WSR -
...But I must respectfully disagree with you about fiat currency and the gold standard. Look, as I see it there is only so much gold in existence but as mankinds numbers (and his productivity and economic activity) increase over time then a diminishing amount of gold would be available for each individual (and to reflect each economic activity). Some medium of exchange that can be regulated (usually expanded) to meet current need is necessary; hence "fiat currency". ...
This is economic nonsense. The gold standard would work exactly as well if it were 10X or 1/10X as abundant. The issue is the rate of change of availability. If new gold were to be added to the market at a high rate, the same inflation of all prices that results from fiat money creation would occur when all prices were denominated in ounces of gold.
Any specific amount of gold is perfectly capable as serving as the medium of exchange and as a store of value, subject only to the practical issue that it could either be so valuable in exchange that normal transactions would require quantities of gold atoms, or of so little value that tons would be needed for daily transactions. But even these issues go away if trusted, fully convertible and fully backed, gold certificates of arbitrary unit size are available.
All economic goods, including gold and all types of money, derive their value from the aggregated subjective marginal utilities of consumers and all other economic actors, and are subject to the economic law of diminishing marginal utility as owned quantities increase.
There is no such thing as an intrinsic economic value for any good, including gold. All economic values are subjective.
As a free market capitalist economy advances, the ongoing increases in unit productivity drive prices down through the agency of competition in all markets. Thus, the goods exchange rate of gold would vary to simultaneously track changes in product costs, changes in population and changes in the supply of gold, all interpreted subjectively by market participants. The number of ounces of gold required to exchange for a loaf a bread would continually change to balance the production efficiency of bread, the supply of gold and the population over which the ownership of gold is distributed. The significance of the gold standard is not that it has a constant exchange value, which it does not, and cannot, but rather that it is relatively immune to politically-inspired supply variations.
Regards, Don |
