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M stays stable in a gold-backed system only so long as the conversion rate stays constant (i.e. govt doesn't change the rate of conversion to increase/decrease the money supply)

Barron


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Are you saying that the government pegs the price at whatever they want? Sounds like its just a different way for the government to control the money supply even though it is gold. Shouldnt the rate be determined by the free market?

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um, i'm not sure how else a peg would be credibly enforced.

the free market pretty much ensures it won't be pegged unless i misunderstood this situation.

more clearly: in a free market, gold's price would be flexible.

in the event that isn't the case, how would a pegged price of gold be reached and enforced via the free market? is there an example from history?

thanks,
Barron