The biggest failure of understanding I find among the resurgence of Gold standard supporters is the belief that because precious metals are a finite commodity, that means their value is somehow fixed as well. As though an ounce of gold has a fixed value, almost like a physical property such as mass, density, electrical conductivity, malleability, and so on. This simply isnt true. There is no physical or intrinsic unit of absolute value. Gold is only worth what we all agree it is at any given time. In this regard, it is no different from the fiat currency they wish to replace with it. The fact golds supply is finite (although theres more of it being mined all the time) does not make its value fixed, or even stable. Indeed, golds value has been far more volatile than the dollar, pound, euro, etc for many decades. Because it is a commodity, it is beholden to its own supply and demand pressures which are largely outside the control of governments. Indeed, returning to the gold standard would mean introducing a whole new variable to our money, destabilizing it far more than it is currently, and giving up what control over our monetary policy we have now. History supports this view. Instead of providing stability, the era of the gold standard actually saw much larger and more frequent fluctuations in prices. Compared to the calm stability of around 2-3% inflation since that time, gold was basically impossible to predict or control. That hasnt changed.
Posted on: Sat, 12 Apr 2014 21:53:04 +0000