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Can an economy based on the gold standard be self-sustaining?

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In a gold standard economy the total amount of money is limited. There is no flexibility in the total amount available for all purposes. The sovereign issues the paper currency, and each unit (say, a dollar) is backed by gold. The value of the dollar is constant if the price of gold is fixed. More about the gold standard and its history can be found at click here

Consider a country with a gold standard economy. Consider that the entire available gold stock is monetized. If all holders of the currency presented their currency to the government and demanded gold there would be just enough gold in the treasury to meet the demand.

Is such an economy self-sustaining? In operation the entire money supply is in the hands of the public. There is a marketplace, banks for lending at a reserve requirement of 100%, circulation of money, and saving of money.

The government collects taxes, from which it pays its debts. Its ability to borrow is limited by the total amount of currency available. Banks charge interest which is reinvested at interest, a long term use. Short term lending is what finances production of goods and services. The amount of gross domestic product (GDP) is limited. In turn, the amount of currency available for purchasing the GDP is limited. GDP cannot grow indefinitely with population growth. Therefore, when all available currency is in use, the portions available for the various uses of money are divided in a zero sum game. This situation is unsustainable.

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I am a retired physicist and hold a B.S. in Ch. E. as well. I have been an environmental activist since the early 1970s. I was a founding member of the Save Barton Creek Association in Austin, TX. In 2006 I was a member of a select committee (more...)

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