I guess you are all fine with a credit based economy...
I definitely am. Credit facilities have allowed us to advance far more quickly than we would have without then. On average, credit is an incalculably large boon to society and has driven up the average standard of living of the average person hugely. I'll come back to this in my final paragraph in this post.
created false up ticks in the economy.
Any economy is always "false", then, because any financial transaction involves an arbitrary assignment of value to a physical object. Where do you draw the line? Is it just fiat money that's false? Why is gold more "real" than fiat money? If someone finds a large new gold deposit, under a gold standard, all money would suddenly devalue massively; is that really more "real"? The only "real" economic transaction is one that doesn't involve money at all; a barter system. Money itself is automatically unreal, whether backed by gold or not.
I would strongly argue that since any non-barter, money-based, economy is already disengaged from "reality", it's much more logically consistent to permit money itself to be treated as a tradeable commodity, able to reflect the relative strengths and weaknesses of the country creating it.
That's a much more accurate way of setting the value of money than linking it to how much of a single metal dug up from the earth one has! The narrowness and inflexibility of the gold standard is its problem.
It's no different, logically, to linking the value of money to how many trees there are in the world. Nonsensical, topsy-turvy way of determining value.
You must realize that all those guys on Wall street that almost broke the bank, they will just do it all over again and we will be right back in this same spot again. If we were under a gold standard then all of this could have been prevented. There would be no fractional banking system. Each company or bank would have to spend within it's own means. There would be no such thing as too big to fail. If a company practices bad business then it simply fails. It doesent take down the whole world with it. The gold standard keeps em honest. No speculating, no fractional banking. The banks would have to keep 100 % of reserves and the FDIC would insure 100% and not 10 %
Firstly, fractional-reserve banking is
independent from a gold standard. A gold standard alone still allows for speculation and fractional-reserve banking. The gold standard that used to exist in our countries operated under a fractional-reserve banking system. No banks since well before the 19th century have operated under a full-reserve requirement.
The system you are recommending is a hybrid combination of a gold standard with a full-reserve requirement. In fact, if you want to have a full-reserve requirement, you don't necessarily need a gold standard, merely that the bank hold any form of asset of equivalent value.
But I accept that a bank would probably prefer to hold high value-density assets under such a system, rather than having vaults full of chickens, or whatever...
So for the sake of argument let's think through your scenario of full-reserve banking combined with a gold standard:
It is completely incompatible with the modern world. It just about works when you have a cash economy, with little international trade outside of key hubs (or rather, little trade beyond a radius of a few hundred miles). You would certainly shut down international trade almost completely.
Why? Think through the logistics... let's take a simple example eg. how does a US tourist buy something in France? Their bank has to ship gold over to a French bank? Now think of the trillions of financial transactions taking place across the globe every day and the amount of gold that would need to be moved around. Madness.
The entire global banking system would collapse instantly in the face of this transportation impracticality and then you'd have a global economic Depression that would make the Great Depression seem like a mild headwind. (
fractional reserve banking under a gold standard WOULD avoid this transportation problem, but would do nothing to stop the "speculation" you are so concerned about)
You would turn the clock back to Feudalism, or at best, the early days of Mercantilism. Banking would effectively be abolished as a means of being an intermediary in the exchange of money from one person to another. It would have a purely depository function. The bank can no longer invest in society (I don't mean charity, I mean by moving money around from one group to another) so society becomes increasingly dependent on individuals with large amounts of assets.
It is a recipe for plutocracy at best, far more so than presently, or tyranny by a feudal overlord at best. Much as this might raise eyebrows from left-wingers, there is a solid argument to be made that fractional-reserve banking has done more for social mobility than almost any other human invention.
Just because our current system sucks doesn't mean we should go to an even worse one which is what the gold standard would be.
+1 for the brevity.
