This has been a very interesting debate so far. Few reflections:
Why gold standard? What could be a good standard?
We need a currency that will not depreciate over a period of time. Therefore, having the currency backed by gold, or silver, or any other precious metal, will surely ensure its stability. There are possible pitfalls, like a sudden discovery of a lot of gold, which could damage the currency of any country that has a gold standard.
This happened with the Indian Raupyakam or silver based Rupiyah, due to sudden discovery of silver, which made silver more abundant, and therefore, very cheap. The metals must be easily storable and manageable. There are metals that are dearer than gold, such as uranium and plutonium. They, however, cannot be used as a standard, for obvious reasons, although their value is more likely to increase over the period of time.
Another risk is that the people of the country may not have a direct control or influence on how many currency units are being put into circulation against what amount of gold in the reserves. This could be overcome by actually minting coins in gold, silver, or alloys thereof.
This further introduces the problem of goldsmiths scraping off metals from the sides of the coin, as happened during Muhammad-bin-Tughlak's time. There is a remedy. Use serration on the outer edge of the coins to know that they have been tampered with. Even then, they will not be immune to wear and tear, and thus , is not a practical solution.
Now that brings us to the point where, as we find a solution, we see there is a problem. How about we go back to the barter system and see how it could work? Just like the governments of many countries, take into account prices of food grains and other essential commodities to compute the exact value of the currency, and therefore, inflation rate, one needs to think why. One cannot eat gold, or silver. Society needs basic items, like food, clothing, etc., to survive. In the time of needs, these things become more valuable. In the hypothetical scenario of extreme scarcity of food and oil, but abundance of gold, one could see people trading in all three, but essentially needing only food and oil.
Gold could be a non-essential medium, in the absence of which, one could simply go ahead and barter their goods. Therefore, a community with lot of food but no oil would simply trade food for oil with another community with lot of oil but no food.
One very important example to cite here would be the USSR. They had the Rouble, but they thoroughly studied the way the world economy functions. However, much of the secrets of world trade and commerce were already known to the big banks and money lenders of Europe, who happened to be Jews, but not as much to the common people on the streets. The possible pitfalls of the (then and now) current system of currency was well known to Karl Marx, a Jew himself, although that might just as well be coincidental.
Moreover, the drastic inflation of post WW1 Germany, which was intentional, was also well known. They deliberately printed a lot of currency bills, so that, when repaying their debts, they were actually giving away worthless money.
The USSR did not want to have too much reserves of foreign currency anyway, rather relied much on the barter system. The Soviet Navy sent out large ships all across the oceans, that had fishermen, processing and canning units, workers' quarters, cinema halls, shops, everything. In other words, these were floating villages. These ships would stay in the high seas, catch fish, crabs and other marine animals, clean them, pack or can them, and then take them to nearby countries, hand them over, and get other goods in return, but not US dollars (with exceptions, of course).
This way, the USSR tried to keep itself buffered from the manipulations of the US dollar. The PRC also tries to emulate this in most of her foreign dealings, but now, that she has US government bonds, which are nothing but pieces of paper, the honchos of PRC might as well have a couple of extra worry-lines on their foreheads. In this context, Ron Paul probably is saying the right things to save the US dollar. However, that will put many of the financial corporations out of business, and expose the fallacy of the premise on which the world economy is run.
So, we come back to the same question.
We cannot trust a currency that we do not control. We cannot be held liable for any currency that we do not have complete control or right over. Yet, courts and laws enforce the currency, not the mass of gold each currency unit was equivalent to, when the transaction started or the terms and conditions were agreed upon.
So, we need to have a currency that stays stable, or we can simply go back to the barter system. As rudimentary as it might be, the entire transaction is crystal clear in front of the eyes.
