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To: Ilaine who wrote (63)	3/25/2001 8:16:53 PM
From: Don Lloyd	Read Replies (1) \| Respond to of 443

CB - Let's round off world gold reserves to 1 billion and let's round off the price to $260. Let's assume that there is only one currency in the world so we don't have to worry about foreign exchange. If we decreed that tomorrow every dollar must be backed 100% by gold then tomorrow there would only be $260 billion dollars in the world. If we decided that fractional reserves were ok then there could be as much as $2,600 billion dollars in the world. That's not enough dollars. If gold has intrinsic value, its intrinsic value is $260 an ounce. That's what it sells for in the free market. Inflating the value of gold to match the world's market cap would be a scam. There are at least 3 things in this post that I want to respond to, and another two of your posts as well, but I will restrict myself to the one thing that keeps us at cross purposes all by itself. ...Let's assume that there is only one currency in the world so we don't have to worry about foreign exchange.... No, let's assume that there are no currencies in the world at all. All that exists is actual gold, to start. Dollars do not exist. For the moment, don't worry about the history of how this might have come about, or how we get there from here. Money IS gold. OK? Regards, Don

To: Ilaine who wrote (63)	3/27/2001 3:02:45 AM
From: Don Lloyd	Read Replies (1) \| Respond to of 443

CB - ...If gold has intrinsic value, its intrinsic value is $260 an ounce. That's what it sells for in the free market. Inflating the value of gold to match the world's market cap would be a scam. ... But, neither gold nor any other economic good has an objective or intrinsic value. As you correctly noted in another post, all values are subjective. The subjective value for gold is different for every individual and also different for a given individual at different points in time. It is based on its subjective marginal utility, which decreases as successive marginal amounts of gold owned serve to satisfy successively lower intensity desires. The current $260 market price of gold simply means that, at the margin, the highest bidder is willing to pay less than $260 and the lowest seller is willing to accept no less than $260+. All of the potential buyers and sellers of gold base their subjective valuations of gold on what the marginal unit of gold can do for them. This valuation is subjective, but all of the possible objective criteria of utility that may exist also play a part in driving that subjective value. When we see that gold is at $260 per ounce, that value is a combination of the utility of gold in jewelry, in electronics, and as a medium of exchange and a store of value. If circumstances were to change so that gold were to become the sole basis of money, it would not be a scam for the value of gold to greatly increase, but this would merely reflect the increased utility of gold to serve as a monetary base. As an incomplete and impractical example, assume that you were going to replace all money, foreign and domestic, overnight with gold. How would you determine the replacement ratio while minimizing the change in purchasing power power and the distribution of wealth? One way is to look at each individual's money and ask how many Big Mac's his money can buy in his local area. Do this for everyone in the world. Then distribute all of the available gold in an approximately equivalent way. Let everyone wake up and see how many Big Mac's everyone can now buy. Then put everyone back to sleep and adjust everyone's gold so that anyone who ended up being able to buy more has their gold amount reduced and vice versa. Repeat the iterative process until everyone can buy the same amount as they could before. Subject to all sorts of details, it should be clear that the purchasing power of money has not changed overnight in the conversion to a gold standard. The point is that this will be true no matter how much gold exists to be distributed. It is possible to look back to yesterday and determine how much the dollar price of gold has increased. But, whether it has increased to $500 or $10K an ounce is irrelevant. To a first approximation, the purchasing power of money is unchanged in both value and distribution. Regards, Don