There is still that strange silence around the function of gold as a "stable currency", Peter Hume.

To recap:

PH: "people would almost certainly choose gold and silver for their special qualities as money"

Pericles: "Would not the underlying "store of value" fluctuate in the same manner as currency?"

PH: "What makes gold valuable as a medium of exchange is precisely the fact that people in general, and governments in particular, can’t just produce it by fiat"

Pericles: "But they can dig it out of the ground."

PH: "yes, the supply of gold as money would affect the price. However gold would be as much more stable than fiat money, as the value of gold has been stable compared to the value of fiat money"

Pericles: "When the US came off the gold standard in August 1971, the price was $35 an ounce. Today it is $1,120... I - and possibly others - would be interested in your defence of gold as a "stable" store of value."

PH: "Unless someone can first show that increasing the money supply creates net real wealth, not just taking the property of A and giving it to B, then any discussion of the relative demerits of the use of sound money is premature."

Pericles: "Telstra would need around 3.5m ounces of gold to pay their people each year... Which is around half of Australia's total annual output... If I need 100% of Australia's gold production to support 1% of the economy, would demand for gold increase or decrease?"

PH: "if inflating the currency does not confer a net benefit, then a) inflation as a policy is not justified, contrary to Pericles claim, and b) any considerations against the gold standard are irrelevant, and therefore so are Pericles questions."

Your insistence on irrelevancy aside for a moment, Peter Hume, could you explain again how the gold standard - or any mineral standard for that matter - would work.

Not for me, of course, I am far too stupid to understand it.

But for the clever people here.

Yabby,"As credit grows,so do assets." This is a mind boggling,stupendous oxymorn.As I've said in the past Yabby,giving oxygen to morons.

You like the present fools of this Keynesian system believe that the creation of money equates with productivity and wealth.Nothing could be further form the truth.They tried this at the beginning of the Great Depression and prolonged the agony for a decade which led to WW2.We did not really come out of recession until 1960.So we were in the wilderness for some 35 yrs because fools think like you and Pericles of easy money via the share market improves productivity.

When the production of money over rides real productivity,then the real wealth ie the skills,creativity and aspirations of your population is destroyed.

Both Yabby and Pericles believe in a monetarist system of screwing the masses to benefit a few elites.This system actually destorys real productivity, since the masses lose incentive to excel beyond their mediocrity.The masses actually have a lot more potential than Pericles, Yabby or the olicgarchs give them credit for.This is why the US is in the throngs of decay like ancient Rome.

Our banking system creates nothing of tangible worth,yet controls our Govts by virtue of the fractional reserve system (legalised counterfeiting)which actually dimishes human aspiration via debt slavery.The real wealth is in human aspiration and inventiveness,not in the creation of monopoly money for an elite few.

*since the masses lose incentive to excel beyond their mediocrity.*

So in other words Arjay, you'd prefer to keep them poor, slim and
mean, so that they work much harder. How kind of you :)

But this is where you really screw up Arjay:

*A shovel Yabby is a practical tool that can do work.You are equating money which has no intrinsic value,with things of real potential.Money is the medium of exchange.*

Exactly Arjay, money is a medium of exchange. So if somebody can
borrow the money to exchange for a shovel, they can go ahead and
dig those holes. Try doing it with your fingers, its not so easy.

Yabby;Why do we need to borrow from a cartel of international banks to buy a shovel we can produce ourselves? I think you are digging a deeper hole for yourself and this failed monetary system.

You and Pericles have the facilitator of transactions as being all supreme.It is people who create wealth,and not fiat depravity.

Arjay, it is not a question wether we can produce something. It is a
question wether we can produce it cost effetively. Next you will
be telling me that you want high tariffs back. The net result of
that would be a massive drop in the standard of living for most
Australians, particularly the poor.

Yes we could take the easy option and print more money. The effect
of that would be a devalution of our currency, its rather pointless.

Australians have the choice to save more, to reduce our current
acount deficit. As the tax system encourages people not to save,
they don't. Duh.

Now back to credit and buying shovels. There is a well known
Peruvian economist, whose name escapes me, who showed quite
clearly why many in the third world are poor. Most simply don't
have written title to their land. As they don't, they can't
borrow against it and so can't purchase the machinery, fertiliser
and seed to farm it productively. So they stay poor and hungry.

So what now happens in places like Ethiopia? The poor miss out
once again, as the Govt leases out large chunks of Ethiopia to
other Govts, to invest in farming that land to grow food, for
their own countries of course. The poor stay poor.

All very sad really

Yabby

In other words, if you print money or money substitutes, but leave it in the cupboard, it won't be used to create wealth, and therefore won't create wealth. But if you use it to provide credit, then it can be used to create wealth, (if the enterprise succeeds). Yes? That's what you're saying?

So I understand what you're saying. But you don't understand what I'm saying.

The 'credit' is a credit *to* something. It's only useful because it gives a claim to that something - namely capital; otherwise it may as well be left in the cupboard.

If the stock of physical capital is 100 units, and the stock of money is 100 units, and you increase the stock of money to 110 units, that increases the ability to provide 'credit'. You have multiplied possible claims to the same underlying piece of capital. But you have not increased the underlying stock of physical capital.

When everyone is happy and busy on activities financed by the extra credit, this causes an artificial boom, which gives the appearance that everyone is better off. But *because* the underlying stock of capital is not increased, eventually the competing claims to the same physical capital, in effect, fall due simultaneously and something's gotta give - the bust. The total effect of the whole cycle, boom *and* bust, is not to increase net real wealth, but a big net real loss from destroying capital on a massive scale by diverting it from productive lines into lines that must eventually fail. It makes society as a whole poorer, not richer; and that's only looking at the end result in terms of physical productivity, to say nothing of the exploitation and injustice involved in the process.

So why do they do it? They do it because *some* people - the banksters and speculators and government, and of course economists to sprinkle holy water on it - benefit at the expense of everyone else.

The scam is simplicity itself - wealth transfer by diluting the currency - but you try getting people to understand it.