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    In the absence of perfectly designed institutions and/or perfectly omniscient social actors who also happen to be perfectly ethical, well.. do the math
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    (Original post by Sinatrafan)
    Whilst a very unfashionable concept I would like to see a return to sound commodity (e.g. gold) backed money.

    Every fiat currency throughout history has met the same inflationary death and confidence has always had to be restored with a gold standard. I don't see why anything should be different this time around. People eventually realise that fiat money has no intrinsic value aside from people's belief in it.
    Neither does gold, it's a relatively useless substance. Its use as a reserve nowadays is more out of tradition than anything else - the historical reasons why gold was used no longer meaningfully apply.

    Gold's value as currency would come from the same essential value anything else has - that it can be used to pay taxes and legally redeem debts.

    Nor would it be guaranteed hold back inflation - gold is a commodity that can have sudden unexpected booms and rushes just like any natural resource.
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    (Original post by anarchism101)
    Neither does gold, it's a relatively useless substance. Its use as a reserve nowadays is more out of tradition than anything else - the historical reasons why gold was used no longer meaningfully apply.

    Gold's value as currency would come from the same essential value anything else has - that it can be used to pay taxes and legally redeem debts.

    Nor would it be guaranteed hold back inflation - gold is a commodity that can have sudden unexpected booms and rushes just like any natural resource.
    Gold has intrinsic value because it is a scare natural resource that people naturally desire. It has a proven track record over the past 10,000 years for being a desirable and valuable commodity. Nothing else comes close to that track record of proven value. If there is one substance on earth that has continually been valuable for thousands of years it is gold.

    The reason gold has so few other applications (aside from jewellery) is why it is perfect money. Silver could work well as money but its industrial role makes it more volatile, which is why gold has always been the default choice.

    There are very few other substances that work well as money. Platinum is too scare and all the others are either radioactive, gases that float away, metals that tarnish in air or reactive substances that react when in contact with water.

    Remember that true definition of inflation is an increase in the money supply, not an increase in prices. With gold the money supply can't be expanded unless there is an increase in gold to back it. Gold production each year is very consistent (about 1.5%) therefore the money supply can never really inflate any faster than that.

    Whilst gold reserves are tradition there is a reason everyone is acquiring more gold and the US hasn't sold any of its 8,000 tonnes in the past 30 years; because they can't discount its use as money once again. It is the only thing that can restore confidence in a fiat currency if confidence is lost.

    If gold was useless they would have flogged it all in 2011 when gold was at its all time high to re-capitalise themselves after 2008. They aren't going to place tradition above a cash influx of $300,000,000,000 dollars without good reason. The fact they held on to it, tells you something.
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    (Original post by Sinatrafan)
    Gold has intrinsic value because it is a scare natural resource that people naturally desire.It has a proven track record over the past 10,000 years for being a desirable and valuable commodity. Nothing else comes close to that track record of proven value. If there is one substance on earth that has continually been valuable for thousands of years it is gold.

    The reason gold has so few other applications (aside from jewellery) is why it is perfect money.
    Rather than replying directly to this, I want to delve a bit further into this as it's at the heart of the point and I think I know where this is going. Why, according to you, do people "naturally" desire gold? Ultimately, I'm asking about what you think the nature of money is.

    Remember that true definition of inflation is an increase in the money supply, not an increase in prices.
    No, it isn't. It used to be used to mean that, but it's now overwhelmingly used to mean price increases. But the semantics are largely irrelevant - the price level is the more meaningful and useful statistic. The quantity of money in existence has little meaning in and of itself - it's only meaningful insofar as it affects prices and circulation.
 
 
 
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