March 04, 2011

How Do You Define a Dollar?

Economics seems less a science than a creed and thus we have Paul Krugman and Paul Volcker in the same profession. As the old cliche goes, 'ask four economists what will happen and get five different answers.'

And this is rather interesting: "Bernanke also said that gold couldn't return as the world standard because there's not enough gold in the world to effectively support the U.S. money supply."

I googled-searched and found this from The Atlantic:
"So Bernanke's definition of a dollar is constantly moving, while Paul's would be static. Which framework is better is a far more complicated and controversial question. We'll leave that for another time, but both methodologies have pros and cons."
Ah, a punt!

Regardless, it's hard to see the gold standard as a panacea given that 1929-1933 was the worst economic period in our history despite being on the gold standard.


Darwin said...

The mildly fascinating thing about it all is that most of the time the gold standard worked because the rate of gold discovery roughly matched the rate of economic growth, so sticking to the gold standard meant not inflating your currency faster than your economy was growing. (People tend to assume that the point was the amount of gold was fixed, but in fact, countries were always increasing their gold supplies.)

TS said...

Yes good point Darwin.

TS said...

Couple other comments found on the 'net:

"[Rand] Paul is right that the dollar should 'mean something', however I don't understand the logic in basing it on gold. The amount of gold on earth is completely arbitrary and has nothing to do with the true wealth of the US. The dollar should be based on things of true value: goods and services. Goods = raw material, commodities (natural resources). Services = educated workforce."


"The value of a dollar is based on how much of your tax obligation it pays. Since the government accepts dollars at face value for paying taxes, the definition of a dollar is whatever the sovereign says it is when it levies taxes on society."

Ken Katrensky said...


'ask four economists what will happen and get five different answers' - They don't know or if they do they are not telling.

"Economics in One Lesson" ? -