That’s right, and an external standard like the gold standard helps mitigate political meddling.
I wouldn’t say the dollar is so much backed by our goods and services as the dollar measures the price values of our goods and services. All you’re doing is fixing a standard value measurement to the dollar, like fixing a standard measurement to your scales at home. When you don’t change the standard measurement of your scales at home, you can rely on what’s its telling you about whether you’ve lost or gained weight. In the same way, when you don’t arbitrarily change the relative measurement of the dollar, you can rely on prices giving an accurate reading of value.
That’s right, and an external standard like the gold standard helps mitigate political meddling.
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It helps, but the crooks can usually find a way around it.
We were on the Bretton Woods system for a while which backed the dollar with gold but only in the foreign exchange system. When France demanded gold for their dollars, Nixon had to put an end to the system, and the inflation problem we had in the 1970’s was the result. It wasn’t Nixon’s fault, but the fault of all the spending the crooks did and were able to get away with because the dollar had a propped up artificial value. (The conversion rate was manipulated by the crooks in DC.)
I think it can make sense to back a currency temporarily in order to restore confidence in a currency, but other than that it gives a false sense of security in the long term and adds costs to the monetary system.