Posted on 01/27/2003 9:46:34 AM PST by Norm640
Gold has no "inherent" value at all. It is not edible, makes lousy tools, etc. It has only the value that actors in the market ascribe to it. Historically right up to now, gold has been used as the ultimate store of value. It makes no sense to a nonproducer who feels himself insulated from the market but the effect is that gold is indeed unvarying in value. That is because gold does not erode and can only be chemically combined with other substances at great cost and a negligible amount of gold exists in compounds. Gold cannot be counterfeited. Any alloy that has the same mass and volume as gold is more valuable than the gold it is meant to counterfeit. Gold is used only in limited amounts industrially.
Gold is not producible in great amounts because of the cost of mining it. All of these characteristics do not make gold useful to eat or wear but it has gained for the metal the trust of humanity for 5000+ years. That will not change just because people sit down and conclude that gold is not a rational basis for money.
Some people think government is a much better basis for the money because they think that governments can make everyone rich by making unlimited amounts of money and just passing it around. Gold cannot be destroyed nor can it be produced in amounts called for by anybody's arbitrary plan.
The only reason rates of return in that scenario would be high is because of astronomical interest rates propping up an otherwise plummeting dollar. Do you think astronomical interest rates are good for the economy?
Inflation occurs when the government adds liquiddity faster than the banks can lend it out at a given rate. Foreign capital would come to US because it is a safe investment and a lucrative one. It is not merely a matter of interest. There are much higher capital gains in a dynamic expanding economy. That makes for a better rate of return than does the lack of capital gains in a highly "protected" economy. Total return is much better in the free economy than in the protected one.
Please prove that this would happen, especially given your implication that the US interest rate would also be low relative to that of other countries.
The rates in those other countries are not even particularly relevant. Where there is stagnation there is very low total rate of return. There may be high rates of interest but only if there is also inflation. Real rates will not be so high and there will be a lower demand for capital because the economy is stagnant, businesses are limited in their ability to expand. Tariffs limit the market for industries on both sides of that tariff. When there are no barriers either way then that which a people can produce the most efficiently will be produced by that prople. If their substance is wasted in producing for themselves that which another nation can produce more efficiently then the whole economy is less efficient and there are fewer jobs and lower production.
The US has the highest and most rapidly rising productivity in the world. So long as the US has the least hindered economy that will continue to be the case. Tariffs reduce competition and slow the economy.If an industry can continue to be profitible because competition is suppressed by tariffs or bans, then that industry has no incentive to invest in more efficient modes of production in order to reduce prices. Consider AT&T before deregulation and the rapid pace of improvement in telephone service and the drastic reduction in phone bills since.
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