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Gold Beat? Standard.
Lurking on this board has convinced me that a gold standard is far superior to the funny money federal reserve system we have right now, but I have a question.
How does a gold-standard system react if something were to happen that quickly and sharply devalued gold. Say for example, a gold mine is discovered that can outproduce all other gold mines in the world by a factor of 10. Or some scientist developes a cheap way (cheaper than the energy/material costs in gold anyway) to create gold from lead. My history is fuzzy, but didn't an influx of gold from the New World crush Spain's gold-based economy at some point in the past? I imagine if we ever went back to a "gold standard" it would be a more robust system. By this I mean gold wouldn't be the sole commodity backing the currency. It would also be backed by silver, silk, land, etc. etc. so that if one of the commodities backing the currency got devalued all of a sudden the ill-affects would be mitigated. Anyway, just curious about your thoughts. Basically, what happens in a gold backed currency if gold becomes abundant rather than scarce, and are there solutions to this problem (if I'm correct that it's a problem) other than the one I sketched out above? |
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