C (2:59)

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.

B (3:06)

Okay, so not a gold standard guy. I don't know how to decode that.

C (3:11)

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. A lot of people who love the gold standard try and use America's bad monetary policy as an argument for having no monetary policy, just having a free market in banking.

B (3:46)

So people who only read the episode topic and then see your name and get upset, those people are going to be very disappointed today, I think.

C (3:52)

Yeah, probably. You can ask me again about this when we get through the episode, because I'm not a libertarian gold bug at this moment. Even if I do have some critiques of fiat money and fractional reserve banking.

B (4:07)

We'Re going to have to explain those two things and maybe refresh my own memory as well while we're at it.

C (4:12)

Yeah, unfortunately for both of us, yes. But I'd love it if we could just table this for now, because I think it's best if we talk about the history of the gold standard before we get into the weeds of how our current system works.

B (4:26)

Okay, but we will get into the weeds, right? Because I think that's kind of the point here.

C (4:30)

Oh, we're going to build a summer home in the weeds, dude. Don't worry about that. We're going to get there.

B (4:34)

One of the things I've always thought about the gold standard. Isn't it just kind of outdated? Isn't this something from another era? But to be fair, I gotta admit, I don't really understand why gold was valuable other than it's shiny and it sounds good in stereos and it works well in electronics. But back then there were no stereos or electronics. Hey, shiny metal is valuable. It seems as arbitrary as using paper money.

C (4:58)

Yeah, man. Everyone is mesmerized by shiny objects, right?

B (5:02)

And back in the day, everything else in the world was made out of, I don't know, like wood, mud, whatever else. They didn't have much in the way of shiny metals. I guess back then they didn't just.

C (5:12)

Use shiny rocks as money. There are other types of money in early history that are not quite so mesmerizing to look at. You've got salt. Not really very interesting to look at. Shells. Shells are cool. I guess. Cattle, I used to live around a lot of cattle and they're not very appealing to the eye.

B (5:32)

No. The main reason, it depends on what you're into. But that's a different podcast.

C (5:38)

Reason. Gold won out wasn't just because it was nice to look at. Gold won out because it's three things that proponents say make for good money. Durable, divisible, and difficult to get or difficult to counterfeit. Kind of the same thing.

B (5:56)

So there's rarer stuff on earth though. Why not just use that?

C (6:00)

That's the thing. It's not so much that gold is rare. It's that it's difficult to obtain and difficult to fake. Gold mining is very hard work. It's hard to get out of the ground. Talented metallurgists can tell pretty much right away if gold is real or not. They can figure out how pure it is and so forth. You can break it down into parts relatively easily, and it's pretty tough. It's in this weird sweet spot of soft and easy to split up, but also durable enough to get banged around with a pocketful coins. So again, durable, divisible, difficult where difficult means difficult to obtain and difficult to counterfeit. Part of this is just user consensus. People agree that gold is worth something, so it's worth something. But part of it is that gold is pretty ideally suitable for use as money.

B (6:50)

And I'm assuming that these properties also apply to silver, copper, maybe nickel, other metals that have been used as money throughout the ages.

C (6:58)

I think nickel's pretty hard, but otherwise, yeah, basically. This is also the same case that bitcoin maxis will make for Bitcoin Is that it's durable, divisible, and difficult to mine, difficult to counterfeit.

B (7:12)

Although the price of gold doesn't drop 10% in an hour because someone tweeted something. But yeah, I don't know. Someone's going to be like, hold my beer. Here's looking at you, Elon. But, yeah, I guess the bitcoin thing, I don't know. I'm having trouble making bitcoin work as the same thing as gold in my head.

C (7:27)

It's funny that you say that, because bitcoin is absolutely tanking on the day that we record this.

B (7:33)

Oh, don't tell me that.

C (7:35)

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.

B (7:43)

Oof. I just looked at bitcoin.

C (7:45)

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, bummed out today. We might get a scam pump back up to bear, new all time high. But, like, this bull market's over.

B (7:59)

Oof.

C (7:59)

Yeah.

B (8:00)

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.

C (8:18)

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, 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.

B (8:58)

Gold and silver, okay.

C (9:00)

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 7 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.

B (10:03)

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, we're not on the gold standard.

C (10:15)

So the gold standard actually lasts, like in the United States, like 50 years.

B (10:21)

For your great grandfather's lifetime. Until now, we've been on the gold standards. This is like almost a brief, not even full lifetime window of the economy.

C (10:29)

Yeah. It's not like this is the thing that we've done since time immemorial.

B (10:33)

Yeah, that's what I was thinking. So you mentioned that silver and gold, the fact that they were both being used at the same time was the problem. But what's the advantage of the gold standard alone?

C (10:42)

The gold standard makes international trade a lot easier. Exactly. What a German mark, which, yes, I know they use euros now, but at the time they would have used the mark. You know exactly what that's worth in comparison to a British pound. Because you're like, okay, a mark is 8 grams of gold and a pound is 13. I have no idea if that's actually what it was, but. And it's like, okay, well, a mark is worth 8/13 of a pound. It makes international trade very easy to do. So governments also had to actually have the gold in their reserves. People had to trust that the governments would convert their paper back to gold. Which was actually somewhat more complicated than we're making it out to be. But the gist is kind of there and for the most part it worked.

B (11:31)

Yeah. I do wonder. They always said, like, you could walk into a bank and come out with gold. And I feel like if you actually tried that, they'd be like, can you come back in a month? I got to talk to my manager about this. I'm not just going to go in the vault and give you a bunch of gold. I don't know. Do you happen to know if that was real?

C (11:45)

I think it was more that, like, if the bank of England was like, we're taking $1 million of US dollars. We want $1 million in gold. I think that there was like some kind of obligation to do that or there was some way for you to get gold. But like, the piece of paper is, is a representation of some amount of gold.

B (12:06)

Yeah. I just feel like gold bugs often are like, yeah, could have walked into Chase and come out with a bag of gold. And I'm like, nabrous, you're going to come out with a printout that says, file this form. And maybe we'll put something on a ledger somewhere that says, you own this, but that's it. Okay, so what happened? Why did we ever go off of it in the first place?

C (12:25)

World War I. Short, simple, easy answer. It's actually really interesting to me. First of all, I didn't know that it was quite that simple. One of the main critiques that gold bugs of the libertarian stripe, I think that Venn diagram is probably a circle. Is that fractional reserve banking, which is what we have now, can fund wars a lot easier than gold. As it turns out, this is 100% true. Countries suspended gold convertibility during World War I. That's the ability, in our oversimplified metaphor, take your paper notes into a bank, walk out with a bag of metal because you couldn't fund the war that way. From my perspective, I'm like, cool, it's hard to go to war. I'm all for the gold standard, then fine.

B (13:09)

Why didn't they just go back to the gold standard after the war was over?

C (13:13)

A lot of people wanted to, but it was hard to put the toothpaste back in the tube. For one, the currencies were not going to repeg at the old rates. Britain tried to go back on the gold standard in 1925. It made their exports insanely expensive, which is very bad for domestic labor. Because your products are too expensive. No one's buying them. The factory closes. Some say that this attempt to go back on the gold standard is what caused the Great Depression. Others say that clinging to the gold standard during the Great Depression made it worse. Honestly, I read a bit about this. I didn't find either side terribly convincing. I thought it was just confirmation bias. People see what they want to see.

B (14:01)

People in favor of the gold standard think it solves every problem. And people who are against it thinks it causes a bunch of problems.

C (14:07)

Yeah, and to be clear, I'm not like doing that thing where I'm just going, I don't know. 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, right? Yeah. 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.

B (14:44)

What if you had like gold earrings? Not that. You mean like bullion in your basement.

C (14:49)

You weren't allowed to own 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.

B (14:59)

Don't worry. We're going to give you a piece of paper that says you gave this to us for safekeeping.

C (15:04)

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 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.

B (15:45)

Got it. By the way, an ounce of gold right now is like $4200. 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. Ok, you're not going to use US Dollars. Yeah, good luck with that. People are like, no, the BRICs 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. Okay, bro, cool story. Anyway, so. Yeah, but good luck not using US Dollars. There's a whole something to be said for the petrodollar. Right? Oils traded in US Dollars. Come on, you're just going to opt out of that? Ok, I hope you have a lot of aircraft carriers.

C (16:29)

This is kind of like usually my response to this is, yeah, the United States dollar, propped up by absolutely nothing but thin air and the world's largest nuclear arsenal. The largest and most powerful Navy and air force in the world. No big deal. I'm sure the United States military is just going to let you use rubles or renminbi or whatever it is that you're going to use.

B (16:52)

And also, you don't want to, for all kinds of reasons. Are rubles that stable? Who makes the decision? Well, one guy who's being really reckless. Let's not do that. Was that floating freely on the international market? No, the dictator over here controls what that's worth. Oh, that's safe then. It's really hard to affect the dollar. You have to print a ton of it, and then it's okay, there's inflation, but the dollar itself is still valuable.

C (17:12)

And it's.

B (17:13)

You're better off using Bitcoin, really, at that rate, if you're going to use a different currency. Anyway, now that we've traveled all this way, a lot of folks are dying to know what the Federal Reserve is, what fiat currency means, all these other terms you've tastefully sprinkled in throughout the podcast thus far.

C (17:27)

Okay, so the system we have now is called fiat money or fractional reserve banking. These are technically not the same thing or interchangeable, but let's just pretend they are so we don't have to segue.

B (17:40)

Oh, yeah, Reddit is going to eat you alive for this.

C (17:43)

I know. Yeah, if you want to eat me, I taste best with Frank's. But let's just skip over the subtle differences between these things, and you're right.

B (17:50)

We'Ll get ahead of the pedants in the audience. Nick is simplifying this because we're doing a podcast, not an introductory course in macroeconomics. How's that?

C (17:59)

Broad strokes, people. Broad strokes. The Federal Reserve is the central bank of the United States. It is not a government agency. It's a weird kind of mix of private and public, but its board of governors is appointed by the president. So the line is a very blurry line between private and public with the Federal Reserve, also known as the Fed, and they determine how much money is in supply at any given moment. And they are the lender of last resort. Yes, I'm aware some of the finer brushstrokes here are not 10,000% accurate, but it's a very complicated topic. We'll be here all day if we have to drill too deeply into this. Thus, they influence interest rates for the entire country. They do not set interest rates for the entire country. They have a lot of influence over them. Since March 2020, the United States has no reserve requirement at all, which means they don't have to have a certain amount of money actually on their books. Not by law anyway. Banks used to be required to have a certain amount of money in reserve, but today the reserve requirement is effectively zero. So in pract this, the Fed manages the money supply through interest rates and the broader banking system rather than any fixed reserve.

B (19:17)

We're now on the trust me bro standard.

C (19:20)

In theory, there's some kind of reserve the money supply sits on, but again, since the Fed can adjust that to whatever it wants, they more or less just print money out of thin air. It's somewhat more complicated than this, but not much.

B (19:35)

I can't see anything that could possibly go wrong with this system. Go on.

C (19:38)

Yeah, I know. With that said, most modern economists will argue that a certain degree of inflation, which is caused when you print more money, optimizes growth. So while it's definitely true that fiat money allows the government to overspend through debt and the hidden tax of inflation, it's not entirely clear that this is all bad.

B (20:05)

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B (22:52)

Don't forget about our newsletter. We bit wiser. It is a great companion to the show. It's a two minute read, comes out on Wednesday mornings. It's and it's a tip or some wisdom from a previous episode from us to you. Jordanharbinger.com News is where you can find it. And now back to Skeptical Sunday. Is it worth explaining why a certain degree of inflation optimizes growth? Or is that just econ 302 nonsense that we don't need to get into here.

C (23:18)

We can should. It's pretty simple. So economists generally agree that a little inflation around 2% is good for the modern economy. A predictable low level of inflation does two things. First, it encourages people and companies to spend and invest today rather than waiting for things to get cheaper tomorrow.

B (23:37)

Ah, because you're like, it's not going to get cheaper, it's going to inflate by 2% minimum. So spend it, invest it, build it, whatever.

C (23:45)

Right. And I'm not buying a house right now because the interest rates are 7%. I want them to drop down and which is why they raise the interest rates.

B (23:52)

They don't want you buying a house. You specifically.

C (23:56)

They did, they wanted to slam the brakes on the housing market.

B (23:58)

Yeah, yeah, good though, because getting a garage here is like a million dollars. And I'm not exaggerating.

C (24:03)

So it does that. Then it also makes the debt easier to manage, which, that sounds shady, but managing debt is how businesses expand, hire and innovate. So too much inflation, yeah, that's definitely bad. Nobody wants to the chaos of 1970s inflation back, but a small, steady, predictable amount of inflation seems to keep the gears of the economy that we all know and love turning.

B (24:33)

Given that we haven't been on the gold standard in this country since at least the 1970s and perhaps more accurately the 1930s, what is the argument for bringing it back?

C (24:44)

I think we should lead with the moral argument. The moral argument is that it's fundamentally immoral for there to be a government sanctioned monopoly over money that is overseen by unaccountable semi government bureaucrats determining how much interest to charge at any given time at their own whims. This is not my opinion, by the way. I do, however think that it's their most irrefutable argument. If you agree with the premise of it, that's it. Or if you don't agree with the premise of it, that's it. You agree or you don't.

B (25:16)

Okay. What do people who argue in favor of the gold standard say beyond this is immoral? Because I'm guessing they have arguments beyond some hyper libertarian case for a free market in money.

C (25:27)

Yeah, they do. The inflation argument is probably the most well known. A very simplified version of it goes like this. So if you take the minimum wage in 1960, when quarters were still made out of silver, the minimum wage was a buck a dollar. So if we inflate that with fiat inflation, that's about 10 bucks today. The problem according to the gold bugs, is that the silver in the coins would be worth 35 bucks. So they see it as everybody took a haircut on wages because of the inflation. I think the inflation argument is real, but it's a bit crude because the inflation thing is one of the engines of the world economy. So as a result, we have access to cheap consumer goods that people in 1960 would have absolutely killed for. The counterpoint to this is that health care, education, housing, these costs are absolutely through the roof since the 50s. But I just, I don't see any reason to believe that monetary policy is the driver of any of those costs. Purchasing power at the consumer goods level has never been better. And I just don't see how this type of economic growth is possible with the gold standard. And yeah, I think maybe I'm a neoliberal hack, but I think that increased consumer purchasing power is a good thing.

B (26:53)

It reminds me of something my old middle school science teacher used to say, which is he'd be like, you guys complain about a lot, but you're better off than a king in the Middle Ages. And we're like, why? He had slaves. And it's, you know what? He didn't have toast. 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. It 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.

C (27:27)

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.

B (27:40)

Yeah, and this is the president's kid, right?

C (27:42)

So 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.

B (27:52)

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, like, 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.

C (28:18)

We did all talk like Little House on the Prairie back in the 80s for the youngins out there.

B (28:23)

Why was that type of economic growth not possible with the gold standard?

C (28:27)

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.

B (28:53)

You're going to tell us what elastic liquidity is, right?

C (28:55)

Yeah. It's the ability to expand and contract the amount of money they're allowed to manage the economy in this way. And people in Sub Saharan Africa can have cell phones. I think that's a good thing.

B (29:07)

I see what you mean. Gotcha. Okay. Is there a downside then for this?

C (29:12)

Yeah, of course there's a downside. The downside is that the fiat money allows for massive debt spending that was not possible under sound money. I think that the debt bomb people talk about, I think that's a problem. I think that's going to come to a head at some point. I think that you can't just borrow infinity dollars forever and ever and there's never going to be any kind of end to that. That concerns me about the current system. I don't think gold's the answer to it. The other issue that people would raise about it is where the debt spending goes. The debt spending goes towards the military. It goes towards. Which we talked about earlier with regard to war spending, social programs, other pork projects.

B (30:00)

Pork projects? Oh, like pork barrel politiky, vote buying kind of stuff, which is.

C (30:06)

Right? Yeah, it's vote buying. Personally, that would be my primary criticism of it. But I don't think it's a necessary result of fractional reserve banking. I think that people are inclined to vote for the candidate that offers them the most free stuff. And Thomas Moore talks about this in Utopia. It's that old of a problem.

B (30:29)

Yeah. So it's not a new problem.

C (30:31)

No. I'm going to give everybody gold toilets. Oh, I'm going to vote for the gold toilet guy. No kidding. You are. The problem of the shortsightedness is very compounded because politicians under mass democracies like we have in the west, they don't really plan for 50 years ahead. They plan for two years ahead. They plan for four, six years ahead. They're thinking of the next election. I don't see the Evidence that they're thinking about 50 years down the road. And to me, that's all very troubling and dangerous. And it's not possible with the gold standard.

B (31:03)

I see. Okay, so you're saying that the argument is that this simply is not possible with the gold standard, like you said, because you can't make more gold out of thin air. And you need to do that if all of the money is backed by gold. But if it's not backed by gold, you can make more money out of thin air. You just need the paper and the ink.

C (31:18)

Correct? Yeah. And I think that's the argument that I would personally be most in agreement with. Another argument is that gold is fundamentally more trustworthy, especially during a time of crisis. Some people are deeply skeptical of centralized banking, government involvement in the money supply. So for these people, gold is good because there is a neutral arbiter for how much the money is worth.

B (31:44)

But you said earlier that the British government decided that a pound is worth a certain weight in gold. Couldn't the government manipulate the money supply by changing what the dollar or the pound or the euro is pegged at?

C (31:55)

They could, but there's a lot less wiggle room if everybody use the gold standard. This would come with much more immediate consequences. Changing the value of your money is going to impact international trade almost immediately. What we do know though, about the gold standard era is that prices in the 19th century are flat for decades at a time. And gold standard gold bugs refer to the 19th century as the golden age of prosperity. Highly contested term. I guess I'm 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.

B (32:45)

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.

C (32:52)

All my views are moderate.

B (32:56)

Okay.

C (32:56)

The balance of the arguments in favor of gold are that it limits government power. This is just the war vote buying thing. You know, libertarians love the gold standard because in their mind big government is impossible with the gold standard.

B (33:12)

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.

C (33:20)

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 years, but tomorrow it's going to be $3. 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 okay job of managing inflation because yeah, I know what bread's going to cost.

B (34:09)

Yeah. Important at the consumer level.

C (34:10)

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 $3 loaf of bread every day for now until it's $5. Seems like it's working okay for me. I think their strongest arguments the gold bugs have is the one regarding the vote buying. I absolutely agree that that's happening, but I just don't think that's a fiat currency problem.

B (34:42)

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 eh. It seems kind of dumb to me, bro. That's kind of where I'm at and I want more ammunition than that.

C (35:18)

Some of the arguments against the gold standard are just the inverse of the arguments for the gold standard. For example, if you think the government should be able to quickly and easily lay hands on funds for war or social programs, that's not super possible under the gold standard. People will cite World War II and the Great Depression as examples of needing a quick and easy influx of government cash. The Great Depression gets cited as an example of the gold standard making a bad situation worse. American involvement in World War II. Proper response to the Great Depression. These are totally separate topics, but yeah, I think it's reasonable to suggest that the United States government needed money for both of these crises that the gold standard made difficult to impossible.

B (36:07)

I see. Because the government couldn't just create money out of thin air. And you need that when you're in World War II or the Great Depression. To look at it from the perspective of the gold bugs. You're not actually solving anything. You're just inflating the money supply. And I think the counter to that is inflating the money supply is good in principle, because, like you said, managed inflation is the cornerstone of the modern economy. I think a more moderate position might be that you can inflate the money supply temporarily without a lot of problems.

C (36:33)

I will say that I think that there's an inherent danger to giving the government the power to do even that, even if it's indirectly, because there's very little reason to believe that they're only going to use that power for a legitimate crisis. And while the Federal Reserve is nominally independent and apolitical, the board is appointed by the President, and the president is going to appoint people whose views align with his own. So do I think that temporarily inflating the money supply necessarily leads to long term, decade over decade, compounding inflation? No, but I think it can be a very dangerous precedent to set because governments in general don't like giving back power, and they especially don't like giving back money.

B (37:25)

I get the argument you're making here, but I think that the skepticism regarding the gold standard and growth is apt. I vaguely remember college and high school American history, and it seems like during the height of the gold standard, they were always having panics and depressions and swings, and we've had some hard economic times in the 21st century, but, yeah.

C (37:43)

I mean, I heard about this one guy who lost his job as a Wall street lawyer and now he's doing a podcast or something.

B (37:49)

Yeah, people have really hit rock bottom.

C (37:51)

Know.

B (37:51)

I mean, but just anecdotally, though, I feel like we have more economic stability now. There's no panic of 2008, but there are a lot of panics in the 19th century, unless those were named that way afterwards just to make history books more exciting to read. I don't know.

C (38:05)

Yeah, I think they were probably called the panics at the time. As far as I know, there was no panic of 2008 because the government bailed out the banks. But that's a whole other episode.

B (38:14)

Yeah, with the money printer, though, right?

C (38:15)

With the money printer. The panic observation, though. Yeah, it's a good one. Because in the 19th century, when people lost confidence in banks, a lot of times the banks would close forever and they would never reopen. And there was no mechanism in place to stabilize the system if it tripped.

B (38:35)

But a lot of that has to do with deposit insurance, right? Fdic, all that. If a bank collapses now, your deposits are probably insured, unless you just have a ton of money, which most people don't.

C (38:46)

Yes, but also holding money is only one function of a bank. If all the banks in your town disappear, how are you going to get a loan to start a business? You could start a business without a bank loan, but obviously the liquidity provided by banks is helpful. If they just disappear, that's not good. So panics do have some connection to the gold standard. If there's a lot of importing of foreign goods or American investment abroad, the gold goes with it. You're buying goods from abroad, they're more or less being paid for with American gold, or you're investing abroad, it's more or less being paid for with American gold. And there's only so much money in existence. You can't just want there to be more money and turn on the money printer and there's more money in these situations where there's a trade imbalance, there's less gold domestically, that means less money, that means higher interest rates, that means more business failures, that means more unemployment. So, yeah, they're connected. I am not entirely sold on the idea that there's these like, wizards who can just manage things perfectly. Gold does present a problem, though, and the consequences, at least thus far, have been mitigated by fiat money. We don't have a panic of 2008. We don't have a panic of 1991, don't have a panic of 2000. During this period in the 19th century, America also has free banking. There's no central banking in the United States between Andrew Jackson and Woodrow Wilson, which means anyone can start a bank. Probably state regulations, but yeah, like anyone can start a bank and start issuing notes, and those might be backed by gold, they might be backed by government bonds. Those are the two main things they would have been backed with. They could be backed by railroad stocks, they could be backed with anything. So people at these banks would speculate on railroads, land, commodities, and issue notes on the basis of their speculation. The problem is when these banks, they were called wildcat banks, they would issue more money than they had the gold or whatever else to cover under the assumption that they were going to make up for it later with the return on their investment.

B (41:06)

Oh, man.

C (41:07)

Yeah. Do I need to tell you where this story goes? No, we're good.

B (41:09)

Yeah. The crashes are inevitable at that point.

C (41:12)

Imagine if in 2000, there were banks that were issuing banknotes on the basis of the price of the stock of pets dot com.

B (41:20)

Yeah.

C (41:21)

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 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.

B (41:46)

All right, we're on the Trust Me Bro standard now. Which coincidentally, is also the standard for the advertisements and sponsors of the show. We'll be right back. This episode is sponsored in part by Quilt Mind. If you're not on LinkedIn, you're probably making a mistake. Not because it's so cool, but because it's practical. If you're trying to get hired, recruiters are there. If you run a business, people are absolutely looking you up before they take you seriously. LinkedIn is your built in credibility. This person really exists. Check. But here's the bigger having a profile and never posting. Most people treat LinkedIn like some kind of static resume. The moment you start posting consistently, you stand out, because almost nobody does. Every time I post, I get DMs from people I haven't talked to in years. Like, man, that hit home. Suddenly I'm top of Mind. That turns into intros, partnerships, opportunities. That's not luck, it's visibility. And that's why I use Quilt Mind. They help busy execs get LinkedIn famous. In about 30 minutes a week, I do a quick call. They pull out my stories and insights, turn them into short, punchy posts that sound like me. And they keep me accountable because my default setting is I'll do it later. And you know how that goes. And I'll share stuff there that I don't really talk about on the podcast. So if you're curious, look me up on LinkedIn. If you want quilt mind, email jordanaudianiltmind.com that's JordanAudience. U I L T M I N D com. I've Got Homes.com is a sponsor for this episode. Homes.com knows when it comes to home shopping, it's never just about the house or the condo. It's about the homes. And what makes a home is more than just the house or property. It's the location. It's the neighborhood. If you got kids, it's Also schools, nearby, parks, transportation options. That's why homes.com goes above and beyond to bring home shoppers the in depth information they need to find the right home. It's so hard not to say home every single time. And when I say in depth information, I'm talking deep. Each listing features comprehensive information about the neighborhood, complete with a video guide. They also have details about local schools with test scores, state rankings, student teacher ratio. They even have an agent directory with the sales history of each agent. So when it comes to finding a home, not just a house, this is everything you need to know. All in1homes.com we've done your homework. Thank you so much for listening and supporting the show. All of the deals, discount codes and ways to support the podcast are searchable and clickable on the website@jordanharbinger.com deals now for the rest of Skeptical Sunday. It almost seems like the Great Depression was the end of an era then because 2008 was bad. We all live through it. Even the COVID market crashes had some impact, but there's just been nothing like 1929 since 1929. Right?

C (44:14)

So no. And we're showing our age a little here. I don't remember the 70s and neither do you, which was. That was crazy inflation time. The early 90s recession was pretty rough on my house. It was only like a year ago that I could stomach eating turkey burger again.

B (44:32)

What's the deal with turkey burger?

C (44:33)

It's the taste of my father hasn't worked in a year. Just absolutely reminds me of 1991. Not a fun time to your point. No, there's nothing like the Great Depression in terms of mass homelessness, mass unemployment. But prior to the Great Depression there was an even worse depression that we now know as the Long Depression. Before the Great Depression that started in 1929, this is what your grandparents grandparents would have called the Great Depression. But we now call it the Long Depression.

B (45:06)

Time for a history lesson kids. So tell us about the Long Depression and how it relates to the gold standard. I actually never heard of that.

C (45:11)

I don't think the railroad bubble burst which was the tech bubble of its time. The pets.com backed dollars is like completely accurate. Very good analogy. The stock markets in Vienna and New York crashed together and it spread everywhere. And along with rail, all the businesses reliant on rail expansion collapse. That's steel, timber, coal, big industries prices drop dramatically and this was a deflationary depression where prices dropped.

B (45:44)

I think a lot of people are going to ask why lower prices wouldn't be A good thing because like, oh yeah, let's have a massive deflation and go back to 1980s prices. That's got to be great.

C (45:53)

It's great if you don't have any debt at this time in American history. A lot more people are farmers and farmers have a lot of debt. And so they take out debt when the money is worth more. But they're now selling their commodities at a much lower price. So the debt takes way longer to get out of and it costs a lot more because of all of the compounding interest on the loans. The difference between the Long Depression and the Great Depression is that the Great Depression bottomed and bounced. There was a recession within the Great Depression in 37, 38. The gold bugs blame it on Roosevelt. Other people blame it on the gold standard. The long depression dragged on for over 20 years in some places and prices did not recover until the 20th century. The big difference between the two otherwise is that we think that the Long Depression had peak unemployment at about 14%. The Great Depression it was 25% of the country was out of work.

B (47:01)

So the long depression happened during the era of the gold standard and wasn't as bad as the Great Depression, but dragged on forever. I'm not sure which is worse. I do think it's worth noting that we don't have depressions like we used to. And I think we can't ignore that FDR moved us away from the gold standard, which maybe helped recovery.

C (47:18)

I would say that arming the Soviets and the British in advance of the biggest war in human history might have had something to do with it as well. But the gold bugs predicate their entire argument on the idea that gold is more stable and that inflation, even controlled inflation, is necessarily bad. If nothing else. I think we could look at the long depression and say that those statements are not really true. It's worth noting that the long Depression also follows a lengthy period of loose money. So for many years around and after the Civil War, I think it's about 20 years after the Civil War, America only used whatever is where we get the term greenbacks from. It was paper money is backed by absolutely nothing. It was backed by the full faith and credit of the United States government. And gold bugs will argue the long Depression is just the system correcting itself after returning to the gold standard. They'll point to things like increased domestic investment, increased domestic productivity, higher living standards, a lot of innovation during this period. It's complicated, but again, we just don't see anything like the Great Depression or the long Depression. After going off of the gold standard.

B (48:35)

Are there any fundamental reasons the gold standard is impractical today? Because I just keep coming back to the idea that the world economy has outgrown this. I'd love you to confirm my biases on this. Again, my gut feeling, my feelings, they want to be coddled.

C (48:49)

I got some good news for you, Jordan, because I am about to confirm your biases on this.

B (48:53)

Yes, it's not Skeptical Sunday. Unless you agree with everything that I have come into the episode previously believing. No, that's not true at all. But for this one, I need you to hammer the nails into the coffin of this one.

C (49:04)

So the global economy is so much larger than the gold supply that we have. The nominal value of the world economy is about $115 trillion. The total value of the gold that we have out of the ground is about 28.5 trillion. So that's about a quarter of the global economy. And that is a massive mismatch at scale. So to go back on the gold standard, you might have to revalue gold somewhere between 50 and $100,000 per ounce. Many argue that it would be lower. But the gold bugs generally, their framing generally implies that the price is going to be in that range. And that's great if you got a lot of gold. That's great if you're Peter Schiff and your whole portfolio is gold. For everyone else, it's an absolute disaster. The commodity markets, among other things, would just go into absolute chaos. The other way to go back on the gold standard would be to dramatically reduce the amount of cash in circulation. Most of it's just on ledgers, and now it's not even on ledgers. It's ones and zeros somewhere. But yeah, you don't have to confiscate it and burn it. But reducing the money supply would cause instant catastrophic deflation. Prices would collapse, debts would become unpayable, and international trade would probably grind to a halt, which is very bad.

B (50:30)

Yeah, this sounds like a worse. Now that you've explained it, not a great idea to go back to 80s levels of inflation or the value of the money like it was in 19 days.

C (50:38)

Okay, this is like crossing the streams for the Ghostbusters. This is very bad.

B (50:42)

Yep.

C (50:43)

The entire world economy in 2025 depends on an elastic rate supply of money and credit.

B (50:51)

Would there be winners and losers on a national scale? As in, like, which countries would benefit the most from this and which would hurt the most?

C (50:57)

Trade imbalances turn into gold hoarding. So net exporters are Going to sit on money While net importers bleed it out to everybody else. So to get straight to the point, the biggest winner is probably China. And the United States is somewhere on the short list of the biggest losers. There's also going to be constant liquidity crises. Gold just can't flow fast enough to keep up with the kind of interconnected global trade networks that the world has today.

B (51:29)

And even China's win would be short lived because they'd be like, we're rich. Oh wait, everyone else is poor and nobody can buy the stuff we make anymore. Womp, womp. Now we're poor again. I mean, it would be like overnight it would peak and it would be a precipitous drop. So people are going to go, well, is there not enough gold left in the ground for it to make significant enough impact? Maybe we need an asteroid that's all gold. You ever hear about that where they're like, there's $20 quadrillion worth of gold in the core of the earth? Or like on this asteroid that's a zillion miles out?

C (51:57)

Cool. Gold's worth 50 cents an ounce now.

B (51:59)

Yeah. Problem not solved at all.

C (52:01)

No is the short version. No, we can't just mine all this gold. You'd have to mine it at ridiculous rates. And that would be intensely environmentally destructive. And it would mostly take place in politically unstable areas of the world, which that's not going to be good. It's not realistic that we just mine.

B (52:20)

Our way out of that problem like you just hinted at. Even if an asteroid landed in the Ocean that was 100% gold and it was the size of the empire state building, or all of Manhattan for that matter, Provided it didn't kill everyone by hitting the earth, Then the price of gold drops and now we just have a different problem and you have to choose a different metal or something like that. I don't know. So say I'm not sold on the gold standard, which I'm not. But say that I also want to see some kind of return to the greater fiscal discipline of that era Because I get the main gripe of the gold bug. Central banks can print money at will. There's a whole joke about it. Bitcoiners are always like, ah, printer go brrr. Right? So there has to be an alternative to the gold standard that gives the benefits of harder money without causing constant panics or imploding the global trade network or making it impossible to finance big undertakings.

C (53:04)

This is the question that I kind of arrived at after researching the episode. I Want there to be some kind of guardrails. But the gold thing is like using a sledgehammer to kill a fruit fly. It's not a viable solution to the problem. It's not the complaints of the gold bugs that I take issue with. It's their solution. And they tend to frame their solution as the only one. So what are the alternatives? One is super simple. Better monetary policy rules. This is all very complex math. In theory, you could figure out some very complex formula that scientifically solves the problem. Boy, are the gold bugs going to hate that last statement. But the Taylor rule was one attempt at this. It's a very complex mathematical equation that I didn't even take calculus, so I don't get it. But people can Google it and if they're good at math, they might understand it. What I can tell you is that the Taylor rule influenced monetary policy in the 90s, which was a time of both low inflation and high growth. Which is. That's the thing. I hate to say we all want something, but I feel like I can go out on a limb and say almost everybody listening to this episode is going to say low inflation and high growth. Sounds great. Better monetary policy is not some pie in the sky dream that we can't have. We absolutely can have it and we have had it. Another alternative is to use a peg, but something other than gold or a collection of assets. You could have some kind of index fund or something. Gold energy production has been suggested as an alternative to the gold standard. How much energy people produce. You could somehow peg currencies to that. The actual commodity in question isn't as relevant as having one.

B (54:53)

All right, so the palladium standard it is. You're just looking at something to act as an anchor for the value of money. So gold isn't really up to the task anymore, but something else might be. Okay. What about bitcoin, for example?

C (55:05)

Yeah, Bitcoin has been suggested as an alternative to gold. It's very similar to gold in that it also has a niche fan club of people who desperately need to get more sunlight.

B (55:16)

Yes, we say touch grass and they reply, no, thank you.

C (55:20)

Yeah, the price of gold doesn't crash 10% an hour. Switzerland has a system in place where the government is allowed to go into debt, but the debt has to be paid back in a certain amount of time. I think there's quite a lot to admire about Switzerland. And this is something I didn't previously know about Switzerland that really impressed me because they've got the flexibility, they've got the discipline, they're able to eat their cake and have it too.

B (55:47)

Yes. I'm slightly surprised you didn't come into this guns blazing to talk about how the Federal Reserve is evil and the only appropriate response is to go back to the gold standard. I was actually expecting that in this episode.

C (55:57)

Yeah, man, that's kind of like. I was like, man, I'm going to end up. I'm going to do research this and I'm going to end up being a gold bug. I'm so outraged at our demonic monetary system. But it sounds like the gold standard was abandoned for good reason. And everything in the world is a trade off. So we got, I think, a fair amount of bad. We got the inflation, we got the increased government spending, but we got something that was really good. We got the elastic money supply that could change to meet the demands and the needs of the time. What's the solution? I don't know, man. I'm not an economist. I'm not even good at math. But there is an absolute false dichotomy that the only two alternatives we have are bad fiat money versus the pure and noble gold standard. The argument that because our current monetary policy sucks, that the only alternative we have is the gold standard. This is a straw man.

B (56:57)

What do you think are the chances of one of those alternatives getting adopted during our lifetimes?

C (57:01)

About zero. I think it's one of those things that's. It's not. We're not going to go, oh, this is bad, we should pick something else. It's going to be like, man, everything's broken now. We need to find a solution because that's kind of how people are. But the main takeaway is that I think a lot of people who want a gold standard, it's not really about gold. They just want money that has some kind of value other than being a piece of paper. I think that's a good impulse. But needing it to be gold, it's flawed.

B (57:32)

I see. At the end of the day, the gold standard debate doesn't really seem to be about money. It's about trust. Gold doesn't lie or inflate or depend on the promises of the government. That's what's attractive about it. Not the metal itself, but the sense of certainty that it seems to provide. But the economy doesn't run on nostalgia or good intentions. The contemporary world economy is just too big, too fast and too interconnected for a return to the gold standard. The discipline of gold wasn't without its flaws. And it seems like Pandora's box is open with no real way of closing it. Does that mean we have to keep the current system? No. While it might have its benefits over gold, the real answer might be something that retains the sound money of gold, but allows for the flexibility of fractional reserve banking. There are alternatives to gold that might be able to make money feel as trustworthy as gold used to. Underneath all the technical and historical arguments, what some people are really looking for is a world where the rules don't change based on who's in power. Other people want financial discipline, and the challenge for our times is how to get that discipline without nuking the world economy in the process. Thanks again to writer and researcher Nick Pell for helping me separate the glitter from the gold. Nick, this episode was money. I appreciate it. And I appreciate all you for listening as well. Topic suggestions for future episodes of Skeptical Sunday to me, Jordanordanharbinger.com, and advertisers, deals, discounts, ways to support the show, all@jordanharbinger.com deals I'm JordanHarbinger on Twitter and Instagram. You can also connect with me on LinkedIn. This show is created in association with podcast one. My team is Jen Harbinger, Jace Sanderson, Tata Sidlowskis, Robert Fogarty, Ian Baird and Gabriel Mizrahi. Our advice and opinions are our own. And yes, I am a lawyer, but I'm not your lawyer. Also, we try to get these as right as we can. Not everything is gospel, even if it is fact checked, so consult a professional before applying anything you hear on the show, especially if it's about your health and well being. Remember, we rise by lifting others. Share the show with those you love, and if you found the episode useful, please share it with somebody else who could use a good dose of the skepticism and knowledge that we doled out today. In the meantime, I hope you apply what you hear on the show so you can live what you learn. And we'll see you next time. What if the most powerful painkiller, memory booster and mood shifter wasn't in your medicine cabinet but in your playlist?

E (59:44)

Well, experiential fusion is a term coined by Richard Davidson at University of Wisconsin Madison, who works closely with the Dalai Lama about altered states and meditative states and such. And the idea is that it's sometimes referred to as flow, although it's slightly different. Flow state. You're in the zone if you're a basketball player or if you're a coder. You just lose track of of time. But the experiential fusion that you and I are talking about with music is that under the right circumstances, you forget that you're listening to music. You might even forget who you are. You become one with the experience. There is an evidence base now for music therapies and music interventions. We know that music can affect the immune system in several ways. Listening to pleasurable music can increase levels of immunoglobulin A, an important antibody that travels to the site of mucosal infections.

B (60:43)

And help fights them off.

E (60:45)

We know that music that is pleasurable to you can increase the production of natural killer cells and T cells, also important for fighting disease and infection. Some music can lead to reductions in inflammation. Why music does this and why the immune system responds to it, we don't know.

B (61:07)

But it does for more on how music hacks your brain's chemistry to heal in ways that medicine can't, check out episode 1147 with neuroscientist Daniel J. Levitin.

A (61:23)

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