Any Economists in the House?

Commodity money like gold and silver which are mined into existence.
Debt money which is loaned into existence.
Printed money which is spent into existence.

We have money system where the bulk of new money is loaned into existence. You want a new car. You need to borrow to buy it. You go to your bank and sign a note payable to them and in return they create a checking account for you out of thin air for you to pay for the car. This expands the money supply (checking accounts are part of the money supply); this enriches the bank because you pay them interest; the banks just settle up among themselves as checks are written so the newly created checking account never needs to be paid by the banking system although it may get transferred from bank to bank as people and businesses write checks with the new money.

All our money except for coins is debt on the books of some bank. The currency consist of bills of credit carried on the books of the Federal Reserve Bank. Checking and savings accounts are debts on the books of local banks.

One of the reasons this system is bad is that it is a privilege granted to banks to create new money and benefit from it by earning interest at your expense. This is a huge transfer of wealth from the pockets of working people into the hands of the bankers. Essentially this is fraud by counterfeiting.

Another reason this system is bad is that the newly created money is used to bid up the price of things which causes all sorts of problems. People living on fixed incomes suffer. Asset bubbles like the stock market bubble and the housing bubble result which are great for holders of these assets as the prices go up, but not so great for people who want to find a house they can afford.

Another reason this system is bad is that it has a fundamental flaw that eventually causes it to collapse. This flaw is that only an amount of new money is created in a loan transaction to eventually pay back the loan, but not enough to also pay back the interest also. Borrowing from banks expands the money supply; paying back the loan contracts the money supply; paying the interest contracts the money supply. In order to keep the total money supply from contracting enough new loans must be made each year to replace the loans being repaid and the interest being paid. If the money supply contracts or even does not keep expanding sufficiently then the economy slows down or contracts and we suffer unemployment and poorer business conditions. There would be natural swings in economic activity, but his debt money system greatly magnifies these swings.

Ultimately the shell game even brings down the banking system. It did in the 1930's and it looks like it is about to happen again today. In spite of the illusion created by Federal Deposit Insurance people today can lose huge amounts. The banks now have all these notes on their books (subprime loans in the news) which are secured by assets (real estate) falling in value. As the banks and other financial institutions write off these notes as worthless it brings into question their solvency, and since your checking and savings accounts are their liabilities to you, it also bring into question the value of those to you. Look at the banks and brokerage firms in the news that have needed to bring in new investors to keep solvent, and this problem is just at the early stage.

Even when we used gold and silver as money the banking system failed in the 1930's and this was a separate problem of fractional reserve banking where banks did not have enough gold to back all the checking account money they created; they only had a fraction of what they needed. They thought they solved this problem for themselves in the 1930's when they got the government to outlaw gold as money by confiscating it from the public and giving them unbacked money instead.; all they did was make it possible to expand the money supply faster because instead of the bank liabilities being partially backed by gold they were "backed" by debts, principally government debt.

Gold and silver as money coupled with the requirement that banks have 100% of their checking and savings backed by gold and silver in their vaults results in a stable money supply, and a more stable economy, plus people are not swindled out of their wealth by paying interest to banks on counterfeit money. And with a stable money supply, government would be forced to live on tax revenues instead of having access to newly created money which they borrow and can never repay.

As it is now we likely face a financial debacle and a failure of the federal government as well. See you in the soup lines.

Fiat Currency IN AND OF ITSELF is not Evil and not a problem.

After all, it’s “Just Paper.”

If people want to print paper and use it, then that’s fine. People have used many things in the past as money.

Remember, that Real Wealth is “Goods and Services.”

Real Wealth is NOT Fiat Currency OR even Gold for that matter. When Spain plundered South America and brought Gold back to Spain it didn’t make people richer. All that happened was that there was inflation in Spain.

The current problems with Fiat Currency are 2:

1) The Fiat Currency being “Legal Tender.”

Therefore, the Government can print as much money as they want DEVALUING YOUR SAVINGS and “FORCE YOU” to use the Fiat Money for your labor and for your goods. Since wages never keep up with inflation, the poor and middle class get screwed and the Rich get Richer.

2) The Reserve Currency Status.

The dollar is held “as wealth” in other central banks. The problem with this is that if those countries don’t want to use the dollar anymore, they can easily sell them. If they sell them, then once those dollars circulate back into the U.S. Economy (which they eventually because that’s the only thing foreigners will be able to buy with them), we get hyperinflation.

Result: Poor and Middle Class Americans get screwed.

At the same time, because of this “Reserve Currency Status,” our white collar jobs such as I.T. and Accounting, etc. can go abroad to India.

Result: Again, Poor and Middle Class Americans get screwed.

The Solutions are the following:

1) allow Gold and Silver backed notes to run/compete in parallel to the Fiat Notes and let the Free Market work it’s magic.
2) only allow Gold and Silver to be declared “Legal Tender.”
3) NEVER EVER AGAIN “Export” any Fiat notes to any foreign country. Fiat Notes IF they are to be used should only be used internally (in the U.S.A.) and Goods and Services traded to other countries should either be for Gold, Silver, or other Goods and Services

Would you trade a tennis ball for a loaf of bread? Maybe. You might even trade for a coupon with no expiration date for a loaf of bread. There might be all kinds of things you'd trade for coupons for bread.

The coupon is the dollar and the bread is the gold. Bakers can make more bread and issue more coupons, but they are limited by how much grain and overhead costs they can afford. They don't dare issue many more coupons than they have bread or they're out of business. In fact, they are going to want something in return. They won't issue the coupons unless they think you're going to buy donoughts, bagels and cake, too.

Or maybe the baker wants to buy your car, and trades for it in coupons for bread. You might go for that if you love your carbs.

The dollar we have now is a coupon that has no value except faith that you'll be able to trade it for something real before people realize the bakery closed and has no bread.

They keep issuing the coupons anyway, and pretty soon nobody really wants to have more coupons for bread, they'd rather have gold or silver or maybe a Euro.

IMissLiberty

Money's value is derived from what it can be traded for. This is subject to market forces. NO MATTER WHAT you use as "money" you take on a risk that this intermediary object may lose its value (or gain) compared to what you want to trade it for. To eliminate that risk, you should barter. But that's obviously inefficient.

The gold standard is meant to minimize that risk by relying on something that historically has been constant and valuable. But EVEN then, that doesn't mean that the supply or demand for gold won't change as new supplies are found and new uses for gold are discovered.

All money tells us is the relative exchange value between goods. If a Car costs $20,000 and an apple costs $1, all that says is that a car is worth 20000 apples.

Any change in the quantity money messes with those exchange values - which leads to a slew of undesirable outcomes (some tangible, some moral). Therefore most valuable characteristic of a currency is for it to exist in a fixed amount (or at least one that people can forecast accurately. Try forecasting how many federal reserve notes get printed in 2008).

Therefore, Fiat currency CAN be a good money if by law it remains fixed. And gold CAN be a bad money if massive amounts were found or taken in and out of the system to shock the system. BUT, since no system is perfect, we have to pick one that's the best given the circumstances.

What's more likely to be stable? An element of nature that requires extensive cost to mine and produce? Or a piece of paper that can be printed at the whim of a spendthrift politician. Keep in mind, that gold certificates can also be overprinted to represent gold that doesn't exist, but that's fraud and a justice system should hold people accountable for that. When our federal reserve notes are printed against the "credit of the US," to what can you point to show fraud has been committed?

Changes in the amount of money send wrong signals to the market. It contributes to wealth inequality through the inflation tax. It leads to boom and bust cycles due to malinvestment.

(Man, I love how everyone on this board is an Austrian....)

VERY EASY! when a currancy is backed by gold it means that the federal government cannot "print" paper dollars without putting more ounces of gold in their vault.. It keeps the governemnt in check and keeps their spending in check and the government cannot make promises to give out welfare/corporate welfare etc! with no gold backing the currancy it allows government to spend into debt thus FU4$#ING UP THE ECONOMY.. this is why we are at the point we are at now.. 9 TRILLION IN DEBT WITH THE GOVERNMENT ( which I think is a lie its higher) and 50 trillion in debt as a nation (personal/corporate/and all government state local and fed!) this is why you have a gold standard to keep the bastards in washington honest.. at that point they can not promise people in their districs their hand outs to get reelected because they cannot get into debt!

We haven't seen any discussion in this thread of the petrodollar concept.

A few months ago I posted a string that was named something like “Ron Paul knows nothing about economics?” . Within that post I indicated the exact opposite. I noted that the dollar had dropped about 50% of its value since 2001, that gold increased in value by 300% and that silver doubled in value. Additionally, I indicated that inflation was actually running annually since 2002 about 10%. The most important thing I said was to “BUY GOLD AND SILVER”. While all of that still stands, I have an additional thought. “BUY STORABLE FOOD”. What you will see happen in the next 2-4 months is this: Gold will hit 950+ , silver will hit $20+, the dollar will drop to 70 pnts (currently at 76). Inflation will reach YoY 12-15%, Oil will break $125 pb, and you and I will be freaking out on how we are going to pay to live. All of this will lead to a severe crisis in this country that will dwarf 1929, and I mean DWARF it by November ’08. Ron Paul will be the only one that will be able to stabilize the issue but it will take time. So please, consider the guidance above and don’t even think about giving up on Ron Paul. He is 100% correct about what is on the Horizon. He is very optimistic on when it will occur, but I’m not. Your best opportunity to preserve and make money is in silver rounds. If you can afford ounces of gold, go for it otherwise start purchasing silver. I will give you a few tips on what could happen this year:

-The death if the dollar USD index of 50 minimum pnts. This means the $76 in your pocket is now worth $50.
-Down breaks below 12,500 possibly to 12,300.. slight strong rally then a plunge to 10,000. A drop below 10,000 will crash the market to 7300 and then 4000.
- Inflation world wide but worse in the US because of the crash of the dollar and hyper-inflation. No one will take the $ anymore.
-There is also an indication that some high political figures are going to be exposed. Indications are that this will bring about a huge change in the political make-up of the U.S. possible unrest. 1929? No worse

These are some of the places I receive my info on a daily basis:

Deleted: look for my string when MANYSTROM APPORVES it. It will have my resource links in it.. node: 23533

Concerns over the state of the US economy continue to affect the global markets. Shares in Japan closed lower today, despite the hope that the Federal Reserve may cut rates in its next session.

Cut RATES? OMG… we are doomed

Tim
Active/Reserves/Retired
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We have an objective values of measure for length, weights, volume, time, etc. The constitution requires Congress to regulate these things...

"To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;" (Article 1, section 8)

So we have a standards for weights and measures that don't change! Before the US was formed, every time a new monarch came to power they'd measure his foot and we'd have a new standard for length. The founding fathers wanted to stop this. Congress has done a good job of maintaining the value of these.

However, in the same breath the Constitution calls on congress to regulate the value of currency!

Why don't we have an objective definition of the value of a dollar? We used to, it used to be that $1 = 1/20 oz. of gold. Not anymore.

Congress has abandoned its responsibility to regulate the value of our currency.

Whoever commands the troops and tanks at Ft Knox arguably has possession of a large portion of the gold. The rest is at the Fed Bank in NYC.

Ron Paul isn't advocating a return to the gold standard per se. That's sort of the horse-and-buggy version of a commodity-backed modern currency. He's advocating allowing private entities to produce competing currencies based on gold, silver (and hopefully other commodities).

Very little would change for the average consumer except that prices would stay stable. How is this? Well, we already have an economy heavily dependent on multiple competing voluntary currencies. These are called Visa, Mastercard, AmEx, Discover, Traveller's Checks, Paypal, etc. A currency could be described as anything held with the expressed purpose for exchanging for goods and services in the future. So what I am claiming is that Visa is a voluntary currency. When you pay for goods with a Visa card, you are receiving the goods in exchange not directly for $$ (you'd have to hand over bills for that to be the case), but for credit at the bank that issued the Visa. Visa is not legal tender, it is voluntary. Not everyone takes it. But Visa is a currency backed by the US dollar. The bank is promising to deliver US$ in exchange for their credit. So Visa meets the requirements of being a voluntary competing currency: it is exchanged for goods, is voluntary, and is backed by the "real" commodity of US dollars.

All you have to do is imagine banks backing their Visa credit with gold instead of US dollars.

Look at what the market has done with these competing currencies. First of all, they've become very technologically advanced, using electronic transactions, credit cards, etc. Plus, all of these different currencies have benefits and drawbacks that consumers weight the benefits of, such as fees, interest rates, convenience (how many people accept it?!?), etc. If Mastercard loses its value, people will switch to other cards.

(I've wondered if some of these new "high yield" savings accounts banks like ING are starting to offer, with 4% and higher returns, may be doing this already "under the hood"... immediately turning their customer's deposits into commodities, and liquidating those commodities when people withdraw. They would do it on aggregate, not for individual accounts, but I wonder...)

Anyways, Ron Paul just wants to loosen the laws and taxes concerning the exchange of commodities so they can be used like a currency. And probably alter the legal tender laws a bit as well. From what I understand, that's all he wants to do from a legislation point of view. Banks will create a market of credit and debit backed by commodities. Competition from other banks will force them to stabilize the value of their currency.

its real simple you cant inflate gold its impossible but you can inflate paper or most other item. the reaon gold is simple. it has a 6000 year history, its rare and requires productive labor. its divisible. it can be shaped into something portable. it doesnt deteriorate since all the gold ever mined is still here on this earth. its trusted by people of all nations. i can go on and on. if its not gold than anything that can restrain a government from growing its money supply beyond the rate of growth in the economy.

so far i havent seen it. with paper money government officials will raid the treasury and so will the people who demand a welfare state. so the politicos and the people work together. the politicos get the votes and the peeple get their welfare until the treasury is bone dry and that day my ron paul fans has arrived the only problem is the electorate hasnt figured it out.

Ron Paul has written two books on it, you can read them for free at mises.org

Here ya go:

http://mises.org/studygui...

Also, check out this article by Rothbard: http://www.mises.org/stor... for a start.

The primary reason for the benefits of sound or commodity specie is that it maintains the measure of wealth or value, whereas a fiat monetary system is, by its very nature, an inflationary system that must be constantly expanded in order to maintain economic growth. The problem with that is eventually the irreversible debt upon which the system is created will consume the very economy that is built upon the debt. In such a system, the debt and the supply of fiat money is proportionally equal and the debt can never be paid off or paid down without contracting the economy. The problem is exacerbated by the addition of an interest obligation on top of the principle debt which only compounds the entire debt burden on the economy.

Now, the problem gets very personal when the fiat monetary system is expanded to increase economic growth and the act of inflation causes the devaluation of the currency itself, this debases the purchase power of the currency and although it appears that prices are increasing the fact of the matter is that the money is losing its measure of value.

For instance: today it takes $21,230.00 to purchase what $1,000.00 bought in 1913. The value of the Federal Reserve Note compared to the 1913 Greenback Dollar has been effectively decreased by 99.952896845%. Now, for modern comparison sake, let’s take an hourly wage today and take the actual purchasing power of a 1970 Federal Reserve Note in comparison. Today, let’s say you make $15.00 per hour, in terms of real purchasing power in 1970 Federal Reserve Notes; your $15.00 per hour today will buy the same as $2.77 per hour did in 1970. An annual wage at $15.00 pre hour calculates to a gross of $31,200.00 has the purchasing power of $5,759.72 did in 1970.

As you can see, the fruit of our labor has been drained from us; we are basically turning into a feudal economy where we pay peonage to the “Lords of the Manor”.

Before He became FED Chairman..

He said the gold standard was the best..

Even Huckabee said in a debate..."the american dollar should be good as gold." He meant it as a metaphor but the metaphor is true. It should be good as Gold..

The Federal Reserve stole from the American people. They kept all the gold and told everyone that we couldn't redeem our bills for it anymore. It's our gold and they took it.

This is kind of education/discussion needed here.

Educate the masses to issues and RP positions.

1) anti-war and 2) economy with remedies along w/ education on same.

and rip it in fourths. Write "1 Doubter/Legal Tender for All Transactions". Give him one and tell that this is his currency and he can spend it on anything he wants -- if people take it. Explain that people will only accept it if they think it has value. You are telling him that it has value, does he believe it?

In front of him rip another paper. Write on it: "1 Gold Doubter/Exchangable at any time for 1/1000th of an oz of gold." Tell him that he can spend this on anything he wants. Notice that it's not stated as "legal tender", but that it actually has something behind it.

Which Doubter would he prefer? Which one is he more sure will retain some value? Which is simply paper with some fancy words on it and nothing behind it.

re[love]ution,
Dennis

Women and seniors, some of us have been screaming it for months.

If they knew their children and grandchildren were quite literally going to live in a bankrupt country in 2030, Dr. Paul would be vaulted to the top tier.

My team has been ready to begin production on an ad that was conceived, written and story-boarded by us in Dec. It has a special message that differentiates the Doc as the only fiscally responsible candidate in either party.

We retained studio time for this ad, a professional voice-over woman, and a graphics designer. But until we confirm that HQ or grassroots can/will buy airtime for good ads, we are holding off production, because another YouTube piece will not help Dr. Paul.

If you can bring something to our team, read more here, sooner the better:

http://www.dailypaul.com/...

-JP

in the first place is the fractional reserve system. If banks were only allowed to loan from non-demand deposit accounts and only what they had on hand then gold would never have gone out of favor. The gold standard collapsed because there was more money out than was backed so when foreign countries demanded gold for their dollars our gold supplies was being depleted. This would eventual have led to no gold in the repository but many dollars still demaning it. Get rid of fractional reserve banking and it doesn't matter who redeems dollars for gold.

In the end the governments basically believed it was their gold. In reality the gold is owned by the owner of each dollar with the government just holding it. But crooks will be crooks.

Here is the way I try to explain it:

You use money to exchange for goods and services. All goods and services have an exchange value expressed in terms of dollars. For example, a gallon of gasoline has an exchange value of three dollars. We typically call the exchange value of goods or services expressed in dollars the "price". But this exchange can be expressed the other way around. The amount of goods or services that a dollar will buy is the exchange value of the dollar. For example, you exchange three dollars for a gallon of gasoline. So the exchange value of the dollar is a third of a gallon of gasoline or one subway ride or half a paperback book, etc.

The dollar exchange value, or price, of goods and services is determined by the supply of, and demand for, the good or service in question. When the supply of a good goes up and demand stays the same, the exchange value of the good (the price) goes down. When demand goes up and supply stays the same, the exchange value goes up. This is the well-known law of supply and demand.

The exchange value of the dollar ALSO goes up or down in response to supply and demand. The supply of money includes actual printed dollars and fractional reserve bank credit. For purposes of your question we can ignore credit and focus on the currency. When the Federal Reserve prints paper money, it expands the supply of money. Expand the supply of money and the exchange value goes down. This is inflation. Inflation is experienced most painfully as higher prices for goods and services.

Government likes to be able to print money because it allows politicians to pay off special interests without raising taxes. However, because expanding the money supply reduces the exchange value of money already in circulation - and in your savings account - it is a secret tax that erodes people's purchasing power. Inflation has a number of very pernicious effects on the economy. It punishes saving and thereby erodes capital formation and it causes malinvestment. The housing bubble burst we are feeling now is the result of a correction of inflation-induced malinvestment.

Requiring that money be tied directly to gold limits the government's ability to create money to the relatively low and steady production of new gold supplies. Since government can only coin a limited amount of new money, it cannot inflate the money supply directly. So essentially the gold standard prevents the extremely harmful effects of the most pernicious kind of inflation. It forces government to raise revenue through direct taxation rather than the secret tax of an eroded currency and lost purchasing power.

It seemed to me the defining issue that unified dissatisfaction among republicans with their govt was the comprehensive immigration bill debacle last summer. It seems people have forgotten that until policy is changed, anchor babies+chain migration will ultimately give us 30million people each receiving $10000/yr of entitlements/accomodations from Fed+State+Local. Children grow, pay taxes, but sponsor others, continuing a burst of entitlement growth so this constant transfer of wealth with inflation represents today $300billion. As discussed in the ABC debate, inflation dependent resources costs such as food or oil vs. gold is constant so today w/ gold at $880/oz., effectively we will have a constant 10600 tons of gold transferred from citizens to non-citizens each year. I guess remote states like Iowa & New Hampshire are ok with that.

Besides all fiat money ends in disaster. The founders had a bad experience with the Continental dollar so that is why they wanted money backed by gold and silver. Even Ben Franklin was fooled into thinking fiat money was a good system. Every thing Ron Paul says about economics is spot on. The best moment in the campaign was Dr. Paul questioning Ben Bernanke on monetary policy. The 7 minute clip should be viewed in every economics class in the country. How can you cure the inflation problem with more inflation Mr. Bernanke? The American people are to dumb to appreciate the genius in Dr. Paul. They will turn to him when it is too late.

Put the SHEEPLE back in the pen, call the dogs home for chow.

"I have found an honest man."

Diogenes of Sinope

http://www.financialsense...

It's a good educational article to keep on hand; close in hand, in explaining to others what we will now be contending with in this economy.

... that a commodity will eventually seek the level of what it cost to produce that commodity. Money is the most liquid of commodities ( that is Mises' definition of money), the one commodity that is chosen above all others as a clearing house for our transactions. It must have no real competitive uses or those other demands will reduce its liquidity, and hence its usefulness as money. Silver has become less of a monetary metal over the years b/c of its industrial uses, for example.

The simple answer for why gold over paper is truly simple. The value of gold cannot be manipulated by injections of supply. It's too hard to mine gold from the ground, process it, purify and sell it to affect the supply in anything other than a market predictable manner, ie. based on current trends in the supply and demand for gold.

Paper or fiat money can be created with the stroke of a pen, the swiping of a credit card (ever wonder why credit cards have been so successful? Using one gives you the same power the Fed has and look where it gets many of us), the entry into a database. The cost of doing so is, nominally, the rate of interest you'll pay on the future obligation. But, at the margin, when the decision is made, the perceived advantage that creating the money gave you is greater than the future obligation. If it wasn't, you wouldn't do it.

Think about that the next time you use your credit card to buy gas to get to work.

In the long run, you who created the money get its benefit immediately, but there is now more money chasing the same number of goods, which means that people will be more willing to bid up the prices on those goods and therefore set a new equilibrium price, ie. inflation. By the time that money circulates a few times it has caused this price inflation and the person receiving it gets less benefit per unit of money than they did previously.

At the national level, the money gets spent by Government and the Banks first, they have the biggest credit card of them all. The Banks are operating in their self-interest as is the Government, not yours, and therefore they don't have a vested interest in keeping you solvent, only themselves.

Bernard VonNotHaus of the Liberty Dollar has a saying that is very true, "When the government controls the value of money, the government controls the people. And when the people control the value of the money the people control the government."

What you are willing to trade an amount of gold for helps to set the value of gold. This sets in motion the entire interplay between the demand for it as money and those who will seek out more of it to meet that demand, ie. mining companies. But, ultimately, your decisions in the marketplace determine the value of your money and that is the foundation of a civilized and prosperous society.

Ta,

You wouldn't let me buy products or services from you with rocks or leaves... a property of money is that it is considered a luxury or rare (as cigarettes were during WWII or in prison).

You wouldn't let me buy products or services from you with pork bellies or lettuce... a property of money is that it is not perishable.

You wouldn't let me buy products or services from you with pianos because you couldn't carry it home easily... a property of money is that it is transportable.

You wouldn't let me buy products or services from you with half a chair... a property of money is that it is divisible, that half a unit of money is worth half the value of that unit of money.

Gold meets all these requirements (other ones exist, too). Gold isn't that transportable, and with a gold coin worth $900... you couldn't exactly buy groceries with it. This is why gold-backed paper currency is ideal.

That being said, the reason money has to be backed is the tendency for governments to overspend and print the money. But if governments could only print as much money as there was gold (and to replace tattered dollars), then governments would be forced into fiscal responsbility.

but some form of backing where a definitive and objective value may be obtained. We set standards of measure for all conceivable purposes, time, distance, quantity, etc. Yet, we have abandoned any standard measure of value for the currency. Historically, a currency has had a backing with something of intrinsic value. The ancient Babylonians backed their clay tablet currency with grain stored in the silos of the temple of the sun god. Fractional reserve banking seems to have been developed in Medo-Persia around 700 BC. The resulting inflation from making clay tablets with no backing led to economic collapse. This scheme, using inflation to create booms and deflation to cause contractions and hyper inflation to cause economic collapse has been a recurring theme of this banking system through history. Keynes brought nothing new to the table. His economics is nothing more than an update of Thomas Malthus. These techniques are in play today. But if we allowed competing commodity backed currencies, we would not be tied to a gold backed currency. For example, the power companies could issue a currency backed by kilowatts. They would gain wide usage as everyone could use them to pay their power bill. Exchange rates could be established and kept constantly updated through the commodities exchange markets. Think of some possibilities, farmers issuing food backed currency, oil companies dollar pegged to the price per gallon of gasoline - just a couple of possibilities.

In theory, an increase in money supply should not affect the economy at all in the long run. Everything cost more, and price goes up as well as wage, and vice versa with decrease in money supply. However, that is only in theory and is not practical, due to the allocation of the money supply. The problem happens in the credit market where the money supply allocates the money to people with good credit, which does make sense from the risk involved. However, if you do that, then the rich are the ones who have the most to gain from this available credit. The available credit allows for more investment that is good for the wealthy in the long run, of course, this is at the cost to the poor. If the money supply isn't equally distributed, then we can see how this preferential policy can cause problem. That's why there has been an increasing disparity between the rich and poor. Of course, if the money supply was fixed, the rich would still be allowed to borrow more money than the poor, but if the people do not save their money, the rich would have no money to borrow from. So to borrow money, you need to give people incentives to save in the bank, so you give them higher interest rates and better distribution of the wealth. You might think this would cause a decrease in investments, and that will probably happen. Though you would probably noticed that the investments would less likely to be bad investments, and you would actually have investments that have higher probability of success. So we would likely never have something like the housing bubble, speculations would also be brought down, and likely see substantial decrease in oil price as a result. The gold standard is not needed, although the Constitution does say it's necessary. Just not printing more money would work just as well, but backing it with something is seen as a restriction of the temptation to print more money later. Essentially, having a fixed money supply would take out much of the preferential policy that is today's credit market, and creating enormous amounts of money from no where that makes the poor poorer, and the rich richer.

The Gold Standard is not better than fiat per se. It's just that using a gold standard is a way to tackle the problems (like inflation) that can arise from misusing fiat money. As a poster below noted, the secret is that money is whatever people agree that it is. Fiat money would work for the benefit of all people and their economy just fine if it were managed correctly. In other words, it must be managed by and for the people as a servant of the people. Value is not in money - the only value comes from labor of people - money needs to remain a convenient tool of exchange and nothing more. A government that controlled the money supply as directly proportional to the labor of the people plus or minus just a few fiat units would neither create inflation or deflation, and the economy would always truly be in balance - no gold standard needed.