Ric, who you should be reading regularly, expounds on the idea that all economic systems are “a house of cards.” However, what got me thinking a little bit is the following related to using the gold standard rather than fiat money:
… Gold is no less (and no more) a “card” to build houses of than anything else — it’s dirt, stuff dug up out of the ground that we agree is valuable. It’s scarcer than iron, and prettier; you can make jewelry out of it, and coils, and pound out gold leaf to cover the domes of churches and Rathausen, but in the end it’s just something that was lying around on the deserted island when we turned up.
His point here, and I agree with it, is that gold has no intrinsic value. In that it is much like anything else in this world. I don’t know who said it first, but always remember, nothing is worth more than what someone else will pay for it.
Of course, there are possessions most of us have which we value much higher than someone else would pay for them, and that’s fine. That doesn’t mean those things actually have that value.
The reason this is important is that there are a lot of people who think that if we went back to the gold standard money would be more stable, or worth something, or whatever. Nope. I don’t think it would be any different with a gold standard than it is with the current method of fiat money, whose only value is the country’s ability to deliver on the debt it implies.
I don’t see how we can have an expanding population and an expanding economy without an expanding money supply. Wealth is created every day from the work of people, and the amount of wealth and people increases every day. If the money supply is fixed, as I think people would expect under a gold standard, then money itself becomes rarer over time because it cannot keep up with increasing wealth and an increasing population. This could only mean that the value of money would increase over time, as it is with all commodities that have a rising demand and a fixed supply. This might be good for those who have money, I guess, but it would also be completely artificial. The result would most likely be a creation of new markets not based on the dollar. Otherwise, I would expect that the dollar would be officially devalued with respect to the amount of gold it could buy on a regular basis to keep up with demand, which is pretty much the system we have now with gold stuck in the process.
To me it would make almost as much sense to just create a big block of something called unobtanium and declare it to be worth 20 trillion quatloos and then use those valuable quatloos to make our exchanges for goods and services. It wouldn’t matter what unobtanium was made from, as long as we all agreed it was valuable.
Or perhaps we can go on the “hope diamond” standard. I’ve heard it called priceless, and it certainly is the only diamond like that in existence. We could use that for the unobtanium.
Governments have too much power, and can become reckless with that power. A gold standard won’t stop them from spending too much or inflating the currency (as the Fed will have to do eventually to cover the runaway spending going on) or doing other evils. The only way to end it is to figure out who the bad guys are and vote them out.