Sorry for the ignorance, i am still trying to learn and really understand the Federal Reserve System (print all you want) and the Gold standard.
query: If the country is on the gold standard then there is only so much gold. So does the economy become a zero sum game? If i have more, then by definition, others must have less? Or perhaps better put, if we as a nation/large business/group etc. have more money, then other countries/groups etc must, by definition, have less? A pointer to some reading would really help me.
The money supply on a full reserve gold standard would for all intents and purposes be zero sum, however the aggregate VALUE of the money supply would not.
I’m not sure exactly what you meant, so let us know if the above helped at all.
If you have something, then someone else doesn’t have that thing. If I have a pop tart that means 6 billion other people don’t have that pop-tart. I suppose you could say they have less.
Economies are groups of people attempting to cope with scarcity as they see best. Of course, government’s sometimes (essentially always) make the decision for people.
Yes, it’s called scarcity. All capital goods are scarce because if they weren’t then they wouldn’t be worth anything. Air isn’t worth anything because there is so much of it. Sunlight isn’t worth anything because there is so much of it. Those things are not scarce therefore they are not valuable. Gold, under a gold standard, would be limited but that is not a bad thing. It preserves the value of gold. The less gold there is the more valuable and therefore the more it will buy. See, the problem with the Federal Reserve bank notes is that they aren’t really worth anything. They aren’t backed by anything with value (since paper and even more so digital zeros and ones are not scarce) which would reign in the amount of dollars that would be available. The more dollars there are the less they are worth because they are no longer scarce. Think of it this way: Why does a 1914 Babe Ruth rookie card sell for $270,000? Because it is scarce and because it has value (Babe Ruth is considered one the greatest baseball players in history). There are only so many of those cards still in existence. But what would happen if someone found a cache of say, oh, 5 million 1914 Babe Ruth rookie cards? The value of those cards would drop significantly as now nearly anyone who wanted one could get it. You have the same situation with gold or any other good.
The thing about an economy is that no one will hold all of the gold at the same time. It is the most efficient means of acquiring wealth. Money is not wealth. Capital goods are wealth. Money is just means to acquire more wealth and naturally if you have more money you can have more wealth. But since you must use money to do anything from buying food to buying a car or house you must give up some of your money. And others are going to do that as well. So the gold will circulate throughout the economy. Some will naturally have less than others but that’s just the nature of the beast.
To sum it up, what’s these guys are saying is that money may be static, but prices aren’t. In terms of prices, paper money tends to be inflationary (because governments prefer printing and borrowing than raising taxes), while gold tends to be deflationary.
Not at all. The amount of gold may be fixed (or grow very slowly), but the amount of goods and services produced is definitely not fixed, but likely to grow very fast in a real free market. If the amount of money is fixed then prices would go down. Even today the prices of goods produced by competitive industries like microelectronics keep on going down while performance increases - just compare your current computer to computers made ten years ago.
‘Countries’ don’t have money, individuals do. But there’s no zero sum game here either. You could argue that the amount of ‘wealth’ is fixed, so if you have more of something then I must logically have less. In reality, thanks to production and peaceful trading, wealth is ‘magically’ created, so the result of the sum is not zero =]
Wealth would accumulate more as price deflation occurs. Price deflation occurs when goods are produced on a more massive scale than currency, which would obviously be the case under a gold standard due to the very slow rate of monetary expansion with gold.
As such, your currency would continue to appreciate, increasing your purchasing power. It wouldn’t be unlikely for wages to be cut in nominal terms but at the same time rise in real terms under a gold standard.