Interesting to see the periods of deflation in the 1800’s.
I believe the US was on a mixed gold and silver standard at the time and they periodically ran into silver production issues.
I believe the US was on a mixed gold and silver standard at the time and they periodically ran into silver production issues.
It was just as terrible as one would think. In surplus years, a family could spend their life savings on essentials to get them through the next season, to be left with nothing when prices spiked the next year.
https://www.federalreservehistory.org/essays/gold-convertibi...
I think this is one of those correlation-and-causation issues.
An awful lot of countries on commodity-based currency also didn't last. Most of them, in fact.
However, today, we have more economic activity than we have gold. If we went back to gold standard, we’d either literally not have enough money, or the price of gold would be artificially inflated far above its current free market valuation.
Not to say that the deficit isn’t a ticking time bomb, but we need another solution for politically expedient overspending.
Don't want to engage in the broader debate, but you do realize that gold is fungible and able to broken down into very small pieces? Are you familiar with the term reserve banking? The gold standard doesn't mean you make transactions with actual physical pieces of gold. It means financial institutions have to hold physical gold reserves relative to the money they issue. Also that the base money supply (MO) is a very small fraction of the money used in the economy. https://en.wikipedia.org/wiki/Money_supply
Some quick googling tells me the total value of all gold on the planet is 187000 tons x 35273 fine ounces per ton x USD 1897.93 per fine ounce = 12.5e12, ie, USD 12000 Bn. Sounds great, that’s a lot of money. But it’s not annual production, it’s total amount mined so far in human history.
However, according to [1] the global GDP last year was USD 84537 Bn. That’s annual economic activity.
So there’s no hope in hell that we could produce enough gold every year to represent all the economic activity.
[1] https://www.statista.com/statistics/268750/global-gross-dome...
Your example of GDP is a flow. Gold in tons is a stock. Never compare a flow to a stock https://en.wikipedia.org/wiki/Stock_and_flow
The next concept to learn is velocity of money. https://en.wikipedia.org/wiki/Velocity_of_money
Your base gold supply + your extended money via credit can circulate an unlimited amount of times to support the transaction volume needs of the global economy.
What you describe, base gold supply + credit, implies fractional reserve banking. As soon as you have a fractional reserve, the gold standard promise no longer holds. The question becomes - what level of fractionality is acceptable? And who decides that, the government? What stops them from decreeing that one ounce of gold now represents a billion dollars and letting the printing press fly?
(In fact, this is precisely what did happen. Look up the historic value of the British Pound. Gradually got watered down over the centuries as I described.)
If the government can make up the fraction they want to use, let’s just skip the extra steps and let them make up the amount of money they want to print directly.
Ultimately you can’t get away from the fact that we’re creating a hell of a lot of economic value every year and we’ll never dig up gold at the same rate, probably ever.
We still had private currencies in 1900's, where the issing bank would go bust and the paper woupd become worthless.
If you want to stop politicians from overspending, then stop politicians from overspending. Don’t insist on using an arbitrary element as the reference point for all value.
You might as well have a currency backed by CPU hours or bowls of petunias or live Gregorian choir performance tickets.
I don't think we are overspending at all acutely, I think we should be spending a lot more on the real economy instead of inflating unproductive asset bubbles, life we've been since the 70s.
I think currency is just an institution, it's no different from parliament or the catholic church, it runs only on faith. If tomorrow everyone looses faith in it, it disappears.
Same with gold, at least in terms of its value
Remember, for each fiat dollar there is one dollar of debt. If companies, rich people, the government or foreign nations don't have the debt then you and your fellow people must have that debt. A government with a surplus is a basically rich man "hoarding" his money (0% interest is almost equivalent to hoarding). Creating debt is a prerequisite for increasing the money supply, the same way buying or mining gold is a prerequisite for a gold backed currency. The inability to create enough debt is preventing wealth from being created.
In a gold standard the currency used would still be the dollar, just backed by gold, so the FED would be able to print it into the dust just the same. The money supply could still expand just as it does now to accommodate for growth, but the main difference is the rest of the world wouldn't be subsidizing the US any longer.