This has nothing to do with crypto. Hit your delete button now... Matthew J Miszewski says:
The problem with using a concrete anfd finite source to back ypour currency is that it is just that...finite. This causes many economic problems for the social/economic system founded on it. I was barely a pup when the world first discovered this..
It causes no problems whatsoever, other than preventing unrestrained printing of currency, which governments always detest. The money supply in a fractional reserve banking system with note issue is not limited, because this is a fractional reserve, and not 100% reserve, system. In fact, this system functions far better than a central bank, because of a planning problem that should be familiar to free market economists. The problem is this: central planning of the money supply leads to shortages and surpluses of money, which produces giant artificial swings in the economy. I can most easily explain this by analogy to the problem of production in a socialist vs. a capitalist society. In a centrally planned economy, virtually all goods exist in large surpluses or shortages because they are produced by a plan that lacks market information and priced without regard to market information. In a capitalist economy, the law of supply and demand keep the market in line, efficiently allocating the goods within the economy. The Fed has to try to control the money supply with very poor measurements of economic activity and blunt instruments like open market purchases of treasury instruments. This is very much like the problem of socialist production planning. On the other hand, in a free banking system, there are none of the problems of the business cycle artificially induced by central banking because the money supply will always be controlled in a distributed manner by the market, and will rise and fall naturally with the demand the market produces. Increased economic activity will produce natural rises in interest rates precisely tuned to the needs of the economy by the invisible hand -- similarly, decreases in economic activity will lower rates in the same manner. The money supply itself will self regulate because of the excess clearing rule that free banks issuing notes must follow. Its all very elegant, very simple, and its remarkable that people didn't realize how important an idea this was until fairly recently. If you want to read up on this, I suggest George Selgin's "The Theory of Free Banking". It was his PhD thesis at NYU.
Remember the Gold Standard?
Yes. Fondly. However, the Gold Standard I fondly remember was the one from the days when bank notes weren't taxed and banks were free to issue them at will. Perry