Gold Standard Inflation and Deflation

Here’s an article from the Mises Institute on why Austrian economists don’t really care about a gold standard.  I know you were looking for that.

One of the cool things I learned reading The Wealth of Nations was how even a gold standard can inflate or deflate.  Gold is valuable, and so people go looking for it.  As more is dug up, the supply of gold increases, which means the stuff is worth less, overall.  The Spanish gold from South America comes to mind.  Gold inflated something like 40% across Europe – and since all that cash wasn’t invested in anything productive, Spain endured a 100 year depression that they still haven’t recovered from.  On the other hand, because gold is so soft, and people use it for industrial and decorative use as well as for cash, it eventually wears off and can’t be recovered.  Very slowly over time, the natural process for gold as a currency is a slow deflation, or at least it would be, if people wouldn’t keep digging it up.

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