How did the gold standard work?

> Well, let's start with commodities. They have value, see, and that value contains both the exchange value and the use value

Worth remembering also, that what you call "exchange value" is essentially a derivative of what you call "use value". I can use (eat) a side of beef. I cannot eat 50 sides of beef before it spoils. To get any value at all our of the other 49 sides of beef I have to find a market (49 other people who want to eat beef) and exchange it for something else. If there is no "use value" though, there's no market. Exchange value (prices) will change based on market conditions, but use value only changes with occasional technological innovation (freezers to freeze your beef, new industrial or chemical uses for gold, etc).

This is where fiat currencies come in. Fiat currencies like the US$ have a "use value", and that use is legally settling debts (being legal tender[0]), and paying my taxes (which actually are debts).

In any case, I think the extreme gold bugs who see fiat currencies all collapsing and gold going to the moon really over-estimate the market demand for gold in any scenario where shit hits the fan that bad. I mean, one way or another, whatever Government is in power is going to want to eat 25-50% of your income in taxes, regardless of what currency you use.

[0] Many people also misunderstand what "legal tender" means. The Bank of England has a good explanation of this: https://www.bankofengland.co.uk/knowledgebank/what-is-legal-...

Because the backing of a state provides a veneer of credibility to the currency that your own say-so doesn't. Like, barter economies built on trust still exist and if that's what you want, knock yourself out. But at some point you want to pin down how many chickens your bedroom dresser is worth, which means you need a token to represent a value, which means you need someone or something to provide backing for the trust placed in the tokens. Unless this is a coy way to argue we should replace our currency with crypto (in which case the controllers of the consensus mechanism and/or the person(s) who designed the particular algorithm for ensuring inflation/deflation/stability are the "government" just as surely as the Fed are the government in the real world)

>> a monetary system based on fixed currency often leads make deflation a problem for the average person

> Why is this a problem? The problems arise from rising prices not the contrary.

For one, moderate inflation reduces the burden of debt, which a good portion of people are in, e.g., mortgages, student loans. Deflation makes debt more burdensome. Further, The Haves are generally the ones lending money to the Have-Nots, and so deflation would make worse the effects of wealth inequality (which have hit levels last seen in the Gilded Age).

* https://en.wikipedia.org/wiki/Deflation#Effects

> Yeah we've moved on for a reason : to print more "money".

It allows for more flexibility for various economic conditions. See James and Bemanke for example:

> Deflation (and the constraints on central bank policy imposed by the gold standard) was an important cause of banking panics, which occurred in a number of countries in the early 1930s. As discussed for the case of the United States by Bernanke (1983), to the extent that bank panics interfere with nor- mal flows of credit, they may affect the performance of the real economy; indeed, it is possible that economic performance may be affected even without major panics, if the banking system is sufficiently weakened. Because severe banking panics are the form of financial crisis most easily identified empiri- cally, we will focus on their effects in this paper. However, we do not want to lose sight of a second potential effect of falling prices on the financial sector, which is "debt deflation" (Fisher 1933; Bernanke 1983; Bernanke and Gertler 1990). By increasing the real value of nominal debts and promoting insol- vency of borrowers, deflation creates an environment of financial distress in which the incentives of borrowers are distorted and in which it is difficult to extend new credit. Again, this provides a means by which falling prices can have real effects.

[…]

> Once the deflationary process had begun, central banks engaged in competitive deflation and a scramble for gold, hoping by raising cover ratios to protect their currencies against speculative attack. Attempts by any individual central bank to reflate were met by immediate gold outflows, which forced the central bank to raise its discount rate and deflate once again. According to Temin, even the United States, with its large gold reserves, faced this constraint. Thus Temin disagrees with the suggestion of Friedman and Schwartz (1963) that the Federal Reserve's failure to protect the U.S. money supply was due to misunderstanding of the problem or a lack of leadership; instead, he claims, given the commitment to the gold standard (and, presumably, the absence of effective central bank cooperation), the Fed had little choice but to let the banks fail and the money supply fall.

* http://www.nber.org/chapters/c11482

The sooner that countries got off the gold standard in the Great Depression the sooner they started to recover.

* https://en.wikipedia.org/wiki/Gold_standard#Causes_of_the_Gr...

For a history of the use of gold as currency see The Power of Gold: The History of an Obsession by Bernstein (the second edition has an introduction by Volcker):

* https://en.wikipedia.org/wiki/Peter_L._Bernstein

Economic activity can be hampered by the lack of money if there is only a fixed amount:

> Although there are instances in economic his- tory in which moderate deflation is accompanied by economic growth, deflation as extreme as in the 1930s is virtually always linked to falling output and employment. The literature suggests various mecha- nisms through which deflation may affect production and employment. Three in particular appear to have played a role in the Great Depression (see Bernanke and James, 1991; Bernanke, 1995):

* https://www.snb.ch/en/mmr/reference/quartbul_2003_2/source/q...

It is possible to literally run out of money and not be able to do business:

* https://en.wikipedia.org/wiki/Great_Bullion_Famine

(Bernstein has a chapter on this.)

Austerity economic measures are associated with deflation (or at least deflationary tendencies) in the past as well:

* https://en.wikipedia.org/wiki/Austerity:_The_History_of_a_Da...

So we must trust that money printing is better, yet I have not seen any evidence of such a system being any better for average people than a gold-based system.

Do you mind explaining with an example what could potentially happen ? I don't see it. This is all I see :

1. Group A has tons of gold because it's the ultimate (physical) store of value. Group B has nothing.

2. Group B gets nano bits of gold in exchange for goods/labor.

3. Group A realizes the limits of their wealth.

4. Group A tries to convince group B of exchanging back their nano bits of gold for nano bits of paper + x%. They can also exchange their land and other assets for micro bits of paper + y%.

5. The system falls, everybody and nobody get blamed with no-one taking financial responsibility.

6. Group B ends up with tons of paper, zero assets and zero gold.

...

This has already happened several times and even though it's quite unlike in a modern economy, it looks like the world's historical evidence does not support the theory that this is any better for average people holding average nano bits of gold.

Fiat currency is a deal between the government & the people. Gold reserves seem to me like stakes between governments.

In other words, if my government holds a bunch of gold, your government will take my fiat currency more seriously.