Making an inelastic resource (gold) the unit of exchange in a growing economy is a recipe for deflation. You don't want the most economically sensible decision to be holding onto capital, since that results in precisely nothing useful being done.
This seems to be an orthodox opinion I see often, and I get the intuition. But time preference is a real thing. Tech is the easiest example. People buy tech that they don’t need that will be significantly cheaper in the future. I’m not a historical expert, but this specific point didn’t seem to be an issue during the time periods we were on the gold standard.
Having lived through the 1990's, "Deflation = bad" is a claim I am very skeptical of.
In the 1980's and 1990's computer industry, your dollars could buy a lot more megahertz or megabytes every year.
If the "deflation = bad" people were correct, everyone should have held onto their dollars waiting for next year's tech, knowing it would be a lot better than this year's tech. No one should have wanted to buy computers, and the tech industry should have been in a gigantic depression.
There's a difference between deflation due to productivity growth and deflation due to lack of money. Deflation is good if it's the result of us producing more of a thing better and thus driving the price down.
Broad-based deflation due to a lack of money to buy goods and services is bad.
Deflation is fairer and reduces moral hazard in finance.
The weak point of gold is that it’s too slow to settle transactions (you have to move it), so a paper gold system on top of it inevitably arises.
[0] “broken money” by Lyn Alden
Deflation (defined as, the value of the currency goes up with time) means that prices go down with time. This however tends to accumulate wealth and not have it move around in the economy (it being more remunerative to hold on to your currency because its value increases). This makes it harder to run an economy because eventually, with a fixed supply, all the currency gets hoarded and only a bare minimum circulates to buy essentials.
A little inflation means that your currency buys stuff _today_ that's worth more than hoarding it for _tomorrow_, so you spend, vitalizing the economy.
The reality is, it needs to be balanced. There needs to be enough money in circulation such that economic activity is not stymied, but not so much that it starts price wars.
Currency inflation leads to unfair distribution because the value of financial assets grows faster than the real economy (it inflates).
Currency deflation benefits the poorer. As technology and productivity grow, it costs less to produce goods, so their prices should decrease.
The currency hoarding behavior that you describe is no different than today’s financial investment.
It is trivially easy to avoid the effects of inflation by investing - if you have assets to invest, that is. But if you live month to month, you get screwed by inflation, because your salary is sticky as prices rise.
What if everybody's correct in some way and things like this are so uncertain simply because a "consumer" economy no longer bears much resmeblance to a "producer" economy.
The United States tried this as a multi-decade experiment in the late 19th century. Greenbacks were taken out of circulation in order to increase their value in comparison to gold. It led to tightening of credit and was a drag on investment. Workers most frequently struck due to wage decreases. Farmers and other small business owners would frequently be unable to expand due to credit being unavailable.
The United States has attempted several times to use a gold standard. However, it results in unacceptable outcomes every time. In the 1970s, President Nixon led the US to leave the Bretton Woods system of fixed exchange due to trading partners converting excessive amounts of gold (specie). It has been found time after time that central banks need to adjust the value of their currency to account for financial shocks with countercyclical monetary policy.
US is prosperous because it produces the world currency. Need to buy steel? Just print more dollars and buy it from any other country. Need to buy food? Ditto. Need to buy brains? Ditto.
No working is required, when you can print any amount of currency and can buy anything from any part of the world with it. Yes, printing speed up inflation a bit, but unlike in any other country of the world, when US is printing dollars, they spread the effects of inflation on all of the world: US becomes richer and all other countries a bit poorer.
This is why linking dollar to the gold would kill US prosperity. Also, one reason is why US is so heavily militarized and is fighting wars all over the world: you need to constantly threaten all the world so that they can't even think of choosing any other mean for world trade other than dollar.
> This is why linking dollar to the gold would kill US prosperity. Also, one reason is why US is so heavily militarized and is fighting wars all over the world: you need to constantly threaten all the world so that they can't even think of choosing any other mean for world trade other than dollar.
Bingo ! Many people conveniently overlook this reality. Most countries don't simply choose to trade and hold USD because it's the most stable currency pegged to a stable, rationally driven economy. No, it's because if they choose not to, they suddenly become a "nuclear threat to world peace" and we magically find non existent WMDs. It's a bullying tactic.
Making money with money (a.k.a. finance) existed long before fiat currency, you can't get rid of it by going to the gold standard. It would be much more effective to ban speculation in investment markets (calls and puts).
