Currency, Commodities Revisited

James Hamilton raises and answers an interesting question: what if we'd been on the gold standard?

If the U.S. had decided to go back on the gold standard in 2006, where would we be today?

Parts of the passage read more like speculation than thought experiment, but I was pleased to unearth this nugget:

Now, if the number of dollars you have to surrender to obtain an ounce of gold is fixed by the government's commitment to a gold standard, and the number of umbrellas, or cars, or chairs you'd be willing to surrender for an ounce of gold has gone up, the only way that can be is if the dollar price of umbrellas, cars, and chairs have all fallen. Maintaining a gold standard while the relative price of gold increases requires deflation in the dollar prices of all other goods.

Loyal readers will immediately notice the striking parallel.