4 ms·
The supply of gold is irrelevant as long as the above ground gold stores dwarf what is mined every year. A single ounce of gold is theoretically sufficient to
by kingkongreveng_ 17y ago
The supply of gold is irrelevant as long as the above ground gold stores dwarf what is mined every year. A single ounce of gold is theoretically sufficient to run the entire economy. The value of that ounce would just shoot up as the economy grew more productive.
What exactly do you mean by "liquidity needs"? If people need cash they earn it or save it. That cash is supposed to represent real wealth someone saved. If it's printed out of thin air it just represents a theft from people who have actually produced and saved.
- ubernostrum 17y agoThe value of that ounce would just shoot up as the economy grew more productive. Which is a coy way of saying "there would be massive, uncontrollable price swings". With a gold standard and modern economies you don't get wild inflation, but you do get wild deflation, with effects just as bad (since inflation and deflation are isomorphic to each other).
- kingkongreveng_ 17y agoSteady deflation is natural and good. As technology and business grow more productive prices generally fall. Prices fell for most of the 1800s (pre central bank). The problematic deflation associated with depressions is simply the consequence of fiat money credit bubbles collapsing. That deflation is an indictment of artificial interest rates and fiat money.
- ubernostrum 17y agoBut a gold standard, today, wouldn't produce steady deflation, so you're not really arguing with what I said. (a gold standard, in this modern world, would tend to produce periods of wild price fluctuation, ending with a significant deflation from the previous status quo)
- kingkongreveng_ 17y agoYes, gold money would result in steady deflation as the economy grows. We have wild price swings now. Look at chart of any major commodity over the last 10 years. Gold would stabilize it as there would be no hot money flows on a gold standard.
- ubernostrum 17y agoI've explained this before, and probably will have to explain it again: http://news.ycombinator.com/item?id=629390 http://news.ycombinator.com/item?id=629390 If you're right, basic economics is wrong. More likely, basic economics is right and you're wrong.
- kingkongreveng_ 17y agoYou didn't explain anything. Why would the value of a constant amount of money increasing in proportion to productivity growth lead to "wild fluctuations"?
- ubernostrum 17y agoYou seem to take it as given that the opposite imbalance (rapid inflation) would lead to wild fluctuations. I'm inclined to agree, since actual prices do not move in perfect lockstep and there will be a great deal of uncertainty in all markets. But that's the same as an admission that rapid deflation (a necessary consequence of the effectively fixed amount of gold) would do so as well. This is true because, logically, the effects of either type of imbalance should be similar, with the only difference being the direction of the final stable point (up in the case of inflation, down in the case of deflation).
- rsheridan6 17y agoThe US economy grows by about 3% a year, give or take a point. With gold money and a constant supply of gold, I fail to see why this would lead to "wild" deflation. It seems that deflation should mirror economic growth, which is hardly wild.