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To: Ilaine who wrote (57)	3/23/2001 1:15:49 AM
From: Don Lloyd	Read Replies (1) \| Respond to of 443

CB - Mike, if we decided to, and were able to, put the world on a gold standard tomorrow, the amount of gold is finite. Human production is not finite. At some point, the amount of gold would not be enough to back world gross production - assuming it even is. My understanding is that there are that there are roughly $1.3 trillion troy ounces of gold in the world today. If we peg the world's currency to $1.3 trillion troy ounces of gold, then one of three things must happen. Either the amount of gold increases, or the world's supply of what you call backed money no longer increases, or the ratio of money to gold changes. If the world's supply of gold does not increase, and the ratio of money to gold increases, at some point in time there will no longer be what you call good backing for the currency. If the world's supply of gold does not increase, and the ratio of money to gold does not increase, then the money supply will not increase. Is it really true that no matter how much work people do and how much value they add to the economy, there should only be the same amount of money? Your worries are misplaced, but natural. If the world were based on a 100% gold standard, there would not be any requirement for any national currencies. What there would be is actual gold coins, 100% backed gold certificates issued by actual holders of reserve gold, and non-gold token coins which are really just small value certificates printed on metal. All certificate and token values would be denominated in ounces of gold. Any reasonable amount of gold can support any reasonable amount of economic activity. Monetary gold serves two uses. One is as a medium for indirect exchange and the other is a mechanism of holding or hoarding money for future purchases or investments. With everything else being equal, changes in the amount of gold will be compensated for by changes in the purchasing power of an ounce of gold, although it will do so in a very complex way that depends in part on the distribution of ownership of the new gold. Changes in the demand for monetary gold, if there were no change in supply, would also change the purchasing power of an ounce of gold. While this may sound as if it will cause unstable pricing of goods in terms of ounces of gold, it needs to be compared to all other monetary mechanisms over time, to which it would compare very favorably. What is not generally realized is that there is NO possibility, even in theory, of any monetary system having the property of stable purchasing power, or even being able to measure it. Regards, Don

To: Ilaine who wrote (57)	3/23/2001 1:29:51 AM
From: JF Quinnelly	Respond to of 443

We ran into a problem of this sort in the late 50's, early 60s, when the number of dollars held in Europe began to exceed the gold we had to back it. This was called "the Triffen Dilemma" I believe, I read about in a book by Paul Volker. One result was that the French began exchanging their dollars for gold, we began to suffer an inflation (which is why we dropped silver coinage in 1965) we starting running an odd two-tiered gold market, and eventually the entire Breton Woods construct collapsed with Nixon closing the gold window in 1971.