Monday, November 11, 2013

all that glitters more than gold...

reading about the gold standard i remembered a book i read once that illustrated the idea of a gold standard without, in fact, the gold. the book was set on another world where the surface of the planet was covered in a desert. due to this fact water was always very scarce, so scarce in fact that when people died the other members of the tribe would dehydrate the body in such a way as to collect the water. this meant that water was the most valuable commodity available and was used as a means of trade. everything was priced relative to the amount of water it was worth, similar to things being priced relative to a gold-backed dollar.
a gold standard can be useful in that it can reduce inflation by restricting the amount of money that a country can have. however, the real value of the gold in that case is as a means to regulate government ability to mess with the economy, whether for good or bad. a disadvantage of a gold standard is that it restricts the money supply so even if the population increases the money supply doesn't necessarily increase at the same time.

keep in mind, when the sun hits it just right, water can glitter more than gold.

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