Fiat currency allows for no limits on either inflation or deflation, both of which are disastrous to economies. Fiat currency also doesn't actually *mean* anything, other than the government accepts it as payment for taxes (why the government would accept a worthless piece of paper as payment is beyond me). The gold standard is completely disconnected from the standard of living (how is gold going to help me unless I'm a dentist, jeweler, or electrical engineer?), and effectively ensures deflation. Also, the cost of mining it just to put it in an underground vault is effectively a tax on it's value. Our currency needs to be backed by something real, and something that correlates well to the standard of living and is free to inflate and deflate as necessary. That something should be energy, more specifically, electricity. It is highly connected to the standard of living. Everything, from purifying water to producing food to transportation to computing requires energy. What you pay for above the cost of raw materials when you buy something is actually the cost of the energy needed to convert them into the product, so prices denominated in an energy-backed currency are very useful measures of value. Everything can be accurately-priced in energy, even human labor and intellect, because the body and brain consume energy. It is also easily measurable and infinitely-divisible. From 1971 to 2008, the money supply has increased by a factor of 13, while the price of electricity has increased by only a factor of 5. So, in real terms, the price of electricity has dropped because it's production and use has become much more efficient. When productivity increases without an increase in the money supply, prices drop, resulting in a deflation, which is one of the main causes of the Great Depression With an electricity-backed currency, as electricity production and consumption becomes more efficient, the economy will grow and the money supply will grow along with it, so we should not have another productivity shock leading to another Great Depression. This is how it can be implemented: The government sets a guaranteed conversion rate, say $0.20/kWh (this does not imply that you can sell 5 kWh for $1, but rather $1 can be exchanged at the government for 5 kWh at any time), and determines an allowable range for free-market electricity prices, say $0.10/kWh - $.015/kWh. If the free-market price of electricity drops below $0.10/kWh, the government will increase spending and decrease taxes. This is accomplished through the central bank buying the government's bonds and decreasing reserve and capital requirements for merchant banks and credit unions. The government will also increase welfare, subsidies, government salaries, and investments in private and public projects. These changes last until the money supply is sufficiently inflated so the free-market price of electricity goes back in range. If the free-market price of electricity rises above $0.15/kWh, the government will decrease spending and increase taxes. This is accomplished by the central bank selling the government's bonds and increasing reserve and capital requirements for merchant banks and credit unions. The government will also decrease welfare, subsidies, government salaries, and investments in private and public projects. These changes last until the money supply is sufficiently deflated so the free-market price of electricity goes back in range. If the free-market price of electricity were to ever go above the guaranteed conversion price, the government will undertake even more severe austerity measures to deflate the currency, and once the free-market price of electricity goes back in range, the government will reimburse the difference between the free-market price of electricity during the crisis and the guaranteed conversion price. As a side note, the government will most likely have the central bankers fired if they allow things to get to that point. Nobody likes living in austerity. The government should try to increase the production of electricity and decrease demand first. This type of currency allows the money supply to keep pace with economic progress. Since electricity is literally money, there is a great incentive to develop more efficient generation, transmission, and storage technologies, as well as design devices to be very efficient. The goal is to have the purchasing power of the currency slowly increase over time as technological progress goes on. The government can then stop fiddling with interest and exchange rates, and let the free-market decide where they should go. Also, if the government subsidized solar panels (and the appropriate load-balancing equipment to allow the generated electricity to be fed back into the grid), the nation's supply of electricity will be massively increased, leading to an increase in the money supply, which leads to more economic expansion and prosperity. Liquid Fluoride Thorium Reactors have an extremely high ERoEI, and are very cheap to run, as thorium is quite abundant and fuel processing is very easy. Replacing the current tax code with a land value tax will also encourage development and deter real estate bubbles, and ensure the tax burden falls only on those who have the most ability to pay. It's also impossible to evade or externalize.
You might as well just say $1 is worth one atmosphere (atm or 1 bar in metric). I don't think you quite understand why gold works as a currency hedge against inflationary fiat models.
Electricity has to be produced. Gold has to be mined. Those require capital, labor, land, and entrepreneurship. Air does not cost anything to produce or use. A kilowatt-hour is a measurable quantity of energy. An atmosphere is a unit of pressure. Gold is deflationary, because it is mined and refined only to be put into underground vaults, and those costs are effectively a tax on everyone. It benefits no-one and has no correlation with the standard of living. It's supply is fixed, so price levels become highly volatile instead of being correlated with supply and demand. Increase in economic output requires more money to be created to prevent deflation, and with a fixed amount of money, that can't happen. Deflations have caused more damage to economies than inflation. Deflation causes the real value of debt to increase, because the currency is worth more. People stop investing, spending, and borrowing because prices continue to fall and debt is harder to repay. Unemployment rises. This leads to economic collapse due to total lack of liquidity and credit. Case-in-point: the Great Depression. A little inflation is okay. Any amount of deflation is dangerous.
It is good to be thinking about other commodities that could potentially be used to back currency. I am not so sure about electricity. It is generally tightly controlled by government regulators and monopolies are granted to choice corporations. The price of electricity is a far phenomena away from a free market.
We should eliminate those regulations, and subsidize solar, liquid fluoride thorium reactors, and wind power. And the price of electricity does fluctuate with supply and demand from minute-to-minute. It has futures markets. Also, everything that can be used as fuel can be converted into electricity; one barrel of crude can provide 1.7 MWh of energy. So, if the free-market price of electricity was $0.125/kWh, a barrel of oil would be worth about $212.5, which is almost three times the current price, so this alone will encourage the reduction in use of fossil fuels and encourage research into increasing vehicle fuel efficiency, and development of alternative power sources for vehicles. I'd personally love to have a LFTR-powered car!
That is a very complicated topic, discussing regulations for electric companies, do not have the time to get into it here. Just to throw an idea out, perhaps the government should run the power distribution, and private companies could compete for power generation? I am a proponent of thorium reactors, but I doubt they will become popular anytime soon, for various political reasons. Wind power can be good, but by itself is not reliable, and all those wind turbines are not desirable to be around, so should be built in remote places, if the power can be brought to where people need it. With the environmental movement, they will not let just any fuel be used to make electricity. As for alternative power, I think natural gas power cars make the most sense. One thing for sure, it makes absolutely no sense to be using natural gas to make electricity, but be using electricity to power cars at the same time!
Now a kg of thorium, which can provide around 11 GWh of energy (http://energyfromthorium.com/2009/07/27/thorium-is-a-denser-form-of-energy-than-lng/), would be valued at about $1,375,000 at electricity prices of $0.125/kWh. And we have over 400,000 tons. That means the total value of our thorium reserves is just under $500 TRILLION dollars, and we have just under 4 exawatt-hours of electricity available (an exawatt-hour is one billion gigawatt-hours)! Since we only use about 29.26 PWh/year, we'd have electricity for about 130 years. Actually, we need to multiply that by the time between refuels, which is about 100 years. So we'd have electricity for over 13,000 years. We could export 99.9% of that electricity, and still be energy-independent. Based on this valuation, the land value tax could be as low as 1%/year, and the government would raise over $5 trillion in revenue to be used on education, healthcare, and welfare.
http://www.industrytap.com/thorium-fueled-automobile-engine-needs-refueling-once-a-century/15649 8 grams of thorium would cost about $11,000. But you'd never have to refuel in your lifetime. By switching to an electricity-backed currency, developing and commercializing thorium, and replacing all taxes with a land value tax, we'd solve global warming, the energy crisis, the national debt, inequality, etc. Anyone who owns land with thorium on it would become immensely richer, and the revenue from the 2.5% land value tax could be used to give everyone a guaranteed minimum income of just under $40,000 year. Then the only people who need to work would be those who either enjoy the challenge or those who want to become professionals, and people could afford their own healthcare and education, etc, so the government could pretty much just provide for national defense, federal law enforcement, and courts. The only reason you would be poor is because you're either a spendthrift or someone steals your checks. We should see a drop in crime as well.
Ugh..... 1) all money is psychological which is why a gold standard works but a wheat standard does not. People naturally gravitated to gold and silver only. The Spartans tried iron. The Egyptians used all commodities, there were bronze backed currencies such as in China. Feathers in Meso America. It's all been tried and Gold works. 2) you can't store energy. You can store gold. 3) Gold benefits everyone by preventing hyperinflation. Germany ended it's hyperinflation instantly by returning to a Gold standard. Regarding depression and inflation. They are not related. Deflation is loss of productive necessity, it is related to output. Inflation is value of currency relating to what is produced. Apples and oranges.
In my opinion, a "gold standard" only works if population is static, which it is not. I'm completely making numbers up, but if there are 10,000,000 ozs of gold in a population of 10,000,000, then it can work. But if the population grows to 20,000,000, and there are still only 10,000,000 ozs of gold, then there's no way to make that work, without artificially manipulating the value of an oz of gold.
You don't need to store electricity, since we have a power grid. The purpose of storing something is to access it whenever you need to. Inflation is rising prices, deflation is falling prices. Slight levels of inflation encourage economic activity, deflation depresses it. Look at Japan in the 90s. Nobody would spend any money, and the economy stagnated. Electricity is correlated with the standard living, and pricing things in terms of energy really puts prices into perspective.
How do you access electricity? OK let's get to the nuts and bolts of Gold backed economy. If you have account deficit with China then your Gold goes to China they store it until needed...it has potential economic velocity. If you back your currency with electricity and you run an account deficit with China where does that electricity go? China? How? If so...how do they store it for when it's needed?
You seem to be consistently failing in understanding what I'm trying to express, which I have expressed in very clear terms.
