Simon_Jester wrote:Not quite that either, I'd say. Capitalism should, in theory, increase the amount of valuable goods in an economy without necessarily increasing the money supply. On a gold-standard economy, capitalism will increase the amount of wealth while keeping the money supply fixed, and you get deflation: money becomes more valuable because there's more for it to buy, unless someone out there is mining gold at a ridiculously fast rate.
Deflation is bad for a lot of things because it means you can literally stick your money in a hole in the ground, wait five years, and it'll be worth more than it was when you started. That's bad for investment, it's bad for people who borrow money... in general, not good.
Capitalism will only produce predictable inflation if there's a way for capitalism to rapidly expand the money supply. Arguably the modern financial sector is guaranteed to do this because of the way loans and leveraging work, I would think, but it's not a strict one for one relationship- we got deflation during the Gilded Age, a period of unbridled capitalism and minimal bank regulation.
What makes the Gold Standard and those who advocate it look even more retarded is that there is simply no evidence that a gold standard without a central bank would bring about a system without inflation (or little inflation).
During the era before the U.S Federal Reserve with the gold standard in place there were regular swings of inflation and deflation. There were also regular bank panics and depressions.
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PainRack wrote:I should probably open up a thread to discuss with this but why the hell are these people so obessed with the gold standard?????
That's their least unreasonable principle. The basic idea is that inflation is either stealth taxation (when the government prints money) or outright theft (when the Federal Reserve does it).
Gold's value is mainly imaginary, though, it's not like it can't become more or less valuable. It's used in circuit boards and it doesn't tarnish, but that's not why it's valuable. There just isn't that much of it and its value lies in tradition, unlike things like food. You'd trade a city of gold for a sandwich if you were hungry.
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