I had the same argument with a liberal corporate attorny. His strongest argument against a gold standared is that, "gold producers or controllers can flood the market. Being on the gold standard puts our money supply at the whim of any other country that controls a significant amount of the world's gold."
I really dont know how to respond to that argument.
I don't think you'll find many supporters of a government-backed gold standard here. Austrians typically believe that money originated from them maketplace, and should be returned to the marketplace. In my opinion, moving the US dollar to a gold standad would be an absolutely terrible idea that would result in all kinds of chaos.
I wouldn't assume that just because gold was the currency of choice in the market 100 years ago, that it would be the currency of choice now.
Goldenboy219:His strongest argument against a gold standared is that, "gold producers or controllers can flood the market. Being on the gold standard puts our money supply at the whim of any other country that controls a significant amount of the world's gold."
A gold producer can certainly flood the market but eventually they would push the price of gold below what it costs them to dig it up and process it so after a while it wouldn't be worth their while to even bother. This is the same fallacious argument they use against monopolizers, they can operate at a loss for indefinite periods of time to kill off all the other competition completely ignoring the fact that a business' primary goal is to make a profit. Yeah, you can make it up in volume I suppose...
A country with significant stocks of gold flooding the market would involve them exchanging the gold for some other commodity so while it may cause temporary inflation in the other countries it would all equal out eventually because it would also cause deflation in their own country. Their exports would be come cheaper and gold would eventually flow back into their country anyway -- this time in the hands of the people instead of a central authority who could practice such shenanigans.
Who would want to flood the market anyway, they would only really hurt themselves in the long run.
Same argument doesn't apply to a non-commodity backed currency -- they can (and will) flood the market because the marginal cost of production is so low it takes a long time to completely devalue the currency. It's already happening today though, they had to change the metal composition of the penny a while back because the copper content was worth more than one cent.
As we know, mining gold is as easy as snapping one's fingers...
http://mises.org/story/2771
Your friend sounds like an idiot.A. He's using an old vulgar type of quantity theory of money. B. He's not taking into account the adjustable price of money, that is its purchasing power in relation to every other good on the market - ala The Value of Money by Benjamin Anderson.
C.
The Origins of Capitalism
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