price to us of fully imported energy, or what we are paid for when we export ours.

The original intent of currency was to represent so many units of energy; and applicable to anything!

Take wheat as the example and you know it takes so much energy to plow the ground, plant the wheat, water the crop, harvest the crop, transport and mill it, put bread on supermarket shelves etc. Whereas the actual creation of gold in the alchemist's furnace of former suns, requires the transformation of much more energy and an exact measurable amount; and as such beautifully represented the concept!

And while our currency was pegged to the value of gold, we had little or no inflation and arguably the very reason the money for nothing crowd wanted it gone!? Today we pay millions to the alluded to financial experts for the privilege!?
Alan B.

The gold standard was a catastrophic policy that resulted in hyperinflation in countries that kept their currency set above market value for too long, and huge foreign debts and economic stagnation as countries prioritised maintaining the currency value rather than what people really needed. Good riddance! The current market based system where problems are self correcting is far superior.

As for David Leyonhjelm's article, I agree the RBA shouldn't've borrowed US dollars. It's not Australia's job to maintain US dollar hegemony, and doing so is not in Australia's interest. In the long term it benefits nobody; not even the USA.

However I disagree with him about changing the law to ensure the RBA targets inflation. Keeping inflation under control is one of the RBA's functions, but maintaining economic growth is equally important. There's a significant danger that a legislative change would promote the former at the expense of the latter.

Gold has no "intrinsic" value. It's worth as much as some one else is prepared to offer. To me it is of little value as it's primary purpose is making inconsequential pretty items. It has little real world/industrial applications.

If you really want some, I have this fabulous hole in the ground.....

regards
dkit

While corrupt ratings agencies control prices for things like the price of Gold or silver etc, the system would not work except in the favor of the rich.

Every object that you can touch has some value! Take our five cent coin? It costs six cents per coin to make! So it is likely undervalued.

Gold costs real money and sometimes lives to dig out of the ground then process into the precious metal! And matters not what some half arsed moron wants to pay for it, can't have it if he can't meet the basic cost of mining and processing or otherwise, recovering it!

Moreover, when a gold coin is minted, the mint decides the face value of the coin, which given the workmanship inherent in metal objects, is usually more than the metal content; which nonetheless, retains some inherent intrinsic value as melted metal!

Depending on how rare it is and just how useful it is, will always have some inexhaustible inherent intrinsic value! And just as true for recycled aluminum cans!

I have heard that there's (par excellent conductors) precious metal to be had in E waste? and for a lot less outlay than traditional mining and recovery!?

And our first fifty cent coins had considerably more than fifty cents worth of silver in them; and the reason the early round ones were all withdrawn from circulation!

There's a lot of folk who just don't want to return to the sanity that was the gold standard, and because the value of all precious metal can't be arbitrarily manipulated!
Alan B.

Alan B.,
If every object you can touch had some value, there would be no dumps because everything would be recycled. BTW you're right about ewaste, though not all ewaste does contain precious metals, some does.

Our 5c coin's value is 5 cents; just because it costs more to make doesn't mean it's worth any more than that.

I think you're wrong about early 50c coins, but centuries ago in England they were stupid enough to make coins out of precious metals worth more than the coins themselves. People illegally shaved them and sometimes just melted them down. Making them from something cheaper would have made them far more suited to their purpose.

Fortunately few people are stupid enough to want to return to the insanity of the gold standard. It's EXTREMELY bad for the economy, but hypothetically even if it were good for the economy then it still wouldn't be worthwhile because acquiring the gold has an opportunity cost that would be better spent on things that improve the living standards of the population and things that make businesses more competitive.

David L.
Congratulations on again becoming the only non-fascist in Parliament: a breath of fresh air.

Ignore Aidan. He's operating at the sub 6 year-old level.

Aidan
What if the 5c coin cost $500 to make? Would that still mean it's not worth any more than 5 cents?

Your theory of money is wrong, simple as that. You don't understand what you're talking about.

Jardine,

It is those who idly dismiss comments, instead of engaging with them, who operate at a sub 6 year old level.

"What if the 5c coin cost $500 to make? Would that still mean it's not worth any more than 5 cents?"
Costing more to make does not itself increase the value of a product. However if they were that expensive to make, it's likely that so fe of them would be made that they'd gain some numismatic value.

"Your theory of money is wrong, simple as that. You don't understand what you're talking about."
Funnily enough, that's exactly what I think of yours. You think you understand how things work, but your understanding is simplistic and includes many false assumptions.

Fiat money, by definition, takes its (monetary) value (as opposed to commodity value) from the stamp of the authority impressed on it, okay, fair enough? Do you agree with that?

That's why you're saying the value of a 5 cent coin does not go up or down with the market value of the commodity - piece of nickel or whatever - that is used to bear the stamp of the authority - the Royal Mint - denominating its value as 5 cents?

Yes? You agree with that, don't you? I'm not misrepresenting you am I?

Yes, Jardine, that is correct.

So according to the theory you rely on, if the authority chose, instead of a piece of nickel, a one-ounce piece of pure gold bullion to impress its stamp of 5 cents value on, then the monetary, as opposed to commodity, value of the item would be 5 cents?

Do you agree with that? Not misrepresenting you am I?

Jardine,

That too is correct.

Do you agree that it would be stupid for the government to assign so little monetary value to something with so much commodity value?

Yes I do agree.

It's stupid to say "just because it costs more to make doesn't mean it's worth any more that", isn't it?

That depends on the context. It's certainly not stupid when it's in reply to something that appears to allege otherwise.

(I'm assuming you're not referring to your omission of "than" which is the kind of stupid but trivial mistake that most people, including me, occasionally make)

We've just established that your theory of money contradicts your theory of value.

Perhaps you can explain why it would be stupid for the government to assign a lesser monetary value to an item with greater commodity value

Jardine,
"We've just established that your theory of money contradicts your theory of value. "
No we have not. Commodity value isn't what something costs to make (though it's one component of that); it's the value that could be released by destroying it.

"Perhaps you can explain why it would be stupid for the government to assign a lesser monetary value to an item with greater commodity value"
Firstly because it would be an inefficient use of government resources, and secondly because that would create an incentive to destroy it, preventing it from fulfilling the purpose for which it was created.

Economies are pyramid schemes.
They need newly borrowed money to pay the debt on the old.

Aidan
You're contradicting yourself.

On the one hand you're saying - correct me if I'm wrong - that the value of money is whatever the government says it is, and gold, as gold, has no intrinsic monetary valuem

On the other hand you're saying that the value of money is *not* whatever the govt says it is, and (presumably) the government cannot by fiat make an ounce of bullion worth 5 cents, and the government can waste scarce resources by assigning a value to money by mere fiat.

So which is it?

Jardine, it's quite simple:

Money has face value, assigned by the government. This is whatever the government says it is.

Coins can be melted down, so they have commodity value. This is the value obtained by destroying them, NOT the cost of making them. Commodity value is usually much less than face value, though historically that hasn't always been the case. Governments can't destroy commodity value (they can legislate against melting the coins down, but that tends to be unenforceable).

There's also numismatic value. This is usually the same as face value (or commodity value when that's greater) but scarcity can drive it much higher.

You're contradicting yourself again.

On the one hand you deny that there's a disconnect between your theory of value and your theory of money.

But on the other hand you're telling us that there's a theoretical disconnect between the value of money and the value of what it exchanges for.

There's no contradiction.

Money, when used as money, has the value that the government assigns to it.

But it is possible to use money as something other than money, in which case it can have a higher value.

Isn't the reason why it would be stupid of the government to assign a value of 5 cents to an ounce of pure gold bullion, that nobody in his right mind would value it at 5 cents but would value it at the spot price for gold bullion, precisely because that is the market value of goods and services it could serve as a medium of exchange for?

Jardine,
"Isn't the reason why it would be stupid of the government to assign a value of 5 cents to an ounce of pure gold bullion, that nobody in his right mind would value it at 5 cents but would value it at the spot price for gold bullion,"
Not quite, as even if only a few people would value it at the spot price for gold bullion, the government would still be able to get that price for it.

"precisely because that is the market value of goods and services it could serve as a medium of exchange for?"
No, it's because that's the market value for bullion. Supply and demand, driven mainly by speculation, determine the price.

To the extent people value gold for its monetary characteristics, such as a medium of exchange or store of value, then neither gold, nor fiat currency, has "whatever value the government assigns to it" in terms of the purchasing power of money; and your theory is wrong for that reason.

And to the extent you are ignoring the monetary characteristics of gold, which is what you've just done, your theory is wrong for that reason.

Your theory is just a description of what the statists dream the government's fiat powers could and should be, not a description of reality.

It's like your absurd theory of the State that no-one enforces the law by the initiation of force - baseless nonsense: not even the State agrees with you.

However you have embarrassed yourself enough with your floundering attempt to defend government undervaluing of money.

But you can fare no better with over-valuing.

According to your theory of money and credit, the government could take a Tally-ho cigarrette paper, impress its stamp denoting a money note to the value of Australia's GDP, and this would or could increase the material wealth of the nation.

Yes? Not misrepresenting you in that proposition, am I?

Jardine,
Nearly everything is priced in actual money nowadays, so gold's "monetary characteristics" are irrelevant. Gold isn't a particularly good medium of exchange, and generally the only people who regard it as one are the ones who predict the collapse of civilisation!

Fiat money really does have whatever value the government assigns to it, but in terms of purchasing power it's a to stage process: the assignation sets the face value, but the fiat is needed to give purchasing power to the currency.

"According to your theory of money and credit, the government could take a Tally-ho cigarrette paper, impress its stamp denoting a money note to the value of Australia's GDP, and this would or could increase the material wealth of the nation."
No. And you're not merely misrepresenting me, you're also being stupid! Spending the entire GDP in one transaction would be far too inflationary.

For an increase in money to result in an increase in wealth, it must result in an increase in production. Or possibly something that directly improves people's standard of living (as intangibles are important even though they are hard to measure).

BTW I never claimed that "no-one enforces the law by the initiation of force". I make a distinction between force and violence. Of course the state can initiate force when enforcing the law, but except in the defence of themselves or others, they should not do so with an intent to cause injury, nor with a reckless disregard for whether or not they cause injury.

Aidan
So money has whatever value the government assigns to it; but it doesn't, it depends on the (unspecified) context, and whether it would be an "inefficient use of govt resources"; but it does, because the "face value" is whatever the govt says it is; but it doesn't, because of commodity value and numismatic value; but it does have "whatever value the government assigns it"; but it doesn't, in terms of what it could buy; but it does; but not if a good can be valued in terms of any other goods or services for which it could be exchanged?

And making a "$1GDP" note would not result in an increase in physical wealth; except if anyone relied on its fiat assignation to produce something, in which case it would?

And no violence is used to maintain the State and enforce obedience, except when they're enforcing obedience; and the police only ever act in "self-defence" except when they're initiating force; and initiating force is a crime of aggressive violence when a subject of government does it, but not when government does it?

Perhaps you should read back what you've been writing?

Struth, Jardine, you do have terrible trouble with comprehension!

"So money has whatever value the government assigns to it; but it doesn't,"
When valued as money it ALWAYS does.

"it depends on the (unspecified) context,"
NO. I NEVER CLAIMED THAT DEPENDED ON CONTEXT. I wonder if other readers appreciate the irony of taking my comment about context out of context?

What I said would depend on context was whether it's stupid to say "just because it costs more to make doesn't mean it's worth any more that".

"and whether it would be an "inefficient use of govt resources";"
Again, you're quoting me out of context. What I said would be an inefficient use of govt resources was for the government to assign a lesser monetary value to an item with greater commodity value.

"but it does, because the "face value" is whatever the govt says it is;"
As I said.

"but it doesn't, because of commodity value and numismatic value; "
I accept the fact that money can be use used as things other than money, and in certain circumstances its value as scrap metal or as a collectors item may exceed its value as money.

"but it does have "whatever value the government assigns it";"
As I said.

"but it doesn't, in terms of what it could buy; but it does; but not if a good can be valued in terms of any other goods or services for which it could be exchanged?"
It's quite simple: although the value of a particular note is set by the government, the value of the currency itself is set by the market, though the government remains a major player in the market, with fiat remaining one of the main determinants of value.

"And making a "$1GDP" note would not result in an increase in physical wealth;"
Correct.

"except if anyone relied on its fiat assignation to produce something, in which case it would?"
No. Firstly, governments assign currency, not shares of GDP. Secondly the economy would not be able to absorb any transaction that big.

(TBC)

Jardine (continued)

"And no violence is used to maintain the State and enforce obedience, except when they're enforcing obedience; and the police only ever act in "self-defence" except when they're initiating force; and initiating force is a crime of aggressive violence when a subject of government does it, but not when government does it?"
Now you're just being stupid!

I make a distinction between force and violence: the latter is intended to cause injury or is done with reckless disregard for whether or not it causes injury. The state can use force to enforce the law but SHOULD NOT resort to violence except in self defence or the defence of others.

I did not claim that the current situation is as it should be.

You're only repeating your double-talk.

No, I'm restating my position and explaining why your misinterpretation of it was wrong.

However it appears I'm wasting my time, as your only objective seems to be to belittle it; you've no interest in actually understanding it.

Am I correct in inferring this?