thoughts on the yellow metal

[jonathankaplan]

The link below is an article from Forbes, printed in 1931 originally. It is long and dense, but it is very very informative of how currency worked when usage of the gold standard was much more common. If you want to know anything about the banking system (generally), this is an excellent read, and very thought provoking.

An interrelationship of

Comments

Confidence

[ext_736599]

Underlying all systems, however, is the central fact that each must have its supply of gold to support it (or currency based on gold, as in the Gold Exchange Standard).

Must have? Sounds like his mind is all made up already. Why must have? That's a question they never ever answer in that article. Why must have?

I claim it's confidence that they must have, and that gold itself really doesn't matter. If something else generated the confidence that gold does without any of its drawbacks, they'd call that their "must have".

It's belief in the system that matters, convincing everyone to believe in it. John Law proved that you can have a goldless banking system, as long as confidence in it holds up. Nixon reworked John Law's original idea and adapted it for the 20th c. Unfortunately, Nixon did not improve upon John Law's work, and all the flaws of it are becoming apparent once again.

Nothing happened, nothing happens, that is the secret.

Re: Confidence

[prock]

You don't need confidence in the money since you've got gold backing. On the other hand, you do need confidence in gold.

Re: Confidence

[jonathankaplan]

Funny, i was about to respond directly to friend exiled bear, but I think i'll respond here instead. You are both right, you need confidence in the value of the medium of exchange. Without that confidence, you end up with something of much less value and use. So, what "thing" has the most likelihood to maintain confidence, even while other "things" are failing in this regard

Re: Confidence

[prock]

Probably the more salient take away from history is that economic cycles, asset bubbles, and currency devaluation are a natural part of economic action and that the best way to defend yourself against the induced variance is to diversify your holdings across very broad asset classes, while simultaneously living below your means.

[corwyn_ap]

And here I was expecting you to talk about making solar panels from FeS2 (Pyrite, Fool's Gold) :-)

Actually not, but it sounded funny in my head.