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This got me thinking. If our currencies and financial system were completely based off the value of gold and/or other precious metals where the amount on the p

This got me thinking. If our currencies and financial system were completely based off the value of gold and/or other precious metals where the amount on the planet is finite, wouldn't this eventually cause the opposite of inflation where the prices of goods and services go down as less and less gold is available as the population grows? Wouldn't that also mean that wealth inequality and hoarding of gold make things even cheaper as less and less can afford to buy/sell at higher prices?

hydroreadsstuff 6y ago
The rate of new gold being dug up roughly matches global population increase. ~2% p.a.
DrAwdeOccarim 6y ago
Yes, this is part of the reasoning Nixon ditched Bretton Woods and unpegged the dollar from gold.
- alexmingoia 6y ago
  I think it’s worth pointing out that abandoning the gold standard had little to do with gold and everything to do with the practice of fractional reserve banking. The government simply had more foreign dollar debt than they had backed by gold, and foreign governments began to demand redemption of their dollars for gold. It wouldn’t matter what the reserve is, fractional reserve banking inevitably results in bank runs. Nixon had to either devalue the dollar or completely default, and he chose to default and abandon fractional reserve banking altogether (though at the time promised it was only a temporary suspension of gold redemptions).
tomalpha 6y ago
IIRC: Broadly yes. We tried doing this before and called it the Gold Standard[0]. [0] See https://en.wikipedia.org/wiki/Gold_standard https://en.wikipedia.org/wiki/Gold_standard
baconandeggs 6y ago
Prices do go down. Smartphones for example, or clothing, tvs, music and entertainment via netflix, etc. Even food is now more attainable than ever. Technology and efficiencies in production naturally generate deflation, but for some reason governments insist on enforcing an inflationary policy.
- Qasaur 6y ago
  They insist on enforcing inflationary monetary policy because it is thinly-veiled regulatory capture. No matter what the academics say to try and justify it (it is not justified and does not hold up to critical analysis, see the Cantillon effect), inflation is phenomenon that redistributes purchasing power from the people to those who are relatively closer to the central bank and the printing press (they can purchase assets and spend money before inflation hits the rest of the economy).
- deleted 6y ago
  [deleted]
TheOtherHobbes 6y ago
Arguably this is what caused the Great Depression. A Gold Standard artificially constrains the money supply, which leads to a drop in economic activity - often after a bubble. The real problem isn't the amount of money in the system, it's the amount of useful work being done, and the way the gains from that work are distributed throughout the economy. The ideal is a virtuous circle where distributed gains create more activity which creates more opportunity and invention which creates more gains. The current system is based on control of the money supply, and is the opposite of that. Effectively it's just the Gold Standard without the gold. It leads to the same kind of hoarding and rent-seeking, both of which are economically destructive.

hydroreadsstuff 6y ago

The rate of new gold being dug up roughly matches global population increase. ~2% p.a.

DrAwdeOccarim 6y ago

Yes, this is part of the reasoning Nixon ditched Bretton Woods and unpegged the dollar from gold.

alexmingoia 6y ago
I think it’s worth pointing out that abandoning the gold standard had little to do with gold and everything to do with the practice of fractional reserve banking. The government simply had more foreign dollar debt than they had backed by gold, and foreign governments began to demand redemption of their dollars for gold. It wouldn’t matter what the reserve is, fractional reserve banking inevitably results in bank runs. Nixon had to either devalue the dollar or completely default, and he chose to default and abandon fractional reserve banking altogether (though at the time promised it was only a temporary suspension of gold redemptions).

tomalpha 6y ago

IIRC: Broadly yes. We tried doing this before and called it the Gold Standard[0]. [0] See https://en.wikipedia.org/wiki/Gold_standard https://en.wikipedia.org/wiki/Gold_standard

baconandeggs 6y ago

Prices do go down. Smartphones for example, or clothing, tvs, music and entertainment via netflix, etc. Even food is now more attainable than ever. Technology and efficiencies in production naturally generate deflation, but for some reason governments insist on enforcing an inflationary policy.

Qasaur 6y ago
They insist on enforcing inflationary monetary policy because it is thinly-veiled regulatory capture. No matter what the academics say to try and justify it (it is not justified and does not hold up to critical analysis, see the Cantillon effect), inflation is phenomenon that redistributes purchasing power from the people to those who are relatively closer to the central bank and the printing press (they can purchase assets and spend money before inflation hits the rest of the economy).
deleted 6y ago
[deleted]

TheOtherHobbes 6y ago

Arguably this is what caused the Great Depression. A Gold Standard artificially constrains the money supply, which leads to a drop in economic activity - often after a bubble. The real problem isn't the amount of money in the system, it's the amount of useful work being done, and the way the gains from that work are distributed throughout the economy. The ideal is a virtuous circle where distributed gains create more activity which creates more opportunity and invention which creates more gains. The current system is based on control of the money supply, and is the opposite of that. Effectively it's just the Gold Standard without the gold. It leads to the same kind of hoarding and rent-seeking, both of which are economically destructive.