ELI5: The Gold Standard
I’ve always had a really basic question when it comes to discussion of returning to a gold-backed currency. What happens when there’s not enough currency?
For a simple example: imagine a country whose entire economy consists of one cow and one gold coin. The price of a cow is one gold coin. In this situation, there is the same amount of circulating cash as there is goods to buy with it. All possible transactions (in this case, 1) can be completed.
Now imagine that the cow has a calf. Suddenly there are two cows, both valued at the price of one gold coin. It is now impossible for anyone to buy both cows unless someone gets lucky and finds some more gold.
What’s the economic solution to this?
Article from r/Libertarian: For a Free Society