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COMMODITIES     Return to gold standard exchange (Stephan)

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Stephan     posted : 06/10/12   05:01 pm

Here's the core concern. In January of 2000, an average U.S. worker earned $13.75 an hour, and the price of gold was $283 an ounce. If you put in 100 hours of work at that wage, you would earn $1375, which would have been enough to buy a little less than 5 ounces of gold at the time:

Last month, the average U.S. wage was up to $19.77 an hour, but the price of gold had skyrocketed to $1623 an ounce. That means that for 100 hours of labor, the average worker today would only receive 1.2 ounces of gold. Here's what average U.S. wages would look like if they were reported in units of ounces of gold earned per 100 hours instead of in the usual units of dollars earned.

But the essence of a gold standard is that the units used in the above graph would become the units in which wages and prices would get reported and negotiated. Under a gold standard, a dollar always means the same thing in terms of ounces of gold that it would buy. So for example, if the dollar price of gold today was the same as it was in January 2000 ($283/ounce), and if the real value of gold had changed as much as it has since then, the dollar wage that an average worker received would need to have fallen from $13.75/hour in 2000 to $3.45/hour in 2012.

And the problem with that is, for a host of reasons ranging from minimum wage legislation, bargaining agreements and contracts, institutions, and human nature, it is very, very hard to get workers to accept a cut in their wage from $13.75/hour to $3.45/hour. The only way it could possibly happen is with an enormously high unemployment rate for a very long period of time. This strikes most of us as a pretty crazy policy proposal.

To which the gold advocates respond with the claim that if the U.S. had been on a gold standard since 2000, then the huge change in the real value of gold that we observed over the last decade never would have happened in the first place.

The first strange thing about this claim is its supposition that events and policies within the U.S. are the most important determinants of the real value of gold. According to the World Gold Council, North America accounts for only 8% of global demand.


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