willthrill81 wrote: ↑
Wed Sep 18, 2019 10:23 am
Silence Dogood wrote: ↑
Wed Sep 18, 2019 8:49 am
nisiprius wrote: ↑
Mon Sep 16, 2019 7:54 am
Gold? Some of the most severe increases in the CPI ever recorded in the United States occurred post World War I despite the dollar being backed by gold at the time.
Can you elaborate on this? I thought that the whole point of people advocating for the "gold standard" is because it is meant to prevent inflation?
The problem is that when a nation is on the gold standard, the value of its currency fluctuates directly in tandem with the value of gold, which has not been very stable. Gold's price has actually been more volatile than the stock market.
The value of gold fluctuates widely and would not provide the price stability necessary for a healthy economy. Between 1879 and 1933, when the United States was on a full gold standard, the inflation adjusted market price of gold fluctuated from the $700 range (1890s) to the $200 range (1920s). From 1934-1970, when the US was on a partial gold standard, the inflation adjusted price of gold went from $563 to $201.  In 1980, the inflation adjusted price of gold was $2,337, much higher than than today's price of $1,672 per ounce (Dec. 19, 2012).  Fluctuations like these would be damaging to a gold standard economy, since the value of a dollar would be attached to the value of gold. For example, a 10% increase or decrease in the value of gold would eventually result in a 10% rise or fall in the overall price level of goods across the country - such fluctuations would destabilize the economy.
The classic gold standard of 1870-1914 included most major world economies, so part of it was also fixed exchange rates. IOW the reason the USD/GBP exchange rate was always the well remembered $4.867/GBP was because the US gold price was always $20.67 per ounce in that period and British one always £3 17s 10½d.
Which is what's misleading about the second longer quote. You can get highly variable values of gold in the past converting back from fiat money value now, but the nominal $ gold price was completely constant then, $20.67 in the US from 1834 to 1934. The average inflation rate in that period in the US, 1870-1914, was -.61%, ie what a $1 could buy in 1870, around $0.76 could buy in 1914, the interaction of relatively constant money supply and growing productivity. Nor were price level variations wide year to year, the height of USD purchasing power in late 1890's meant $0.63 could buy what $1 had in 1870. This isn't remotely like the one direction vast changes in purchasing power since (what $1 could buy in 1870 requires almost $20 now). The big changes in price level in that era were when the gold standard was suspended, like in the Civil War and WWI. And after WWI the system was not a true gold standard.
There are serious problems with a gold standard, especially one only a single country adopted, but the quote gives the wrong idea I believe. Price instability isn't the problem, nor did the gold standard 'destabilize economies' per se. The problems centered around ability to absorb supply/demand shocks from outside the monetary system, and chronic cheating on the rules which were supposed to govern how fixed exchange rates were supposed to work vis a vis central bank interest rates and gold bullion flow from one country to another.