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Rustam Eynaliyev

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Gold standard

The biggest drawback of a gold standard as well as it's biggest advantage is that gold is scarce. The advantage is that central banks can not create more money, thus causing inflation (essentially another form of taxation). The drawback is inevitable deflation from increasing productivity of the economy which could cause decrease in lending as well as make production less competitive on international markets. Here are my propositions to solve these drawbacks: Tax cuts on revenues coming from lending. Allowing fluctuating exchange rates do their job and allow internal market to adjust to new market realities.

I'm wondering if there any other drawbacks that I'm missing out on, as well as flaws some of you might notice in my ideas.

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  • Mary M. 100+

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    Feb 22 2013: Who sets the price for gold?

    Any links to read up on it?
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      Rustam Eynaliyev

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      Feb 22 2013: market. If nobody's willing to pay for your gold price goes down, if everybody wants it you raise the price. Forces of supply and demand.

      • Mary M. 100+

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        Feb 22 2013: No, I want to know WHO?

        There must be a person....a bank....a family....a house of something, somewhere in the world....who puts the price out there...WHO?
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          Rustam Eynaliyev

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          Feb 22 2013: who puts a price on the shoes you have? Is it the business owner? Sure, retail store owner says to sell it for e.g. $100. But why...why not $10000000? Because nobody'd buy it. Why not for $1 so that everybody can buy it? Because the manufacturer sold it to him for e.g. $40 and he'd be losing money if he sold for anything less than that. Why did manufacturer charge $40? because he figured out he'd make the highest price at the given price. Now moving to gold. Let's say dollars are replaced by gold. And all goods in an economy are shoes. Everybody produces shoes, buys shoes and loves shoes. If there are 100 grams of gold in an economy, and that gold is commonly accepted as means of exchange, and there are 100 shoes produced in the economy each shoe would cost a gram of gold. Forces of the market decide the prices of goods.

          Currencies don't have intrinsic value. They are only worth the goods people are willing to give up for them. E.g. 10 eggs are 1 gram of gold and a watermelon is 1 g of gold. That means people value 1 watermelon and 10 eggs the same. You can do barter, but currency makes exchange more efficient.

      • Mary M. 100+

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        Feb 22 2013: Found the answer on google........sorry to have bothered you.

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