Source – forbes.com
– “…There have always been funny-money promoters. The philosopher Plato, in The Laws (360 B.C.), suggested a government-controlled fiat coinage probably made of iron. Ownership of gold and silver would be made illegal, and exchange rates with the gold and silver coinages of other Greek states would be set by government decree. “Unstable money” and “currency chaos” have always been a hard sell. For over 100 years now, the funny-money promoters have been selling their ideas as versions of “stability.” This continues to the present day. Don’t be fooled”:
(Why ‘Stable Money’ Means Gold-Backed Money – By Nathan Lewis)
“Stable money” means money that doesn’t change in value. In practical terms, this has always been achieved, as closely as has been possible, by linking the value of the currency to gold and silver, and finally, in the late 19th century, to gold alone. This was true for literally 5,000 years, from about 3200 B.C. to 1971. There has never been a “stable money” system of any significance, which was not a gold standard system.
There have always been funny-money promoters. The philosopher Plato, in The Laws (360 B.C.), suggested a government-controlled fiat coinage probably made of iron. Ownership of gold and silver would be made illegal, and exchange rates with the gold and silver coinages of other Greek states would be set by government decree.
“Unstable money” and “currency chaos” have always been a hard sell. For over 100 years now, the funny-money promoters have been selling their ideas as versions of “stability.” This continues to the present day. Don’t be fooled.
One early version was the “compensated dollar” of Irving Fischer in 1913, which has precursors going at least as far back as William Stanley Jevons in the 1870s.
Fischer wanted to make the dollar more “stable” by changing its value vs. gold from time to time, based on commodity prices. In practice, these would only be downward movements–currency devaluations. Nobody would want to revalue the currency upward, no matter what commodity prices did. These arguments were central to the dollar devaluation of 1933, when the dollar’s value fell from $20.67/oz. to $35/oz. But when commodity prices soared upward in the 1940s and 1950s, did anyone suggest revaluing the dollar from $35/oz. back to $20.67/oz.? That idea was nowhere to be found. Since commodity prices tend to be economically sensitive, it boiled down to a justification to devalue the currency in a recession; or possibly during a time of low commodity prices even without a recession, as commodity producers (family farms) were a huge political support group in those days.
“Domestic stability” was a popular term among the Keynesians of the 1930s onwards. It meant manipulating the currency, and interest rates, as a form of macroeconomic management. “We will not sacrifice domestic stability for the gold standard” meant: We will blow up the gold standard, and allow floating fiat currencies, so we can continue our money manipulation games. Arguments like these led to the dissolution of the world gold standard in 1971.
Source: Don’t Be Fooled: ‘Stable Money’ Means Gold
Related…
A Return To Basics: What Is Stable Money?
Usually, conservatives in the U.S. are in favor of “stable money,” while liberals favor more active involvement by the central bank to reduce unemployment. But what is this “stable money”? Conservatives are confused.
These themes go back over 120 years in the U.S. In the 1896 presidential election, Democratic candidate William Jennings Bryan favored “free coinage of silver,” a rather arcane term that meant people could take 50 cents of silver to the mint and get a $1 coin in return. It amounted to a 50% devaluation of the dollar. This was to allow heavily indebted farmers to pay off their debts.
Republican candidate William McKinley favored “sound money,” which meant remaining on the gold standard without a devaluation. McKinley won, and the dollar remained at its $20.67/oz. parity until 1933, when it was devalued by Democrat Franklin Roosevelt to $35/oz.
“Stable money,” historically, has always meant a gold standard. But perhaps many do not quite see the connection today between this abstract notion of “stability” and gold.
“A currency, to be perfect, should be absolutely invariable in value,” said David Ricardo in 1817.
This seems simple enough, but notice what he did not say: he did not say that a currency should have an absolutely invariable quantity (“money supply”), or invariable rate of quantity growth, or that prices should be perfectly stable (invariable “purchasing power”), or that the currency should reflect gold imports or current account balances or government fiscal balances. “Stable money” means money with a stable value.
The idea behind any gold standard system is that gold is stable in value–the most stable thing that can be identified in this world–so if your currency’s value is linked to gold it will be as stable as can be achieved.
This principle was put into practice for over two centuries in Britain. After 200 years, the British would know if it worked or not, right? They were the ones who had to live with the consequences, good or bad. Their conclusion was that it was the best system humanly possible.
It may seem that “stable purchasing power” is a desirable goal, but this is not at all the same as stable value. For example, if you live in Manhattan, and then travel to Puerto Rico, you might find that the purchasing power of your dollar bills increases by several multiples. However, their value remains the same.
This wild change in “purchasing power” doesn’t bother anyone, because they understand instinctively that the value of their money is stable. However, if the dollar falls against the euro, from $1.25 per euro to perhaps $1.75–a much smaller percentage change than the effect of travelling from Manhattan to Puerto Rico–much consternation results as people fear that the value of their currency is declining. During this move from $1.25 to $1.75 per euro, the actual purchasing power of the dollar, in terms of the Consumer Price Index for example, may hardly change at all.
If gold is stable in value, then a decline in the dollar’s value vs. gold–the “exchange rate with gold”–reflects a decline in the real value of the dollar. John Stuart Mill, writing in 1848, explains:
“[T]here is a clear and unequivocal indication by which to judge whether the currency is depreciated, and to what extent. That indication is, the price of the precious metals.”
This decline in the market exchange rate between gold and the floating currency is eventually reflected in the market exchange rate between all other goods and services and that currency, an adjustment process known informally as “inflation.” This adjustment process can take many years, even several decades.
In this same passage, Mill also describes how to peg a paper currency to gold, even if the paper currency is not “convertible.”
“If, therefore, the issue of inconvertible paper were subjected to strict rules, one rule being that whenever bullion rose above the Mint price [gold parity], the issues should he contracted until the market price of bullion and the Mint price were again in accordance, such a currency would not be subject to any of the evils usually deemed inherent in an inconvertible paper.”
This is the “currency board linked to gold” supply-adjustment mechanism I often write about.
Today, conservatives are not quite sure what they mean by “stable money.” They have a murky notion that the Keynesian system favored by Democrats–”easy money” to counteract unemployment–is perhaps not such a good idea, but without a clear alternative, conservatives tend toward some variety of “less easy money” within the Keynesian floating currency framework.
Widespread understanding of gold standard systems was lost, and must now be relearned. A variety of cloudy notions regarding money supply, “purchasing power,” CPI-targeting, currency baskets and the like have migrated to fill the vacuum. None of these systems will produce money that is stable in value.
RIELPOLITIK 
Reblogged this on OCCUPY AMERICA and commented:
America”s love of monopoly money is coming to a close.
Do you wish for gold to be $100,000 an oz? There’s not enough gold, not even paper gold, to meet the exchange for cash. Anyway gold has no use in deflation, which is going to be the forseeable future. We need inflation to make gold work.