Quote:
|
what matters more? the exchange rate or inflation? inflation obviously.. and it was much more volatile under the gold standard despite exchange rate stability.
|
They both play a factor but both are improved when you use a basket of goods as the reference instead of an artificial standard, created by government.
I already showed you the benefits in stability but consider when the Great Depression occured ... before or after government denied people from trading gold?
The Great Depression occured after government took peoples gold and created the "Gold Standard". Shortly afterwards, people found out their money had been robbed as the government defaulted on its commitment (the typical view is impossible if the banks had truly stocked the gold ... noone has ever been successful in cornering a metal market entirely) ... and the Great Depression ensued due to government interference with our monetary system. Check the dates for cause and effect, don't rely on schoolbooks.
How can you deny that a basket of mixed goods as I showed above would be any less volatile that the dollar, which has changed in value to 5% of what is was then.
The dollar's performance has been equivalent to buying 22 such commoditees and having 21 out of 22 of them become entirely worthless!!! It's impossible to create such a worthless standard of value without laws forcing people to accept it.
It's even intuitive as well, because each product requires a certain amount of labor and resources to create. When you use those as a standard, you're basing the value on general productivity and man hours in the economy, which are much more stable in value than an unreferenced number that could be altered almost at whim - like, you can reprint the packaging on a candy bar and make it worth 20 dollars. (The've named candy bars after money before but they were still worth the same thing - so they have a safe stable and uninflatable value)
Of course people don't actually need to trade these goods but can instead trade ownership and an ability to exchange them for oil, chicken or houses etc. The trick to denying inflation from ruining a currency is to tie it to something of tangible value and then people can retire or forecast expenses much easier.