What does it mean to judge money based on the "gold standard?"?

Question

I've heard this saying before; what does it mean to base or judge money according to the "gold standard?"

I'd like some in-depth, unbiased information on this issue (especially all you econ majors out there).

Answer 1

Once, a long time ago, everyone used gold for money.

Gold is heavy, though, and malleable, and not easily hidden: go ask a pirate.

So, I would put my money in a bank, and he would give me note saying I have a oz of gold - at this bank. The note had lots of nice printing so it was difficult to forge. It might have a signature and so on. Notes were easily transported and safer. Most governments operated state run banks that issued these notes. They are usual denominated in dollars - so 1 dollar equaled 1 oz of gold (making exact number up). These notes then became the currency. But you could always take a note to the government and get gold out.

Well, in 1971, the government stopped doing that, because it ran out of gold. This is because it printed more notes than was actually backed by gold. Why? It was standard practice to realize that most people had some amount of gold they rarely spent. So, this gold could be lent out and earn interest and the bank would profit. The problem is, if everyone wanted the gold out at once there wouldn't be enough for everyone. Also, as the economy grows, it needs more money, which makes gold a poor choice for money.

When the government stopped redeeming dollars for gold, the US 'went off the gold standard'. Instead, the dollar is 'backed' by the things in America you can buy with it, since the dollar is still legal tender i.,e., you have to accept the dollar if you are selling something for money. You can, of course, buy gold, but the gold price varies because dollars are printed independently of how much gold there is. The dollar gets gradually worth less because the government grows the amount of money a few percent a year. So if an oz of gold is dollar today, tomorrow it will 1.03, and so on.

Answer 2

You see the word trade actually means to exchange something of value for something else of equal value.
Thousands of years ago it was determined that Gold & Silver were the best mediums of exchange,{forms of money} because it was precious, hard to get, & had an indifinite shelf life.

Thomas Jefferson submitted the first American weights & measures table and it's relation to money.

It was determined that 1 cubic inch of pure water weighed 1 ounce. 1 cubic inch of water also weighed 480 grains {of wheat?} Therefore American money was to have a weight relationship.

http://www.healthfreedom.info/what_is_a_dollar.htm

In 1789 the Constitution gave Congress the power to regulate the value of the dollar by weight and fineness. Eventually on April 2, 1792 the first Mint Act was passed under the present Constitution and the dollar and its value were finally defined. The coinage act of 1792 established the following:

1. Authorized coinage of the silver dollar (of the value of Spanish milled dollar) against the deposit of silver and fixed its weight at 371.25 grains of pure silver & 24.75 grains of Gold.

20 Silver dollars equaled 1 ounce of Gold, in market value.

From 1792 to 1933, when using "The Gold Standard" very little inflation took place......There for the saying was adopted, "The American Dollar was as good as Gold," Because it actually was redeemable in Gold.

Eventually Gold became the anchor of the system, as they could now value all the other metallic coins of the world to an ounce of Gold.

Presidential candidate Ron Paul has written several books on this very subject, & some can be downloaded for free here:

http://www.ronpaullibrary.org/books.php

There is also something else you should be aware of: The worlds bankers are happy & content to flood the world with un-backed paper money, therefore there is a very wide decrepency in the valuation of money worldwide.

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Answer 3

At one time, every dollar of US money was backed up by a dollar's worth of gold. Most of that gold is stored in Fort Knox. We are no longer on the gold standard. Our dollars are backed up only by the value of the US economy.

Answer 4

to me it means to treat & judge money as a finite resource (like gold, silver and other type of depletable minerals) and not as potentially infinite.

Using the gold standard has important material, psychological & political implications. Money can be percieved as a valuable & scrace resource becuase its "as good as gold" and we all know that gold is good!!

ok...this should give you some idea of the kinds of issues you should be focusing on in your research.

Answer 5

Every dollar you have is backed by its weight in gold.

Answer 6

i will research it and let you know asap