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Chapter 1: What is the main topic discussed in this episode?
Welcome to Skeptical Sunday. I'm your host, Jordan Harbinger. Today I'm here with Skeptical Sunday co-host, writer and researcher, Nick Pell. On the Jordan Harbinger Show, we decode the stories, secrets, and skills of the world's most fascinating people and turn their wisdom into practical advice that you can use to impact your own life and those around you.
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Chapter 2: What historical context led to the establishment of the gold standard?
These are collections of our favorite episodes on persuasion, negotiation, psychology, disinformation, junk science, crime and cults, and more that'll help new listeners get a taste of everything we do here on the show. Just visit jordanharbinger.com start or search for us in your Spotify app to get started. Today on the show, the United States currently has an inflation rate of 2.9%.
Now, that's not too bad, especially when you consider that the inflation rate peaked just three years ago at a 40-year high of 9.1%. One of the interesting things about the modern economic system is that inflation is considered good if it's managed properly, and most importantly, if it's predictable.
In fact, economists often issue dire warnings about deflationary spirals, where the cost of goods drops too quickly, resulting in significant damage to the economy. China is wrestling with a deflationary problem as we speak now.
You might have encountered memes or infographics online about the long-term effects of inflation over decades, and many of these push a simple, cure-all solution for inflation, the gold standard. In fact, your money, it used to be as good as gold. Literally, you could walk into a bank, hand them a dollar bill and get a hunk of metal in return for it.
Proponents of the gold standard believe that if we return to this method of controlling the money supply, that we will end inflation and Americans will return to purchasing power not seen in this country since Calvin Coolidge was in office. It sounds like they might be onto something, but are they? Is inflation really that bad?
And perhaps more to the point, is the gold standard the cure for what ails us? Here to help us separate the hard currency from the soft money is writer and researcher Nick Pell. Nick, I know a lot of libertarian guys are super into the gold standard, so I'm maybe going to assume you're one of them, but you sometimes surprise me.
I own an end the Fed shirt, but I use it as a rag to polish the rims on my El Camino. So, you know, interpret that how you want.
Okay. So not a gold standard guy. I don't know how to decode that.
I'm not a gold standard guy. I'm not an economist. From my perspective, the monetary system that we have seems to work more or less. We're not having panic runs on the banks, which were relatively common during the era of the gold standard. A lot of gold bugs. That's a cute term for people who love the gold standard.
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Chapter 3: How does the gold standard compare to modern monetary systems?
Oh, don't tell me that. Yeah, man, it's breaking the lower Bollinger. It's not a great analogy at all. You're correct. But Bitcoin, at the very least, has these properties. Oof, I just looked at Bitcoin. The cycle topped and I called the cycle top two years ago and I didn't open a short. So you want to talk about being bummed out today? Yeah. I'm bummed out today.
We might get a scam pump back up to bear new all time high, but like this bull market's over.
Oof, yeah, no, this is not pretty at all. Okay, anyway, back to the show. I feel like if we're talking about people using actual gold and other precious metals as money, we're not talking about the same thing as the gold standard, right? Because the gold standard is when you can carry paper money around in your pocket, and it's basically like you have gold.
Yeah, the gold standard that we're talking about today, it's not like the Roman Empire did not have the gold standard because they used gold coins. The gold standard is a modern thing. It starts in the United Kingdom in 1821. People didn't stop using gold as money between the Roman Empire and then. But most countries throughout the world prior to the adoption of the gold standard didn't
used what's called bimetallism. That means both gold and silver are legal tender. The problem with this is that their prices can fluctuate wildly with regard to each other. Gold and silver. Okay. The price of gold may go up and the price of silver goes down and vice versa.
There's not like a 13 to 1 ratio or something, which I think is one of the things people who wanted to bring back bimetallism in the United States wanted to peg it at anyway. There's not a firm ratio that they hold in terms of price. That leads to financial instability and people want to game the system by arbitraging Gold against silver, which kind of makes it worse.
So Parliament decided in 1821, acting on the recommendations of the Bullion Committee, to set the price of pound sterling at a little over seven grams of gold. Now, with the gold standard, the money is pegged to the price of gold. Germany adopts the gold standard in 1871 after the unification of the German Empire. The United States hops on the gold standard in 1879.
And by the 1890s, basically the entire industrialized world is using the gold standard.
I'm surprised because it's even more recent than I would have thought. I don't know. I guess I assumed we've been on the gold standard for 600 years, but less than 150 years or something around then.
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Chapter 4: What are the potential economic impacts of returning to the gold standard?
I guess there's not an answer because there's two opinions. Everything I could find about this seemed very agenda driven and I am not smart enough to wade through it. So, you know, make it your new history project if you like. What I will say is that FDR, who I blame for everything, him and Woodrow Wilson are the worst people to ever live.
FDR took the country completely off the gold standard and made it illegal for people to own gold.
What if you had like gold earrings? Not that. You mean like bullion in your basement?
You weren't allowed to hold bullion. That's fair. Which to me, that's kind of messed up because they like confiscated people's bullion. I know there's all kinds of reasons. Don't worry.
We're going to give you a piece of paper that says you gave this to us for safekeeping.
And we really need to, guys. This is always the thing. The government always really, really needs to do something. Sorry, guys. It's people's property. It's their property. After the next world war, the allies come together, peg everything to the dollar, the United States dollar, and they peg an ounce of gold to $35. So there's still something there. semi-objective, holding everything in place.
In 1971, Richard Nixon took the country off the gold standard entirely. So now your money is backed by nothing but your trust in the Federal Reserve. Got it.
By the way, an ounce of gold right now is like $4,200. Isn't that crazy? Yeah, it's backed by the Federal Reserve. Yeah. And the United States military. So here's the thing, man. I always find it a little funny when people leave that part out. Okay, you're not going to use US dollars? Yeah, good luck with that. People are like, no, the... Bricks are going to make their own currency.
And by the way, we should do a Skeptical Sunday on that because when you ask experts on that, they're like, oh, two countries that can't even clear up their own internal corruption and never agree on anything are going to add five more and make their own currency. Okay, bro. Cool story. Anyway, so yeah, but good luck not using U.S. dollars.
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Chapter 5: How does inflation affect the argument for the gold standard?
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Chapter 6: What are the advantages and disadvantages of fiat currency?
It was impossible. He could not have a piece of toast. Did he want fresh, cold milk? Kind of not going to happen unless it was cold outside. Just not going to happen. No way to make that milk cold. Fresh, yes. Cold, no. Ice never going to happen unless it's winter, in which case you probably don't want any ice. I was just like, yeah, you're right.
Guess I should stop whining about the fact that I have homework or whatever. He always used to use that argument.
Yeah. So Calvin Coolidge, who we mentioned earlier, his son died because he played tennis without socks, got a blister on his toe and died of a blood infection because penicillin didn't exist. Yeah, and this is the president's kid, right? This is the president's kid, and your grandfather might remember him being president. This is not like... the Roman Emperor Tiberius didn't have ice cream.
Yeah, exactly. Oh, man. Sorry. That's a bad way to go. But yeah, look at all the crap that you can get on Amazon for under $10. In the 80s, you would have gotten that as your only Christmas gift. Wow, it's a radio and a clock at the same time. This is amazing. And it's digital. That's really something. Thanks, Pa. That's where we were back then.
Everyone talked like Little House on the Prairie, apparently. I don't know. Anyway, please take over. I'm embarrassing myself. We did all talk like Little House on the Prairie back in the 80s for the youngins out there. Why is that type of economic growth not possible with the gold standard?
The short version is that we now have elastic liquidity. That means that the amount of money can be expanded to meet the needs of the economy. Gold does not have the same flexibility in terms of expanding and contracting liquidity. To me, that is like the bedrock of the modern economy that we have this elastic liquidity. And yeah, I think that increased wealth. I think that's a good thing.
You're going to tell us what elastic liquidity is, right?
Yeah, it's the ability to expand and contract the amount of money. There are a lot to manage the economy in this way. And people in sub-Saharan Africa can have cell phones. I think that's a good thing. I see what you mean. Gotcha. Okay.
Is there a downside then for this?
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Chapter 7: What alternatives to the gold standard are being proposed?
moderate on this because i think it's foolish and simplistic to view the 19th century as either the golden age of prosperity or a gilded age where everybody who's not john d rockefeller is like living in a sewer i see i think this is literally the first time in this show that you've ever expressed an opinion that could be considered moderate so congratulations all my views are moderate
OK, the balance of the arguments in favor of gold are that it limits government power. This is just the war slash vote buying thing. You know, libertarians love the gold standard because in their mind, big government is impossible with the gold standard.
Gold standard guys, they're like CrossFitters and vegans. You don't have to ask. They'll tell you in the middle of Thanksgiving dinner if you'll listen to it.
Here's the thing, though. I think libertarians in general have a good grasp of market economics, like supply and demand, unintended consequences of regulations, monetary policy. I'm not clear that anyone with a sub 140 IQ or like an advanced degree in economics really gets this.
Maybe I'm stupid, but I do know that if I buy a loaf of bread for three bucks at Safeway today, it's probably going to be three bucks tomorrow. It might be five bucks in a couple of years, but tomorrow it's going to be three dollars. And again, like people are rushing to their computers to tell me that I don't know what I'm talking about.
But I feel like the Federal Reserve does, at the very least, a pretty OK job of managing inflation because, yeah, I know what bread's going to cost. Yeah. Important at the consumer level. Yeah. A friend of mine once said that neoliberalism is a term of abuse for economic policies that actually work. It seems to work.
My fridge is 600 bucks when it used to be like buying half a house and I can get a three dollar loaf of bread every day for now until it's five dollars. Seems like it's working OK for me. I think their strongest arguments, the gold bugs have is the one regarding the vote buying. Absolutely agree that that's happening, but I just don't think that's a fiat currency problem.
No, that could probably happen under any system. A lot of this has kind of just reaffirmed my belief that the gold standard is outdated. It seems to have been the right choice for a bygone era, but today, with modern economies and modern governance, it doesn't make as much sense. But I also feel...
That's not really the most sophisticated argument against the gold standard, because I'm basically saying I have a feeling and that my feeling says this isn't good anymore. And I can't back that up with any logic. So there and that's not really what Skeptical Sunday is about. So what are the more rational arguments against it beyond? That seems kind of dumb to me, bro.
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Chapter 8: How would a return to the gold standard affect global trade?
Yeah. Do I need to tell you where this story goes? No, we're good. Yeah, the crashes are inevitable at that point. Imagine if in 2000, there were banks that were issuing banknotes on the basis of the price of the stock of pets.com. Yeah. Oof. Catastrophic crashes are the result.
And the last thing worth mentioning here is that during the gold standard era, all the major powers are pulling from the same pool of limited liquidity, which which we've hinted at before, explicitly saying it here, when the panic hits one place, kind of hits all of them, and it gets bad quickly.
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