David,
The problem that you and so many other gold standard enthusiasts seem to suffer under is the delusion that artificially setting a value on a physical object will solve the world's economic ills.
But all you're doing is tying paper currency to that object's artificially established value. The fact that gold was priced at $35/ounce for the longest time ignored the actual commodity value it might have in its industrial use or as jewelry.
Gold is nothing more than a broken crutch for those who can't muster enough independent brain cells to realize that it's plainly ridiculous to tie the growth of an economy to its possession of a quantity of metal, no matter how pretty or precious.
An economy, put very simply, is a system wherein people generate wealth by borrowing against future earnings (from whatever source), or take an unfinished asset/commodity and make something of increased value (that people will either buy with cash or go into debt to obtain). When someone takes on a debt, they have an obligation to pay that debt back over time. Meanwhile, the money supply is increased and the product that is purchased is added to gross domestic product. Brick by brick, piece by piece, all of this adds up to the economy.
Again, an economy is a system wherein wealth is derived through the use of debt against future earnings.
It does not matter whether the currency that is utilized is gold backed or Fiat since it all depends on maintaining a financially liquid equilibrium where debtors are not pushed to such an extreme that they default enmasse, nor is a moral hazard created through overly loose lending practices that create the perception that too much money has been issued on too easy of terms. Again, this a grossly oversimplified definition of "economy".
That is the heart of any financial system David. People used Gold in the past because they didn't have computers or instantaneous quotations on the value of their assets, nor the ability to transfer those assets from one storehouse of value to another.
The value of gold has ALWAYS BEEN AN ARTIFICIAL ONE. The US pegged the dollar against an ounce of gold at a 35 to 1 ratio at Bretton Woods. It was a manmade standard and had nothing to do with the actual market value of gold (but that didn't matter since Roosevelt had confiscated everyone's gold in the '30s).
They needed gold as a crutch in order to create an artificial standard against which to peg each other's currencies and create stability in a market that didn't have the ability to react almost instaneously as we have now. If anything, it was a perception of stability in a world that was ravaged by world war and had just came out of the worst depression in memory.
Regards,
Ron |
