Gold Standard vs fiat currency?

Very good question.

Even with continued mining a gold standard would see currency become scarce compared to goods. So we'd see a deflationary pressure. It'd be harder to come by a dollar but our dollars would be able to purchase more.

It's far easier to convince someone of a pay raise than convince them of a pay decrease so we'd probably see layoffs as well. In other words companies would have to sell their products for less. To cut costs they'd likely introduce layoffs. Rising unemployment has historically accompanied periods of deflation.

On the other hand a fiat currency runs the risk of central bankers printing too much money and causing large inflation. With the way the Fed's been pumping out dollars recently I don't see how we can avoid double-digit inflation sometime in the next year or two.

I personally would like to see a fiat system where the only priority of a central bank is to keep the monetary supply proportionate to GDP and keep prices relatively stable. In the US the Fed's priorities are sometimes conflicting. If price stabilization was the only priority it'd be a lot easier to plan one's life or plan one's business.

I didn't answer your question exactly. But it got me thinking. :)

This is an amazing question, and I applaud you for asking because it is critical to the health of our current economy. Gold Standard: Very secure. Each dollar is worth so much gold, with no room for error. In theory, inflation would not be a problem, neither would deflation, because we would have the same amount of gold backing our currency. However, I do not believe that the United States should go back to a gold standard, because it could not support the size of our economy. There is not enough gold in the world to support our nation's current economy (GDP), which is why Nixon took us off of the Gold Standard originally. If the govt. did not go off of the Gold Standard, then our economy would have froze, or our govt. would have printed paper money without saying that it isn't backed by gold. What could happen there would be similar to the run on the banks in the Great Depression, only people would be running to the reserve claiming gold they don't have. Fiat Currency: Allows for growth of economy based on GDP. As our GDP grows, our economy grows, increasing our GDP. However, this leads to a "Debt Culture," which is very prevalent in our society today. If this can be avoided through government responsibility, tougher bankruptcies and less loan regulations, then the Fiat System works. One of two things have happened (Although I'm not sure which). Either people lost their financial IQ, or the people forgot that its important to elect politicians with a high financial IQ. This means that our people are smothered in debt, and now, so is our government. Another thing that happened is the conservatives (Generally Higher Financial IQ), lost their IQ when Reagan took office, and believed that his economic policies were economic policies, and not war against the USSR (Which we won, they went bankrupt). They were not meant as long-term answers (Even though they were portrayed that way because otherwise it would not have worked, nor would he have been elected). Final Word: I believe the current Fiat System needs large reforming, including a balanced budget amendment (Other than times of war and recession), and several other necessary amendments.

The comforting thing about the gold standard was that you knew there was something of value to back your money. As it is, there is nothing to stop any country from printing more and more money, because it no longer has to be limited to the amount of gold in reserve. That opens the gates for inflation and devaluation of the currency.

How can the gold standard accommodate an expanding economy? Quite easily.

Gold based money couldn't keep up because the government didn't expand to progressively smaller monetary units.

Every government has/will end up printing it's paper money to worthlessness.