The gold standard keeps being advocated to me by all corners of the internet. I still think it is useless for a modern economy, and this is why:
Money Supply needs to be controlled to determine the level of risk that should be taken in investments - too much money in the system and bad investments are constantly made (leading to wasted actual resources, like abandoned factories); too little money in the system and good investments are not made (leading to unemployment).
In a gold standard or other commodity standard, money supply is entirely linked to how much of that commodity people are producing and how much gets lost/destroyed/decayed/used up.
The gold standard relies on constant supplies of gold being found and dug up out of the ground.
This works very well when there is a small constant supply of new gold strikes and mining productivity improvements such that more gold constantly enters the market - you get a small but positive inflation value, which encourages people to invest but not too much and makes them happy that their numbers are going up and 'progress' is being made.
(Even when it's working fairly well, you still get occasional abberations like a Gold Rush, where the money supply goes too high as a big supply is found, but not too many of them to cope with and they tend to be local.)
It does not work at all well when the supply of the commodity / gold begins to run out, and suddenly vastly un-environmental behaviour like tearing up rainforests to mine the gold under them is heavily incentivised to keep the good times rolling...
And eventually even that doesn't work, and you are left with a deflationary currency, as gold supplies go out of the system (through being milled into tiny pieces and lost, or hidden by savers who know it will just grow and grow in value).
A deflationary currency means that it's always worth keeping hold of the money you have - so nobody invests in anything, nobody buys anything, and the economy grinds to a halt.
Edit: I got the last paragraph entirely wrong, sorry! I have now fixed it so it says what I meant, which is the exact opposite of what I said before!
Money Supply needs to be controlled to determine the level of risk that should be taken in investments - too much money in the system and bad investments are constantly made (leading to wasted actual resources, like abandoned factories); too little money in the system and good investments are not made (leading to unemployment).
In a gold standard or other commodity standard, money supply is entirely linked to how much of that commodity people are producing and how much gets lost/destroyed/decayed/used up.
The gold standard relies on constant supplies of gold being found and dug up out of the ground.
This works very well when there is a small constant supply of new gold strikes and mining productivity improvements such that more gold constantly enters the market - you get a small but positive inflation value, which encourages people to invest but not too much and makes them happy that their numbers are going up and 'progress' is being made.
(Even when it's working fairly well, you still get occasional abberations like a Gold Rush, where the money supply goes too high as a big supply is found, but not too many of them to cope with and they tend to be local.)
It does not work at all well when the supply of the commodity / gold begins to run out, and suddenly vastly un-environmental behaviour like tearing up rainforests to mine the gold under them is heavily incentivised to keep the good times rolling...
And eventually even that doesn't work, and you are left with a deflationary currency, as gold supplies go out of the system (through being milled into tiny pieces and lost, or hidden by savers who know it will just grow and grow in value).
A deflationary currency means that it's always worth keeping hold of the money you have - so nobody invests in anything, nobody buys anything, and the economy grinds to a halt.
Edit: I got the last paragraph entirely wrong, sorry! I have now fixed it so it says what I meant, which is the exact opposite of what I said before!