Gold Standard and Deflation: A gold standard is not supposed to produce a rising currency value. It is supposed to produce a currency of stable value one that neither rises nor falls. The World Gold Council has produced a paper which studies long-term price trends, called “Gold as a Store of Value: Research Study No. 22,” by Stephen Harmston. It has data from 1596 to 1971 in Britain. These are basically commodity price indexes, because those are the only price series that we have going back to 1596. What it shows is basically a flat line. From end to end, commodity prices (compared to gold) actually go up a little bit over the time period, denoting an inflationary rather than deflationary long-term trend. However, the difference is so small that it can be considered statistical noise. In essence, the price data shows that gold is indeed stable in value, as much as anything can be over a four-century period. Sometimes people say that economies have a “deflationary trend” with a gold standard. What they seem to mean by this is that many goods and services become cheaper in price over time. For example, computers are much cheaper today than they were thirty years ago. This is due to advances in technology and processes, not any sort of monetary distortion. At the same time, other things–notably urban real estate and wages–tend to go up in value over time, reflecting the increasing societal wealth that tends to happen with a gold standard system. Both are natural occurrences when you have a currency that is stable in value. The second notion is that a gold standard system causes economic contraction and decline. Well, does it? After 182 years of a gold standard system, did the United States have a larger, or smaller economy? In 1790, the population of the United States was 3.9 million, and there were thirteen states with an economy based on subsistence farming. In 1970, the population was 203 million, with 50 states and the most advanced, wealthiest industrial economy the world had ever seen. forbes/2011/07/22/gold-standard-deflationary.html
Posted on: Mon, 26 Jan 2015 00:21:46 +0000
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