The topic that I would like to discuss is regarding the gold and silver standard for a currency-based system in the United States. I have studied the Constitution of the United States and I know that it states that the money is to be backed by gold and silver. I have also read the pro's and con's on going back to a gold and silver standard. The questions that I have regarding the gold and silver standard are 1) What amount of paper money was supposed to be printed to support the gold and silver standard? 2) Did they figure that since the US has ten tons of gold (example) in its treasury then one hundred dollars (another example) would be printed per ounce to support this? 3) Did the economists of the day figure that it would take x-amount of dollars to be in cirulation in order to maintain and stabilize the economy of the United States? Is something like that practical? There is another questions that I would like to pose regarding a monetary standard but I'll wait until there are responses to this issue.
Christian,
The Constitution does not say that "money is to be backed by gold and silver", as you put it.
Section 8 gives Congress the power "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures".
Section 10 Says "No state shall... coin money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts."
To answer your questions, the idea of "backing" paper money with gold or silver is alien to the Constitution. The mint was to accept privately owned gold and silver, coin it, and issue it back, less a minimal fee to cover the cost of the minting. In practice, someone could deliver 500 ounces of gold or silver to the mint and receive in exchange an equivalent amount of minted US coins. The role of the US government was limited to issuing coins of a standard weight and fineness, thus saving citizens the trouble of weighing and testing each coin as it passed through their hands. Note the reference to setting the standards of weights and measure above, showing its relationship to minting coins. The idea of the state somehow controlling the amount of money in circulation is not found in the Constitution.
You talk about some authority determining that x-amount of dollars is needed in circulation to maintain and stabilize the economy. This is a much later idea. It is unnecessary, and when government usurps the power to do so, it inevitably results in destabilizing the economy.
The problem of an adequate amount of circulating medium is self-solving, as long as the state does not involve itself and attempt to impose a solution by force. How? In several ways. If gold and silver become too scarce, their value will rise, giving business incentive to mine more of it, and it can then be minted into additional coins. Secondly, privately issued credit in any amount needed would take the place of coin in most transactions. For example, today I can "spend" my VISA credit line without any involvement of the state in determining how much credit is needed. Credit can readily expand and contract and change its form and terms to meet the changing needs of society.
It is actually the circulating gold and silver coins which keeps the credit system honest, for anyone may demand payment in coin if he doubts the creditworthiness of his customer. The role of banks is another major issue, which I don't address here.
The real problem with gold and silver money is not a practical one, but the fact that the state does not like the restraint coin places on its spending activities. The American state has overthrown the use of circulating gold and silver coin by force (1934), and works tirelessly to prevent it from ever being seriously considered again.
For further study, I suggest the excellent series of articles by Antal Fekete, beginning with "The Unadulterated Gold Standard" at the following URL:
http://www.gold-eagle.com/gold_digest_02/fekete102802.html
Further to the above, here is nice quote:
"Economists and monetarists have argued an unfettered [by gold or silver] system is conducive to today’s global marketplace. Their arguments seem shallow when judged against the numerous economic maelstroms that dominate today’s financial environment. These financial storms have become more numerous and more disruptive. Policy makers argue that it is possible to calibrate the supply of fiat money to the economic and financial needs of the population. Underneath these arguments lies the expediency of justifying the means of printing money to finance budget deficits that can’t be financed any other way."
James J. Pupolava "The Perfect Storm"
Let me pose this question...what, in the opinion of all who read this, would be a sound monetary system? Also, how would such a system function? How could this system come into being?
First you would need a competent and honest government, which you will never get in a democracy or in a republic. How to get a good government, I do not know. So far, other then a king here and there, every form failed.
Gold, silver and copper coins could be OK if there were enough of them and you could make sure that they did not leave the country. You would have to outlaw every form of notes of private banks, including credit cards. You would have to make sure that anyone who lends money would lend coins only.
If I were the dictator of the US, I would use legal tender treasury notes (interest bearing or non-interest bearing) to retire all US debt, I would close down all private banks, would tell the States to set up state banks like the one in Nevada, if necessary I would spent interest-free greenbacks into circulation until real unemployment is down to 0.5%, then I could see the per capita amount in circulation and would try to maintain that.
While we are waiting for my dream to come true, you may read a few books on the subject here :
http://www.yamaguchy.netfirms.com/index.html
Senator Jones, Double Standard
Arthur Kitson, The Money Problem
Peter Cooper
William Berkey