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The Role of Gold in the U.S. Monetary System

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    I'm struggling to understand the following passage in Chapter 4 of Milton Friedman's "Capitalism and Freedom":

    In the second place, the fixed price of gold is the device we have adopted for pegging another set of prices the price of the dollar in terms of foreign currencies and flows of gold are the device we have adopted for resolving ex ante discrepancies in the balance of payments.
  • Center Left Democrat
    Democrat
    Flagstaff, AZ
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    capitalist:

    Welcome to the forum.

    I was an Economics major in college, and I also taught college level Economics courses for 7 years a bit later in my life. The phrase above doesn't make any sense to me either.

    The book you are reading was originally published in 1962, so I wouldn't spend a lot of time trying to make any sense out of it.

    The article posted below explains why the gold standard was first introduced, why it actually made the Great Depression worse, why the Federal Government made the private ownership of gold illegal in 1934, and why the Federal Government decoupled the dollar from gold altogether in 1973:

    http://useconomy.about.com/od/monetarypolicy/p/gold_history.htm

    Friedman is best described as a CONSERVATIVE economist, and many of his ideas have been adopted by conservatives and libertarians. Some of the ideas that he advocated were (1) school vouchers for education (2) a reduction of government spending as part of the economy (3) opposition to fair employment laws (4) opposition of "social responsibility" by corporations (5) a flat tax (6) opposition to Social Security and (7) "the government is the problem":

    http://en.wikipedia.org/wiki/Capitalism_and_Freedom

    It doesn't take much imagination to realize that his ideas have been embraced by the Republican Party, and (in particular) by its Tea Party wing.

    The Tea Party caucus was approved as an official congressional member organization in July of 2010, and included 66 members (48 in the House and 18 in the Senate), all of whom are Republicans. Not long after its founding member, Representative Michelle Bachmann (the Queen of Crazy) announced her decision not to run for another term, the caucus went into decline, and was considered defunct as of October 2013. The ideas held by this group (many of whom are still in Congress) have meant that the 112th and the 113th Congresses are the least productive in our government's history. The government shutdown engineered by Tea Party Senator Ted Cruz cost the government $24 billion in a 16 day period.

    http://en.wikipedia.org/wiki/Tea_Party_Caucus

    Like Pat Robertson, Mr. Friedman is the source of a lot of wacky quotations. The conservative publication Townhall.com published "the 10 best" in November of 2011. Here are two that will make you scratch your head:

    "If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand."

    "I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible."


    http://townhall.com/columnists/johnhawkins/2011/11/29/10_of_the_best_economics_quotes_from_milton_friedman/page/full