Gold Standard? Why not something we HAVE already.. Oil!

Gold Standard? Why not something we HAVE already.. Oil!

In a post on Megan McArdle's blog, Why is the Gold Standard Crazythere's plenty of dicussion on the dollar's woes in the international market and how that might have been addressed if we were on the Gold Standard, as Ron Paul proposes.
An interesting throwaway in the comments section got me steaming.
Gold is God's money, he created it and all can access it freely. And he is not making any more.
That's silly. If that's so, let's outlaw trading in gold and let God set his own price for it.
The same can, for practical purposes, be said for diamonds. I mean natural diamonds ARE being made, but no one is waiting around for them.
Anyone want to go on a diamond standard? And of course all gold is not yet found.

It seems to me that using any traded commodity as a backstop presents the same problems. Let's face it, the current PRACTICAL currency backstop is another commodity: OIL.
Everyone who thinks a barrel of oil costs $90 to produce and deliver raise hands. The REAL value is around $25-$30, if I'm not mistaken.

I have a serious question.. when gold and silver were used as currency, what was their actual practical value?
Please name a product that, of necessity, included gold or silver. And no, jewelry and coinage DOESNT COUNT!
I can only think of medical instruments, or containers which needed anticorrosion/antibacterial properties.

The use of those precious metals as actual currency declined at one and the same time as they became necessary in industrial products... in essence, electronics.

Which brings us back to diamonds, considering that world goods production wouldnt suffer a damn bit if all natural diamonds suddenly disappeared in a puff of smoke, we could simply fill the void where they were used in production with different processes or replacements that we have manufactured.
Considering DeBeers, Russia and the difficulty in establishing value, no one in their right mind wants to use diamonds as currency.

Yet we are, in effect, using oil as the standard, and letting trading cartels set the price.

Oil is tied to every indicator of productivity and we shun management of it; while, like Russia with its diamonds, we sit on vast reserves.

Or do we shun management of oil?

I sincerely doubt that we would be talking about the currency's financial distress if oil was trading at its true cost: $35. Which is a propitious number. Because, for the longest time, at the end of the Gold Standard, the set value per oz was.... $35.

But it was a false value. In other countries gold was on the commodities market and the price fluctuated accordingly; which made it REALLY difficult to have a real monetary policy when your currency was based on something with only a virtual value on the one hand but was affected by industrial needs {electronics}on the other.

We have the same problem today. The price of oil is a virtual value.

We could produce and deliver enough oil, from our known reserves, to replace our current imported crude at a cost of $35.

Sure, we ARE managing oil.. only in the wrong direction. The inflated price of oil is being addressed by the proponents of 'manmade global warming' theory.
The remedy there is, of course, to make the backstop commodity obsolete, thus reduce price, in favor of increasing "Human Productivity per bbl Used". Sounds sort of similar to the argument for replacing gold as the standard, doesnt it?

This is a strategy, though, that depends on the demonization of the commodity, sort of like saying "Gold is the instrument of the devil" or gold promotes a deadly disease.
In oil's case, that relies on the literal temperature of the globe and tying carbon to it. If we enter another tangible ice age or cooling, all is lost, and oil is still going to be artificially overpriced.

If we simply opened up all our oil ranges and started producing and setting the price at 'cost plus' in the free market, the price of oil would plummet back down to true value.
And VOILA!!! Suddenly the dollar would regain its 'health' and no one is going to be quibbling much about how much of the currency is held in foreign hands.

Sure there would ALWAYS be a hedge built into the value based on perceived future scarcity, but it would be more wisely addressed at maybe ten percent. And, just as in falling sky predictions of 90 years ago, that 'peak point' just keeps getting pushed out.

It wouldnt kill TRUE development of alternatives, either. There are technologies which can address replacing $35 oil. Of course grain ethanol isnt one of them. And it just might not be profitable to slash/burn eco-forest to grow ethanol beets, either.