Financial Collapse and Energy - Something Other than a NINJA Problem
theoildrum.com
theoildrum.com
The real relevance of time/effort value is this: farmer doesn't pay 1 basket of eggs (6 hours work) for a chair b/c the carpenter spent 6 hours on the chair, he pays 6 hours of work b/c he couldn't have built a nice chair in 6 of his own hours (and there's nothing else he wants/needs more at the moment that he could get with 1 basket).
Commerce has never required anyone to believe (though some may have believed) that a chair was worth a basket of eggs in carbon footprint or in the eyes of God, only that the chair is worth the eggs to me, the farmer.
At least with paper money, its value is usually your own fault.
The other problems with gold is you often have deflationary pressure as when it's value increases (which is unbelievably bad) and inflation whenever large new supply's come on line. Also once you start using gold as a currency it becomes far more expensive to use it for other things like a non corrosive conductor.
Also, due to the increase in global weath every year we need a currency that increase in supply to keep up. Otherwise you get deflation which can happen with gold and distroyes the ability to lend and borrow. Not to mention the fact that their is not enough gold in the world to replace the USD without dramaticly increasing it's value.
PS: You can also see significant inflation with gold for a long term historical example look at spain after the new world.
So instead of having the central bank control your inflation rate, it is controlled by the gold mining companies of the world. That may not necessarily be worse depending on how much you trust the central bank, but it's hardly better.
Of course, if we didn't want our money supply to be determined by gold miners, we could pick another arbitrary commodity like oil or coal. I'd go with coal, since we have a lot of that. But then again, once you have the power to dig up more, you have the power to inflate your own currency again. Might as well skip the digging (and all the environmental abuse that entails) and just adjust the supply on paper like we currently do.
This is treated really well here: http://www.optimist123.com/optimist/2007/05/sound_money_ver....
This article points out (rather obliquely) that ideally you'd want to grow money at the same rate that GDP grows (assuming constant velocity of money).
That is really hard to do obviously. If you rely on the gold standard, you have to attempt to add gold to the world supply at a specific rate. I'm no miner, but I'd imagine production levels are hardly constant from year to year. (Not to mention that, due to geology, we'd have to rely on other countries to do so, notably Russia and South Africa.) If you rely on fiat money, you thankfully don't have to actually produce anything to increase the supply, but you do have to spend a lot of time deliberating over how much to do so.
Deflation would be really bad in a debt driven economy like we have, since it increases the burden of debt-holders, so central banks err on the side of moderate inflation. If they could get it perfect, that would be awesome, but so far they can't so they choose the lesser of two evils.
However:
The total amount of gold that has ever been mined has been estimated at around 142,000 tonnes.[12] Assuming a gold price of US$1,000 per ounce, or $32,500 per kilogram, the total value of all the gold ever mined would be around $4.5 trillion. This is less than the value of circulating money in the U.S. alone, where more than $8.3 trillion is in circulation or in deposit (M2).[13] Therefore, a return to the gold standard, if also combined with a mandated end to fractional reserve banking, would result in a significant increase in the current value of gold, which may limit its use in current applications.
If we return to a gold standard, the value of a dollar would change from the current situation, and then hold steady. How is this a problem? Does it make sense to value current dollars in gold equivalent now as a premise for an argument on the "value" of the money supply? This sounds like a non-sequitor to me.
The gold standard removes the most pernicious and powerful way for the government to take our money, inflation. It is happening now at a rate faster than ever in US history.
There are numerous points in history that the US Gold-backed currency was manipulated. During WWI, it was suspended twice. In fact, gold standards are regularly and habitually suspended in times of war. (Ideally, once reinstated, a deflationary postwar period would counter the inflationary period during the war, but there is no rule saying the standard must be reinstated at the same notational value, so this is wishful thinking.)
During the depression, the Gold Reserve Act reset the value of gold from $20.67/oz to $35/oz, effectively devaluing the dollar against every other gold-backed currency (inflation), and, to quote wikipedia "the higher price increased the conversion of gold into dollars, allowing the U.S. to effectively corner the world gold market".
So the government can still manipulate the value of it's currency at will, simply by changing the redeemable value of it's notes. This is on top of the possible manipulation by private parties (mining companies) and other governments (nationalized mining companies) that I have already pointed out.
If inflation truly scares you, don't keep a significant portion of cash on hand. Go take it all and buy gold/houses/land/businesses/securities. If hyperinflation truly happens, we can both laugh all the way to the bank (most of my 'wealth' is likewise in some kind of asset). If it doesn't happen, you'll probably still have made some decent investments.