“Davidson” submits in reaction the this WJS Article:
Anyone who believes in precious metal convertibility for currencies simply misses the most basic fundamentals of currency. Precious metals are of limited supply while currency outstanding must reflect not only all the value that has been created over time minus depreciation, but importantly must account for the human addition to that value over time. Currency represents the VALUE of society’s wealth which grows over time and no amount of gold or silver could ever be discovered to represent this wealth such that currency attains static convertibility. In the US the wealth growth rate is ~3% Real GDP. Currency lets us convert human wealth creation, our labor and ingenuity, into an exchange medium so that we can specialize in producing something of value to society, get “paid” for it and then exchange what we created for society for our specific needs for food, shelter, health care, transportation and etc that no single individual can produce for themselves as well as other experts. In ECO 101 this is called “the division of labor and the exchange of goods and services”.
It is the expansion of the quantity of currency by government to buy things in excess for governmental driven directives that are not paid for by government revenues that create inflation.
We must understand the basics of currency and then not let the money supply expand beyond the creation of value in a society. In the US this by my estimate is a non-inflationary ~4% annual M2 growth. It is some 25% ahead of Real GDP because some US money supply is used globally and disappears into various holes, penny jars, down storm drains, stored as cash under mattresses.
Gold ($GLD), silver ($SLV) or any fixed quantity of precious item could never act as or to stabilize a currency because we would could never have enough of it. The only means to control inflation is to understand the fundamentals of currency and to limit its supply to the wealth creation pace of a society and then a slight overage do to global demand. At the moment this is ~4% annual growth rate in M2. It is something that must be monitored and adjusted by responsible agencies.