The gold standard is not a fixed exchange rate system because all nations on the gold standard use

the same currency. They use the same commodity as money. What about paper currency,
banknotes and government issued notes under the gold standard were not money proper. But as I
said they were MONEY MONEY substitutes, and they substituted for gold in exchange as
warehouse receipt. So you were trading claims to go You didn't need to trade the physical gold, it
gave you a greater security, it was more convenient to carry around claims to go it was simply a title
that that expressed the fact that you you were the owner of the underlying asset or thing that was
referred to so let's look at some money substitutes. Prior to 1920. banks could not only issue
checking deposits, but but private commercial banks could also issue their own notes. So let's take
one from the farmers and merchants National Bank of Los Angeles. Notice what it says it will pay to
the bearer on demand $20 The $20 is that gold ounce that will be paid to you if you bring in for
redemption, that piece of paper so people recognize it as what it was and it was clear what it was
like what was written on on the face of the note that it was a claim to gold. So let's talk about the
connection between the gold standard and money in prices. So when in redeeming $20 for a gold
ounce, they were not as a monetarist claim selling gold, they weren't selling gold to you, they were
just fulfilling their contractual obligation of redeeming that claim to gold. There was no sale involved
here because you can't you can't sell a claim against what it's claiming that that's just that that's just
a legal interaction. So in the long run under a genuine gold standard, the money supply is strictly
limited by goldmine or as we'll see more and more strictly by the balance of payments for countries
that don't mind gold, you can only increase bank no bank notes and bank deposits to the extent that
gold flows into the banks, there's some wiggle room there, they can change their their reserve ratio,
but for the most part, the money supply increases and contracts with flows of gold and this is
rational. This is embedded in subjective decisions that drive the trade. of goods and services. So the
result was that since we had a tremendous economic growth, let's say in the US after the Civil War,
we went from basically an agrarian nation before the Civil War to the mightiest industrial nation. In
the world by World War One, it was tremendous amount of technological improvement of saving an
investment and the accumulation of new capital and so on. And that caused the supplies of goods
and services to increase year after year, the money supply under the gold standard increased
extremely slowly, much slower than was the increase in supply of goods and services. So therefore,
the natural effect was for prices to fall and I call I call this growth, deflation, deflation that results from
from growth. You know, we were told back in the in the 1960s and 70s, when Keynesian economics
was riding high that inflation was always always accompany growth, growth was inflationary. That's
ridiculous. Economists have always recognized that that economic growth is all other things equal
deflationary but mainstream economists were beginning to recognize that today and then That's not
a bad thing. One thing I want to point out is that there's a natural market mechanism to keep prices
from falling too much in some sense, even under growth, deflation, you don't see it here. But prices
began to rise right around the late 1890s. And they rose all the way up until 1913. But that was a
natural phenomenon because it resulted from the gold of new discoveries in in sources of gold and
also new discoveries in how to extract gold from or so we had an increase in gold production from
year to year over those years and that drove prices up again. But that wasn't all simply an accident
where we found new sources of gold and so on. When you have a full in prices, all prices fall,
including the capital goods that are used in mining, extracting and exploring for gold so gold
becomes more valuable as as general prices fall the value of gold goes up obviously because it's the
other side of the coin. And as a result that's that that lowers the costs of producing gold exploring for
gold increases the profitability of gold lining