A model of the classical gold standard with depletion

Abstract

The operation and properties of the classical gold standard are well recognized. However, one aspect that has not been dealt with is that gold has the characteristics of a durable, but depletable resource. In this paper, we compare the simple classical model of the gold standard with a model of the gold standard that incorporates the durable, depletable nature of gold. Using numerical simulation techniques, we demonstrate an inescapable tendency to long-run deflation when account is taken of the resource constraint. These results are consistent, with and without technological progress and variable real rates of return.