What most people don’t understand is that for over a hundred years in both the UK and the US there was basically no inflation because both were on a gold standard. When your currency is real money(gold) you don’t have inflation. However when politicians and or central bankers want to create money to spend on wars and or social programs to buy votes, they cannot do so if a country is on a gold standard. This article is must reading for anyone who doesn’t realize this or just needs a refresher in the basics of money and banking.

 

 

“The current situation of currencies with no relationship to gold has only been in place for fifty-two years. Before that, the link was gradually eroded from Roosevelt’s ban on ownership by American citizens in 1933, its revaluation in dollar terms the following year, and the Bretton Woods agreement in 1944. In has been a journey away from sound money lasting ninety years. Despite this progressive attrition, prices, particularly of commodities and raw materials were relatively stable before the ending of all links between gold and currencies. Now we should turn to empirical evidence of price behaviour under a proper gold standard, as shown in the chart below.

This is the only long run of statistical evidence of price stability under a gold standard and is of wholesale prices in the UK following the Napoleonic Wars. As usually happens, there was a post war slump as war spending ceased, reversing war-time inflation, and leading to lower prices. The gold sovereign coin standard was introduced in 1817, which continued to be exchangeable for Bank of England banknotes until the First World War. And as the new gold coin standard bedded in, the cyclical changes in price levels gradually diminished, partly due to improvements in the banking system, such as in the clearing system set up by the London banks, which was joined by the Bank of England in 1864.

Before 1914, the British government paid down most of its record high levels of Napoleonic War debt. Through industrial development, the British economy improved the living standards of the people substantially. And despite its diminutive size, Britain became the wealthiest nation in the world. As can be seen from the chart, after a shaky start producer prices became remarkably stable, barely changing in aggregate over almost a century.”

https://www.zerohedge.com/markets/why-credit-needs-golden-anchor