Doug wrote: > Its supply [gold's] is > strictly limited.
The argument for gold has too many holes to poke them all at once. What does "strictly" mean here? Does it mean "peak gold cum zero elasticity of demand"? On the other hand, is the indebtedness of the U.S. Treasury unbounded? Apparently, judging by the latest events, it is not. It's not strict as in fixed, but neither is gold supply fixed. And, as Jim and you mention, (assuming that, indeed, the supply of gold always lags behind demand, something that is not warranted) how about the distributional effects of price deflation? Isn't price deflation disruptive? Moreover, under the gold *standard*, money was somebody's liability. It just had a contractual fixed parity with gold, which didn't keep goldsmiths, monarchs, etc. from issuing too much paper or debased coins. Fractional reserve banking is entirely compatible with the gold standard, as history shows. So, only if gold were to be used directly as universal means of exchange and means of payment would capitalism be able to circumvent these disadvantages, but then it'd invite other, bigger ones. The transaction costs of introducing and using gold as money in modern capitalism would be stratospheric. That's why it's not likely to happen, unless there's a global catastrophe.
