Greetings,
I am brand new to this site. I've followed Austrian Economic Theory for some time and am generally familiar with it and generally agree with its concepts, but there is one issue in particular that has nagged at me, and it is this: under a true gold standard the money supply would likely rise much more slowly than the number of goods and services on offer in the economy as a whole. By definition this would result in a persistent and gradual deflation, which the Austrians acknowledge and insist is a non-problem. While I can see the benefits of a slowly appreciating currency (savers wouldn't be forever looted, for one), I wonder about some of the less obvious problems. Somehow the population would have to get used to the reality of ever-decreasing nominal home values, ever-decreasing nominal wages, along with the ever-decreasing general price level. People being the way they are, they like paying less for things but they don't much like getting paid less, even if their real wages are actually higher in terms of purchasing power. And then there is the matter of long-term contracts such as mortgages, which will become relatively more burdensome over time.
Presumably the market would adjust to the new system, but it would take a certain amount of time. Can someone explain to me how long-term contracts might be structured under such a system to account for the general deflation so debtors aren't unduly burdened? Would contracts be indexed to deflation such that payments were gradually reduced in nominal terms over time?
The same as today are indexed to inflation.
Falling prices due to an increase in productivity is not falling prices due to deflation. Deflation is falling prices due to a decrease in the money supply. This causes the value of the currency to increase relative to other goods and services because of supply and demand. (According to the Austrian school of economics point of view). The cost of computer hardware goes down and its performance goes up because the industry's productivity is greater than the rate of inflation. No one is saying that the Deflation in this industry is bad.
Wages would increase with a gold standard not decrease. When the US went back on the gold standard in 1879 wages rose by 20% over the next 10 years I think. I still have to find the link where I found that info.
Falling prices due to an increase in productivity is not falling prices due to deflation. Nevertheless, people will consider the fact that money purchasing power is incresing, and contracts will be indexed accordingly.
Of course! Thanks for the reminder. I should know better than to confuse deflation with productivity price declines.
i saw thomas woods refer to it in you tube lecture
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