OK I'll tear it apart.
1. The amount of gold produced every year is less than the amount of other real wealth created every year. Gold is rare and getting rarer and more valuable. That's true not only of its monetary aspects but also of its jewelry and industrial apects. It's a "precious metal." No reason it can't be valued at, say, the price of an equal sized diamond.
2. Say we return to he gold standard. There's no problem if an ounce of gold is redeemed at an astronomical sum,say $5000 an ounce. There's plenty of paper to go around.
3. Historically, the money supply does NOT increease in proportion the creation of real assets, but rather exceeds them. For obvious reasons. Govts improve popularity and distract from domestic ills by fooling people into believing they have more. If all goes well, the populace only realize it on the next guys watch.
4. And that's the rub, isn't it. While we are told that govts are now committed to monetary stability, the ONLY reason for using an unlimited paper money supply is to control and inflate it when necessary. To tax, for example, by "borrowing" trillions in debt and then perhaps "repaying" in deflated dollars. With a constantly fluctuating money supply, it becomes impossible for the market to value anything in relation to the medium of exchange.
This is of course less than perfect.
5. But free markets have been overcoming governmental control in many areas. And so it shall be with respect to the monetary system. What do you think the free market will use? Empiracally, what did people use as a medium of exhange before govt told them what to use? Salt, silver--stuff of value--and more often gold. Not something valueless that anyone can make any amount of. Gold is particulalry useful in this respect because it is permament, durable and of relatively unchanging quantity. My computer chips may be useless when Microsoft moves to Windows 95, and they may make lots of Volvos that I don;t know about, so if I'm trading chips for volvos, gold is an excellent, permanent measure. |
