Ron: I strongly disagree with the notion of inhibited economic growth as a result of a gold standard:
<<"pegging paper currency to gold means that the global economy grows only has fast as the gold can be mined from the ground">>
This is a mistaken notion, propagated by Monetarist theory. Relating economic growth with the growth of money supply as this empirical theory does is false in the causal sense.
True economic growth (not fiat money measured GDP etc.) takes place by way of population growth, gains in organizational and technological efficiency and in the proving of ideas which benefit mankind.
That this growth takes place as a result of an exchange of money is only incidental. Funding new endeavors should be the result of the accumulation of profits together with enlightened entreprenural risk taking. Creation of fiat can fund such endeavors, but more often than not, results in a misallocation of capital and inflation with all its consequent ills, as the present day worldwide credit bubble amply demonstrates.
A healthy economy, in fact, has falling prices as a result of the above mentioned economic factors, together with a relatively stable money supply. An unhealthy economy is characterized by monetary inflation and/or deflation brought on by a meltdown of debt as a result of a previous inflationary monetary policy.
There is some risk in a gold standard, for example,
1) if gold supply grows too fast then monetary inflation can result as Europe in the 1500s found after pillaging New World gold, and
2) gold rich countries have natural political and economic advantages.
Moreover, there is risk if the private creation of credit is unrestricted and not tied to gold.
Thanks, I enjoy your posts.
Bob |
