Date: Sat, 10 Mar 2001
Optimum Price of Gold
Thomas M. Miovas, Jr.
In an ideal world that had an exacting gold standard, or better yet, used
gold as money, the relationship between gold and dollars would remain
constant -- but not because gold would be at an optimal price set by the
market or a fixed price set by the government, but rather because a certain
quantity of gold would be called the "dollar." In other words, there would
not be a dollar price for gold -- not in the current usage of those terms.
Just as a twelve inch length of metal (with marks on it) is called the
"ruler," so a fixed quantity of gold (with certain marks on it) would be
called the "dollar." The marks on that piece of gold would indicate the
amount of gold (in units of weight) *and* what it is called (i.e. One
Dollar, Five Dollars, Ten Dollars, etc.).
To make this more clear, these days an ounce of gold is about $300, so
1/300th of an ounce of gold would be called "One Dollar." On one side,
there would be a mark saying "1/300th of an ounce of gold" on the other
side would be a mark saying "One Dollar." From that point on, that
relationship would be fixed in the same way and for the same reason that a
twelve inch length of metal with marks on it is called the "ruler" (or if
you prefer, "the twelve inch ruler").
[Tom Miovas: The issue was raised as to whether or not a particular
quantity of gold would be called "the dollar" as legally set by
the government. In a capitalist governmental system, there would have
to be some sort of established weights and measures to help prevent fraud.
That is, I think it would have to be inforceable by law that 1/300 of an
ounce of gold (in my example) would be called "the dollar" and not 1/100th
of an ounce of gold by some banks and not 1/200th of an ounce of gold by
some other banks; even though the banks themselves would be minting the
gold into coins rather than the government. Otherwise, qua weights and
measures the unit of money ("the dollar") would be arbitrary.]
