That is not true. While it doesn't necessarily have to be gold, basing an economy on limited substance like gold causes the value of the money to be driven by supply and demand. It doesn't solve all the problems, but it is a start.
Today we agree that gold is $1000 an oz, tomorrow 5 cents a ton. In any case, there's nothing to keep a gold-based currency from being volatile since a government can simply issue more dollars, pounds or yen than it has gold reserves to back. Gold and silver standards are just psychological ruses.
Today we agree that gold is $1000 an oz, tomorrow 5 cents a ton.
Why sell it to you for five cents a ton when a third person will pay $10,000 a gram? It's hardly a psychological ruse, it is basic economics of supply and demand.
In any case, there's nothing to keep a gold-based currency from being volatile since a government can simply issue more dollars, pounds or yen than it has gold reserves to back.
I never said it wouldn't be volatile. As you clearly pointed out, the amount of dollars in circulation changes each individual dollar's value. We also have to make absolutely certain that whatever commodity is backing the dollar is not sold by corrupt government officials or stolen. However, we also can't just tell the world our currency is worth X amount. We have to have something to back that up. Precious metals are currently of a finite supply, and make a useful measuring stick. As I said before, it doesn't solve everything (or even a lot), but it is far easier to value a currency that way than on the strength of lying politicians and corrupt businessmen, which is how we have been doing it.
What country is going to allow an independent accounting agency to routinely weigh their strategic metal reserves?
A free one.
By consensus of the world .. not just a community. Of Florida wanted to make Sand Dollars their monetary exchange unit then what would Oklahoma use .. Germany???
When we left the Gold Standard we 'had to trust' bankers and the Fed Reserve not to print worthless money. As the chart implies .... they haven't done a very good job of keeping the dollar's earning power up to snuff.
United we stand - Divide and conquer - let Wall Street and the Federal Reserve pick up the pieces.
The gold standard is toast, and can't ever come back. It was restricting the money supply detrimentally with a global population of about one billion. We are working on seven.
If you took the world's gold supply and distributed it evenly, while freezing the population size, You'd have less than a dollar for every person on the planet. Effectively, if you assumed the money supply was simply one years GDP (and it is more) shifting the world to a gold standard would take the value of everything you have, and divide by oh 1,000 at least. I'm being generous
If you think the economy sucks now, imagine shrinking hte money supply at that rate. Our current economic woes are due to growth outpacing the growth of the money supply.
But lets say you did do that. Both the US and China are looking at travel to the moon and mars. The EU as well. Now of a similarly difficult scale, there is a nearby asteroid called eros. It has roughly 20 billion tons of gold in it along with a huge ammount of other material. Estimates of the total reachable available gold on earth are approvimately 525,000 tons.
So slash it by 1,000 then inflate that value by over 40 times. Or simply fight wars over access, and have one nation get to it first and have over 40 times the wealth of the rest of the planet combined.
Also of not e is that the gold standard did NOT prevent the functioning of the fractional reserve system. You STILL had to trust bankers and the government to keep their gold reserves on hand, and the reserves are ALWAYS a fraction of the outstanding debt.
Well I was pretty close! For a while now I have just multiplied what I think something should cost by 10 compared to 1960!!
MacThulhu
The mistake that gold standard folks make is to think that gold's value is any less arbitrary than anything else. Everything is valued by consensus.