Comment: So

(See in situ)


It meant that the government forced silver and gold to be the basis for the currency and to be exchanged at a fixed rate?

Obviously, then, when one of the metals loses value it can simply be exchanged for the one that hasn't lost value, at the fixed rate...If the two metals' actual market value isn't unchanging, if, say, silver value drops internationally, someone can convert their silver to gold at the fixed rate, creating a gold shortage because gold is, in real world terms, being "purchased" extremely cheaply.

The rule, "Price fixing leads to shortages," sums this up.

When you fix the price of something too low, it is chronically underproduced and overconsumed, and there can never be enough.... When you fix the price too high, it is underconsumed, and, very soon thereafter, underproduced, since market demand *seems* to have dropped off.

So bi-metalism has nothing to do with the proposed gold standard, I'd say. The gold standard is an alternative to fiat currency. It just proposes that the currency be a representation of ONE commodity, but doesn't try to dictate how that commodity is priced in the market. The currency isn't a separate commodity exchanged with gold at any fixed rate, it's just a check for X amount of gold. If gold value drops off to nothing, same would happen to the currency.....Gold is, under this scheme, the actual currency.

With b-metalism, the price of gold and silver are FIXED, by government, in relation to each other, so as soon as there's an imbalance in their market value, one will be used to buy out the other at the fixed price, and you get shortages.