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Actually it's quite easy to have inflation with a gold standard. As soon as you dig up a single ounce of new gold, you have inflated the money supply a little.

Actually it's quite easy to have inflation with a gold standard. As soon as you dig up a single ounce of new gold, you have inflated the money supply a little. So instead of having the central bank control your inflation rate, it is controlled by the gold mining companies of the world. That may not necessarily be worse depending on how much you trust the central bank, but it's hardly better. Of course, if we didn't want our money supply to be determined by gold miners, we could pick another arbitrary commodity like oil or coal. I'd go with coal, since we have a lot of that. But then again, once you have the power to dig up more, you have the power to inflate your own currency again. Might as well skip the digging (and all the environmental abuse that entails) and just adjust the supply on paper like we currently do. This is treated really well here: http://www.optimist123.com/optimist/2007/05/sound_money_ver.html http://www.optimist123.com/optimist/2007/05/sound_money_ver.... This article points out (rather obliquely) that ideally you'd want to grow money at the same rate that GDP grows (assuming constant velocity of money). That is really hard to do obviously. If you rely on the gold standard, you have to attempt to add gold to the world supply at a specific rate. I'm no miner, but I'd imagine production levels are hardly constant from year to year. (Not to mention that, due to geology, we'd have to rely on other countries to do so, notably Russia and South Africa.) If you rely on fiat money, you thankfully don't have to actually produce anything to increase the supply, but you do have to spend a lot of time deliberating over how much to do so. Deflation would be really bad in a debt driven economy like we have, since it increases the burden of debt-holders, so central banks err on the side of moderate inflation. If they could get it perfect, that would be awesome, but so far they can't so they choose the lesser of two evils.

gibsonf1 17y ago
Hmm, you may want to compare the total amount of known gold to the potential new gold brought in by miners. You may find that new gold accounts for a fantastically small percentage of the total. Compare this, on the other hand, with paper. How easy is it to double the money supply or more in a very short period. There simply is no way to underestimate the stability you get with a gold standard. Please refer to the money supply stability during the period of the gold standard in the US - history speaks for itself. http://en.wikipedia.org/wiki/Gold_standard http://en.wikipedia.org/wiki/Gold_standard
- Retric 17y ago
  Less than one percent of the gold on the earth has been mined. However: The total amount of gold that has ever been mined has been estimated at around 142,000 tonnes.[12] Assuming a gold price of US$1,000 per ounce, or $32,500 per kilogram, the total value of all the gold ever mined would be around $4.5 trillion. This is less than the value of circulating money in the U.S. alone, where more than $8.3 trillion is in circulation or in deposit (M2).[13] Therefore, a return to the gold standard, if also combined with a mandated end to fractional reserve banking, would result in a significant increase in the current value of gold, which may limit its use in current applications.
  - gibsonf1 17y ago
    You are avoiding the issue of how difficult it is to dig up gold vs. print money. At $1000/ounce, that is a pretty big incentive to dig for gold now, so why aren't people dumping it on the market? Do you know of any examples of hyper-inflation with a gold standard? If we return to a gold standard, the value of a dollar would change from the current situation, and then hold steady. How is this a problem? Does it make sense to value current dollars in gold equivalent now as a premise for an argument on the "value" of the money supply? This sounds like a non-sequitor to me. The gold standard removes the most pernicious and powerful way for the government to take our money, inflation. It is happening now at a rate faster than ever in US history. http://bloomberg.com/apps/news?pid=20601087&sid=aIeLg1djbBps&refer=home http://bloomberg.com/apps/news?pid=20601087&sid=aIeLg1dj...
    - Xichekolas 17y ago
      And you are avoiding the issue that the Gold Standard removes a lot of flexibility in monetary policy, and buys you zero protection from manipulation. There are numerous points in history that the US Gold-backed currency was manipulated. During WWI, it was suspended twice. In fact, gold standards are regularly and habitually suspended in times of war. (Ideally, once reinstated, a deflationary postwar period would counter the inflationary period during the war, but there is no rule saying the standard must be reinstated at the same notational value, so this is wishful thinking.) During the depression, the Gold Reserve Act reset the value of gold from $20.67/oz to $35/oz, effectively devaluing the dollar against every other gold-backed currency (inflation), and, to quote wikipedia "the higher price increased the conversion of gold into dollars, allowing the U.S. to effectively corner the world gold market". So the government can still manipulate the value of it's currency at will, simply by changing the redeemable value of it's notes. This is on top of the possible manipulation by private parties (mining companies) and other governments (nationalized mining companies) that I have already pointed out.

gibsonf1 17y ago

Hmm, you may want to compare the total amount of known gold to the potential new gold brought in by miners. You may find that new gold accounts for a fantastically small percentage of the total. Compare this, on the other hand, with paper. How easy is it to double the money supply or more in a very short period. There simply is no way to underestimate the stability you get with a gold standard. Please refer to the money supply stability during the period of the gold standard in the US - history speaks for itself. http://en.wikipedia.org/wiki/Gold_standard http://en.wikipedia.org/wiki/Gold_standard

Retric 17y ago
Less than one percent of the gold on the earth has been mined. However: The total amount of gold that has ever been mined has been estimated at around 142,000 tonnes.[12] Assuming a gold price of US$1,000 per ounce, or $32,500 per kilogram, the total value of all the gold ever mined would be around $4.5 trillion. This is less than the value of circulating money in the U.S. alone, where more than $8.3 trillion is in circulation or in deposit (M2).[13] Therefore, a return to the gold standard, if also combined with a mandated end to fractional reserve banking, would result in a significant increase in the current value of gold, which may limit its use in current applications.
- gibsonf1 17y ago
  You are avoiding the issue of how difficult it is to dig up gold vs. print money. At $1000/ounce, that is a pretty big incentive to dig for gold now, so why aren't people dumping it on the market? Do you know of any examples of hyper-inflation with a gold standard? If we return to a gold standard, the value of a dollar would change from the current situation, and then hold steady. How is this a problem? Does it make sense to value current dollars in gold equivalent now as a premise for an argument on the "value" of the money supply? This sounds like a non-sequitor to me. The gold standard removes the most pernicious and powerful way for the government to take our money, inflation. It is happening now at a rate faster than ever in US history. http://bloomberg.com/apps/news?pid=20601087&sid=aIeLg1djbBps&refer=home http://bloomberg.com/apps/news?pid=20601087&sid=aIeLg1dj...
  - Xichekolas 17y ago
    And you are avoiding the issue that the Gold Standard removes a lot of flexibility in monetary policy, and buys you zero protection from manipulation. There are numerous points in history that the US Gold-backed currency was manipulated. During WWI, it was suspended twice. In fact, gold standards are regularly and habitually suspended in times of war. (Ideally, once reinstated, a deflationary postwar period would counter the inflationary period during the war, but there is no rule saying the standard must be reinstated at the same notational value, so this is wishful thinking.) During the depression, the Gold Reserve Act reset the value of gold from $20.67/oz to $35/oz, effectively devaluing the dollar against every other gold-backed currency (inflation), and, to quote wikipedia "the higher price increased the conversion of gold into dollars, allowing the U.S. to effectively corner the world gold market". So the government can still manipulate the value of it's currency at will, simply by changing the redeemable value of it's notes. This is on top of the possible manipulation by private parties (mining companies) and other governments (nationalized mining companies) that I have already pointed out.