The Quantity Theory of Money and the Disaster it Has Caused

by Martin Armstrong
Armstrong Economics

QUESTION: You say that the reason why gold went up when the stock market crashed in 1929 is because gold was money back then. But what if you have it the other way around, and the reason why the USD was strong was because it was backed by gold back then? Now the USD is a fiat currency backed by nothing. Maybe the springboard bounce in prices will be in commodities?

ANSWER: Gold acts completely different under a gold standard than as a commodity. You really have to stop looking at money as having to be backed by some tangible item. It is backed by the CONFIDENCE in the people. China, Japan, and Germany, all rose from the ashes without GOLD. How was that possible without some backing? The value of any currency it the total productive capability of its people. China rose to the 2nd larges economy because of its people. Russia was oppressing its people and thus did not boom despite all the resources which others did not have. Under your theory, Russia should have the strongest currency.

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