Is inflation occur for countries on the gold system? Or is it thanks to fiat currency directly? It absolutely can occur when countries are on a gold standard. Between 1913 when cpi was started and 1971 cpi went from 9.9 to 40.5, an average rate of about 2.6 percent. 1971 is after we went off the gold standard - even between 1913 and 1935 when the US government stopped allowing people to exchange their gold certificates for gold, and therefore the year when some believe we “really went off the gold standard” we still had an rate of inflation of 1.7 percent. This despite economic contraction and a median rate of minus 5.5 percent from 1929 to 1932. The reason you'll still have inflation with a gold standard is because it's not solely the dimensions of the cash supply that determines prices, it's the quantity of paying. For the identical funds spending can increase if each unit of the cash supply is spent more often on the typical in an exceedingly given period. the amount of times, on the common, each unit of the money supply is employed for spending in an exceedingly given period of time is thought because the velocity of cash (V). Total spending is that the size (face value) of the (base) finances (M) times the rate of cash (V) spending equals MxV If total spending increases quite the number of products and services sold, we've inflation An interesting thing though (which we don’t face with fiat money) , is what happens if the money supply stays fixed, but we start to succeed in the bounds on how high the speed of cash can go, then spending increases slow and eventually stop, when velocity can increase no more that is inflation slows until there's no inflation If, under those circumstances, if we've increased our productivity or total production because of increment, in order that we are literally buying more goods and services than previous years, then we will find yourself with a deflation, simply caused by an inadequate cash in hand. Deflation causes major problems in economies that depend upon lending, as all modern societies do. (In my view lending doesn't increase the money supply, it increases the rate of paying of the bottom money supply), so at that time it behooves governments to search out ways to extend the bottom funds and even once we were on gold standard that occurred. In the late 1800’s all the ruckus to urge currency supported silver was because of an inadequate finances in 1935 the US changed the worth of gold from 21 dollars to 35 dollars an oz in order that they could print more cash in the 1900’s there was currency backed by silver, (remember silver certificates) all of this was necessary because of an inadequate funds and reaching the bounds on velocity of cash..
Yusuf Bhandarkar - Social Bloggers, Social Worker, Karyakarta, from Nagpada Kamathipura of Mumbai India Ward 213
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