William, I have been pondering the narrow question of gold vs. money and money supply for some time, and have reduced this argument to simple terms (the only ones that I can understand) and have drawn a conclusion open for debate.
If we had a dollar 100% backed by gold instead of paper money, new gold or the supply of gold would have to increase constantly (to mantain stable price) as human activity adds value and builds assets.
For example, a building has value equal to the total effort put into it, and in my "100% gold" economy could be converted to gold (as well as all the other buildings now & in the future). If new gold is not found to cover this value, the price of the available gold must rise.
To extend this picture world-wide, then all the gold would be equal to all of man's assets. I can't imagine what the POG might be, and this seems ridiculous.
Limiting gold's role to just "floating" currency or cash also seems impossible as assets can all be converted at some point to cash (or gold) so we have the same problem.
The man who goes out, cuts down trees, hews wood into boards & builds his house rightfully expects credit for his years of hard work. Gold too represents work and effort. It takes much effort & luck and many false starts (as most of us know) to make a mine. Now we have two men hard at work, the builder and the miner, and over a lifetime they have produced an equal amount of value. That is equilibrium, but this arrangement seems unfortunate, having two workers busy when only one has done something "useful". On a worldwide basis, the value of gold is a tiny fration of world assets.
In our present economic system, the supply of money is being continuously increased, adjusted for the growing economy. This seems a reasonable thing to do, again trying to maintain a neutral position.
In conclusion, gold is obviously scarce while money is plentiful, and an attempt to return to the gold standard is not possible unless gold were to rise to impossible values.
Gold therefore remains a valuable and rare commodity with historic and nostalgic links to money. Any attempt to fall back to gold as a substitute currency would send the value to the heavens.
These are just simple general observations with no attempt having been made to quantify my arguments.
Go ahead, tear it apart, tell me I am wrong.
Phil |
