gnome wrote:As soon as I learned how changes in the money supply affect the economy, I thought that tying it to the availability of a precious metal was ludicrous. At least, once the economy is "macro" enough to need a monetary policy.
True. OTOH, there's no reason gold can't be part of the mix, as long as whoever regulates the currency has a huge hoard of it.
That's not not quite the classical US gold standard where gold does not have a price as such, because the dollar is defined as being
a certain amount of gold. That is with paper dollars being a promise to pay and silver dollars being tokens, though intrinsically worth about a dollar if the market isn't too skittish.
Bimetallism (gold/silver) allows more flexibility, and promissory notes backed by "full faith and credit" even more so. All three coexisted until 1933. And Federal Reserve Notes didn't become the only new circulating current until 1964.
Individuals were not allowed to trade gold from 1933 to 1975. Only since then has there been anything approaching a free market in gold in the USA.
As it happens, the Fed does
have a huge hoard of gold. Enough to prevent someone else from cornering. So although the dollar is not defined in terms of gold (or silver) at all any more, it provides a cushion of stored wealth for the currency.
So being in favor of more of a "gold standard" is not identical to Ron Paul craziness on the subject, even if it isn't necessarily a good idea under particular conditions.