My questions is about the prices if gold was to be used as money. Specifically, would we expect the price of goods and services (in gold) to go up, down, or stay the same if legal tender laws were repealed and people switched to using gold.
For instance, the exchange rate of dollars to gold grains right now is 3.23/1. So if a bottle of water currently costs $3.23 it is also worth one gold grain. If dollars were to fall out of favor and replace by grains would we expect the demand for gold to stay the same and hence the price of the water bottle would remain 1 grain, or would the demand for gold increase significatly driving the price of that same water bottle well below 1 grain? Or is it possible the demand for gold would decrease since people would no longer be holding it as a long term investment driving up the price of that bottle of water?
I'm just having a hard time contextualizing this.
Thanks
At least he wasn't a Keynesian!
Money use is a demand. So, gold would buy more. Like holding dollars when the dollar ends would destroy you, holding gold when it begins would make you.
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Well I take from that one would expect the demand for gold to massively increase which would drive prices of goods and services way down.
A side effect of that would it be to most likely rule out using a unit of weight as the 'name' of the currency as a grain is the smallest unit of weight. Most goods would end up being priced in fractions of a grain. So that water bottle might end up costing .0012 grain. Not that this is a big deal, but its nice to have the currency named after a unit of weight to people don't forget that their backnotes and deposits are in actual gold - like they did with their "dollars".