Utah sound money act....

Ron Paul likes the idea (using gold as money), and I agree with most of his ideas. Why not? As he puts it, "You can't have inflation without somebody artificially creating money and credit out of thin air."
Then there is this:
"The U.S. Constitution Art. 1 Sec. 10 Cl. 1 states, in part:

No State shall ... coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; ... " (copied and pasted from [ame="http://en.wikipedia.org/wiki/Legal_tender"]Source[/ame])
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The problem with using gold as money is very simple: There is not enough gold in the world to mediate exchange in a global economy this large. Also, people today have forgotten about clipping: The process of shaving a bit of gold off of gold coins, very slightly reducing their weight. Eventually they get small enough the somebody notices and refuses to accept them.

Let's say we had multiple optional currencies, as your link advocates:

So, your grocery store only accepts government money, your dry cleaner only accepts gold, and the kid who shovels the snow off your walk only accepts chips issued by his brother-in-law. You work for a company that issues its own money. How do you buy anything?

The confusion and hassle of multiple currencies is why they formed the European Monetary Union. It's not working out so well because each sovereign nation makes its own economic policy, but the way it was before was unsustainable. And there each different kind of money existed within its own borders. Having different money systems all within one country is a recipe for disaster.

It would, of course, make it harder for the government to collect taxes, and people who don't want to pay taxes like that. So if you don't want to have street cleaners or fire departments or road repair or any government at all, you may like the idea.

But multiple currencies simply would result in economic chaos, and gold could only work if it was a tiny part of the global economy and you could convince people not to shave the coins.

 

Physical money is on the way out. It's more inconvenient than electronic money for most transactions, and the trend toward using proxies for cash is increasing.

Think about it. Compare your total annual expenditures with the value of those you conducted with cash. Most of your expenditures are to pay bills and you don't FedEx wads of twenties or jars of change to pay them. Your don't collect your paycheck as a gold ingot, nor would you want to.

I therefore doubt making other forms of physical money legal tender will have any effect on stemming inflation or other forces that weaken currency. A government printing money out of thin air (beyond replacing worn out currency) does have some inflationary effect, but I think other market forces are more significant and have nothing to do with the present total face value of the physical money inventory.

The EU and its Euro are where we're headed: toward unification of currencies. Total global unification is still decades distant but not centuries.

Finally, as the world gains population and prosperity, commodities like gold make less sense to use as money because it gets harder to fragment the physical material small enough to be useful. There's only so much gold on the planet. Let's say total world wealth today is 100 trillion US dollars, and all the gold in the world is enough to make 1/10,000 of an ounce represent 1 dollar of that wealth. 1/10,000 of an ounce of gold is awfully tiny. But ten years later total world wealth reaches 1,000 trillion US dollars, in real terms, not inflationary terms, because we keep adding people and turning the dirt of the earth into cities and buildings and vehicles and roads and furniture and art and adding to our collective wealth. The gold value would have to adjust upward in value to 1/100,000 of an ounce equaling 1 US dollar. Well, at some point the continuous fragmentation makes using gold impractical because 1 dollar's worth of gold would be microscopic.

Electronic, or virtual money does not have that problem.

 

The entire planet has enough gold to make a cube the height of the Washington Monument. I read that in a kid's science comic book but it's probably close to the truth. That's every atom of the stuff right down to the core. We obviously can't mine every atom but even if we could that cube ain't very big. Heavy elements are rare because the stars that make them are rare.

Now we may be able to develop controlled fusion so we could make more gold, but I think if we did develop that capablity we'd dedicate to more useful products (like weapons and bombs which we never have enough of).

 

But the fringe folks who think a gold standard would solve all our problems never learned math. Gold standard advocates and young-Earth creationists are what you get when you have an ineffective educational system.

 

Besides gold being too rare to be a monetary standard, even paper is too rare to be a monetary standard.

After the Shah of Iran was disposed and the revolutionaries took over, they converted a number of money printing presses to make counterfeit US money. These were former US presses that had been sent to Iran since US had modernized the US presses.

When this was discovered, the US secret service asked the US treasury what kind of effect this would have on the US economy if the world was flooded with this industrialized counterfeiting operation. The US treasury guy quickly figured out the production rate of all the Iran presses running at full speed for a year. He then provided an interesting answer: None whatsoever!

While counterfeit money may buy lots of bad things or disrupt a local area, the maximum amount of money that could be printed was too small to even measure on the total amount of "money" in circulation.

 

A quick back-of-the-envelope calculation disagrees.

I'm seeing claims of gold abundance in the Earth's crust ranging from 1 to 5 ppb. At the lower figure, the 'Washington Monument' cube would be completely filled by the gold in the top 200 feet of the Earth's crust.

 

If it costs more money to get the gold out than the gold is worth, then it is effectively unavailable. And with gold as money, you still have the problem of coin shaving or clipping. That alone makes it unusable as circulating money.

Some might argue that paper money could still be backed by gold, but that is only credible if the paper can be exchanged for gold, and that is a colossal nuisance.

Finally, another issue which the gold lovers fail to grasp, because they are not economists, is that in a modern capitalist economy a small, predictable amount of inflation is necessary to keep the economy moving. Inflation keeps people investing their money, and without investment a capitalist economy cannot function. In fact, the price of gold fluctuates too much for it to keep the economy working smoothly.

 

IMO gold's bubble is going to burst "soon". I don't know if it is next week, next month, or next year. When a vending machine that dispenses gold in bars or coins can be used by the public it indicates that the "next, bigger idiot" may not be found.

 

It means they are gearing up to harvest "smaller idiots" in massive quantities. There is a gigantic supply of them, enough up puff the bubble up some more before it bursts.

 

1980 all over again?

One of my teachers was loading up on Krugerrands at $800/oz. Adjusted for inflation, that is still in the hole.