Critics of gold argue that its relatively fixed supply cannot keep pace with growing economic demand for money and that a shortage would cause falling prices and stifled growth, necessitating central-bank expansion of the money supply to maintain equilibrium. 

The author counters that demand for money is demand for purchasing power rather than for a greater quantity of units, and that any increase in the money supply—even if matched by higher demand—still expands the stock of money and triggers the distortions associated with inflation. 

In an unhampered free market that has selected a commodity money such as gold, the existing stock is always sufficient to fulfill money’s role as medium of exchange; there is neither “too little” nor “too much” money, and no need for a central bank to manage its quantity.

Through the ongoing process of exchange, people eventually settled on gold as their preferred medium of exchange. Some commentators cast doubt that gold could fulfill the role of money in the modern world. It is held that, relative to the growing demand for money because of growing economies, the supply of gold is not growing fast enough.

According to Insider from June 15, 2011,

The basic problem is that the supply of gold is not related to the quantity of goods and services being produced. . . . As a result of this scarcity, prices decline. Individuals have less incentive to produce new goods and services. Economic growth is stifled. Allowing money to become scarce does the greatest harm to those who have the least. In the past, the relative inflexibility of the monetary system contributed to the chronic lack of growth in many of the world’s less developed countries. Since the 1970s, we have had one of the most flexible monetary systems the world has known, and many of these countries have flourished. With a flexible monetary system, more money can be created to accommodate more growth.

The basic problem is that the supply of gold is not related to the quantity of goods and services being produced. . . . As a result of this scarcity, prices decline. Individuals have less incentive to produce new goods and services. Economic growth is stifled. Allowing money to become scarce does the greatest harm to those who have the least. In the past, the relative inflexibility of the monetary system contributed to the chronic lack of growth in........

© Eurasia Review