"This becomes interesting. From what the banks will pay the interest rate?
Where it is going to come from? In your example the banks offer an
attractive interest rate, say 6%, to seduce people like gates to bring
their gold to the bank as deposit.
[and so on for several more paragraphs]"
Many people make examples such as this to argue against either a
commodity-backed currency, the concept of credit and interest, or both.
It is a mistake to consider it a clever or wise argument, however.
The illustration presents an impossible problem, not because any such
problem exists, but because the scenario itself is impossible. If the
depositor (or even a cabal of depositors) quite literally controls all of
the gold in the world, then there is no reason for him to deposit it with
the bank -- unless the bank comes up with something other than interest in
gold to pay the depositors.
Imagine the immense stupidity of a person who would deposit his gold with
me for 6% interest in gold, knowing fully well that this 6% did not exist
anywhere due to his monopoly on the metal. Such an ideal combination of
wealth and ignorance makes for smart-sounding rhetoric, but in the end the
argument is pure nonsense. The more details which are introduced ("I
said, country, not world!" for example) the more ludicrous the scenario
becomes.
It is understandably tempting (and indeed a very common practice in many
political or economic discussions) to create impossible scenarios to
"prove" one's arguments, but let's face it -- this one has been done to
death already, and is not getting any more palatable with age.
Frank
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