The Present Fiat Monetary System Is Breaking Down

The heart of economic growth is an expanding subsistence fund, or the pool of real savings. This pool, which is composed of final consumer goods, sustains individuals in the various stages of the production process. The increase in the pool of real savings permits the expansion and the enhancement of the infrastructure, and this strengthens economic growth. An increase in economic growth for a given stock of money implies more goods per unit of money. This means that economic growth, all other things being equal increases the purchasing power of money.

Note that most individuals are likely to strive to improve their living standards. This means that individuals are likely to aim at expanding the pool of real savings, which will in turn strengthen economic growth and the purchasing power of money. In the framework of market-selected money such as gold, the purchasing power of money is likely to strengthen over time.

According to Joseph Salerno,

Historically, the natural tendency in the industrial market economy under a commodity money such as gold has been for general prices to persistently decline as ongoing capital accumulation and advances in industrial techniques led to a continual expansion in the supplies of goods.

Hence, in the framework of a gold standard, the purchasing power of financial assets such as stocks and bonds is likely to strengthen alongside economic growth. Note that stronger economic growth, all other things being equal, implies a strengthening in the pool of real savings; i.e., the pool of final consumer goods.

Under the present monetary standard—i.e., the paper standard—an increase in the quantity of money, because of the loose policy of the central bank, undermines the pool of real savings and in turn undermines economic growth. (Observe that loose monetary policy sets in motion an exchange of nothing for something.)