I’m blogging from BlogHaus at the Bellagio. I met and spoke briefly with Robert Scoble, the (in)famous blogger who was recently kicked off of Facebook for scraping information with a script (Google it if you’re that interested). He and I have very, very opposing political views (he’s a Clinton fan apparently, given his reaction to the news that Clinton won New Hampshire’s primary election [I could be wrong, though], and I’m a Ron Paul fan). We did agree that Ron Paul does have a long shot now—Iowa and New Hampshire have spoken—but have differing views otherwise.
One person, Xavier of Notebooks.com, explained to me why the gold standard doesn’t work. I’m still trying to digest it, though.
In a nutshell, he explained that the reason the gold standard (or any other commodity) doesn’t work in our current economy is that its doesn’t take into account how we create wealth. The creation of wealth deals with assigning value to new creations. For example, if I create a web site and someone is willing to pay me $10M for it, then, essentially, I’ve created $10M worth of wealth—a lot. In a gold standard economy, or any other commodity, I’d need a lot of gold or that commodity. Even if there was, multiply this by a couple hundred web sites, or perhaps houses on beachfront property, and there’s not enough gold to match the value. If the value were instead matched to the available gold, then its value would be much, much less and everything would have a much, much lesser value. On the gold standard, the dollar would buy a lot more, but there would have to be a lot more smaller denominations in order to make up for the increased value of the dollar.
Essentially, the current monetary system is based on debt. If someone wants to mortagage a $1M house, the bank, the mortgage originator, and all other parties have to agree that that house is worth $1M, even if it was built for $1. If the bank gives the mortgage, it’s essentially created $999,999.
I’m finding it hard to digest, but I don’t have the base of knowledge to be able to dispute nor naivety to blindly accept. I need to investigate this more so I can better understand why Ron Paul is a proponent of it. I can understand if the reason for the gold standard is because the current way of doing things has some unconstitutional basis, but I need to understand why he wants it this way.