[eliashakansson]

Sometimes when I roam the interwebs I come across the following argument against gold as a means of exchange in place of a fiat currency:

“If, theoretically, the outflux of gold becomes so great in a nation that one country sits on 90 % of the gold, all other countries will get off the gold standard because there isn’t enough gold. Thus the gold standard is unsustainable.” – is there any truth to this? And what happens if all the gold flows out of the country?

And what about this one: “If USA were on a gold standard and they traded freely with China, but China limited their trade so the dynamics were of such that gold flowed out of China by virtue of protectionist policies, what happens?”

[eliashakansson]

CORRECTION

“…Gold flowed out of of USA* by virtue of Chinese protectionist policies…”

[jmherbener]

Just like any other good, money will be arbitraged for profit by moving it from where its price (i.e., its purchasing power) is low to where it is high. The arbitrage stops at the point where the purchasing power of money is the same everywhere. There is no more reason to think that gold money would not be distributed across the face of the earth according to the demand people have for it than that gasoline is distributed across the face of the earth in the same manner.

If people in a country had insufficient demand for gold money to attract gold there, then they would adopt another more common commodity like silver. The free market monetary system is one in which people are free to choose what to use as money and entrepreneurs are free to produce what money they wish. So even if there wasn’t enough gold to serve as money, it would be no argument against private enterprise money.

[eliashakansson]

Thanks! Makes a lot of sense!

[Author]

Posts