A gold standard does not limit the size of an economy, only the amount the curency can be inflated. The economy doesnt grow because we continually inflate the currency calling it a larger number of dollars to denote the same buying power.
Oh yes... you’re right about a loose monetary policy, and I’m not defending that. What I’m saying is that when the economy does grow the money supply has to grow with it in order to prevent things like runaway interest rates. At that point either more gold needs to be dug from the ground or the value of gold must fluctuate which... isn’t all that different from what we have now.
I know the gold standard sounds good and I’ve bee there myself. I’ve been a fan of Rand for a long time and subscribe wholeheartedly to most of her objectivist world view. I don’t buy into the need for a gold standard anymore though. Gold is just as artificial a currency as are paper dollars.
It’s also not terribly practical. I don’t know the math offhand, but the initial price would have to be some orders of magnitude higher than it is now, because there isn’t even close to enough gold to back every dollar at the current price. The initial gold-backed price might be somewhere over $100,000/oz or more. We could issue new dollars, but the same conversion problem still sits. When an ounce of gold is a few years salary it becomes awfully difficult to manage those tiny quantities. And don’t forget— somehow we’d have to first get ALL the “old” gold out of circulation before adopting a gold standard.
Messy, and in the end it hasn’t really changed anything. More demand for fewer dollars raises the price of money. Instead of inflation there’d be not a thin dime of credit. Interest rates would be confiscatory such that the economy starts to choke and sputter and die back until it fits within the money supply once again.