I believe in investing in bimetallic specie.When the relative market price of gold and silver changed, the use of gold and silver dollar coins was adjusted. Whichever metal’s price was rising, coins made of this metal were disappearing from circulation.For example, when the gold price rose relative to that of silver, gold coins were used to buy silver coins and gold coins went out of circulation. The fact that coins made of scarce (therefore more expensive) metal disappeared from circulation may have reduced the inflation rate and acted like insurance for price stability.After the American War for Independence, the U.S. introduced the bimetallic standard in 1792 and continued to be on it until the Civil War. The bimetallic system required adequate amounts of gold and silver to back paper currency. It also required establishing parity between gold and silver. In the 18th century, for example, parity was 1 ounce of gold for 15 ounces of silver. The government during the Civil War printed "Greenbacks" to fight it.After a decade following the Civil War, the U.S. introduced the gold standard in 1875.Long-term price stability has been described as the great virtue of the gold standard. The gold standard makes it difficult for governments to inflate prices through expanding the money supply. Under the gold standard, significant inflation is rare, and hyperinflation is essentially impossible because the money supply can only grow at the rate that the gold supply increases.In 1966 Alan Greenspan wrote "Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard
12 Feb 2016, 2:31 am
