I wonder about the same questions as you guys. Maybe a gold standard is good, and we just have to live with the busts. (Maybe then we will be more cautious and the busts won’t be that bad).
Or we could not have a gold standard, and whoever wants to use gold, just uses it (like now). But then the government brainwashes everyone against it, and you have to live with the busts in gold once a while (like during the 90s).
But to the last sentence of Wiley: Credit creation is still possible (like in the 20s), and once it reverses you have the deflation, because now you can’t print money. Even here I am slightly in favor of the gold standard. Because when everyone knows that, then the credit boom might not go to such extremes. And if there is deflation afterwards, so what. Why not just live with it. It reorganizes capital, and if people don’t spend, maybe they are thinking about producing something down the road. If there is a mild deflation, I think people will still spend, since interest rates will be low, and the opportunity to invest or spend now is still worth something (opportunity cost) compared to saving all for later.
On the contrary, I am slightly against fiat money. Too many loopholes for the government to change the rules on us constantly. And where is the limit here? The government creates more and more credit (not necessarily money), but when credit shrinks everyone expects them to print the money. Then overall money supply doesn’t contract but goes sideways. Nice in theory. But since everyone knows that, now credit extends even more, and the more credit expands the more people want to take credit to jump on the increasing asset price bandwagon. And if the government doesn’t decide to stop, there are no limits. Normally, one would be restricted by either market interest rates being one step ahead (higher) to force savings, or by getting so leveraged that smaller and smaller volatility would wipe one out (say a 1% drop if one is leveraged 100:1). But the government doesn’t even have those limits, since they control interest rates AND can print infinite amounts of money to avoid every little drop. That means there are no small busts along the way, but a worthless currency in the end, with nobody having saved anything. Possibly less production too, since speculation becomes the occupation of the day.
The summary of my opinions:
Fiat money needs a prudent leader, while the gold standard needs prudent people (to avoid excess credit creation). I prefer the people taking the responsibility, since they are the ones who have to live with the outcome. But I admit it is not guaranteed if it would work better in our complex world. The contrary is not proven either though, just because it has worked for the last 30 years, which was an accelerating credit phase. And it is a small sample compared to all the other fiat experiences that didn’t work.
