Isn’t there a way to downsize the economy without making society stop functioning and accommodate gold?

Not without colossal and extremely wrenching disruptions to the current structure of the economy, at least in the West. The problem here is the way in which (Western) economies finance that consumption. It is through debt, or credit, which mainstream economic models do an extremely shitty job of accounting for – the classical Keynesian aggregate models do not even bother with it, other than to note that “government spending” will increase output and therefore growth. That model does not explain how the government can and should finance such spending.

Nor do those models explain how consumers can finance that spending. The truth of it is that when people borrow on credit to finance current consumption, they are simply bringing consumption forward. This creates a severe structural imbalance, because you then have goods and services, with entire supply chains built around them, to finance current consumption at the expense of future savings.

Other nations with more sensible economic foundations do not have this problem – Russia is a notable example. Returning to a gold standard of some kind would, indeed, cut down on such conspicuous and unnecessary consumption. But the adjustment would be so wrenching, so brutal, and would require such a dramatic reduction in living standards, that it would be politically unacceptable in every way.

Consider: by the best estimates we have right now, the total amount of gold ever mined and extracted, in all of human history, comes to about 201,300 tonnes. The total market value of that gold, if we use a reference price of around US$1,756.66/oz (2021 prices), is US$12.5T.

The current global economy is over US$100T in nominal GDP.

And now you see the problem. Backing every last dollar, as it were, of that economic output with gold, would require, very roughly speaking, reducing output by 88.5%, with a commensurate drop in living standards. Note, also, I am talking in terms of GDP, NOT money supply – the two are NOT the same thing. If you were to back every last dollar in existence with gold, using M3 (the broadest available definition of money), the FUSA alone has something approaching US$22T in that floating around – not far off from its nominal GDP.

I stress this is a highly inaccurate heuristic. There are simply too many individual cases and variations and issues you would have to look at before figuring out exactly how much living standards would have to decline – some nations would be hurt much worse than others. Russia, for instance, would likely ride out the economic shock much better than most – but China, Japan, and the FUSA, being heavily leveraged and indebted nations, would be hurt very badly.

Nonetheless, there is nothing wrong with using a gold-backed, tokenised, blockchain-based currency of some kind for international wholesale settlements. It would bring some much-needed sanity and sense to global commerce, and would remove the power of the FUSA and its imperial vassals to block and ban nations they don’t like or agree with.

Isn’t there a way to downsize the economy without making society stop functioning and accommodate gold?

Not necessarily. The ruble is a great case in point. Russia has vast oil and gas reserves, yet the ruble has been sliding downward for weeks now against all major currencies. The reason why is simple. The Russian CBR and Finance Ministry like to maintain a trade surplus, and therefore have no problems with letting the currency slide along with oil prices – even though the prices of other Russian resources are going up.

Fiat currencies are not a good idea, at all, but they are here to stay – see Gresham’s Law, in which bad money eventually drives out good, for the reason why. The best we can realistically hope for, is something along the lines of a currency basket – a concept which, surprisingly, both Hayek and Keynes, diametric opposites on almost every other issue in economics, both thought was a good idea.

Note that the US is quite admirably ruthless about cutting off governments and successor governments of states that have bought our armaments if they don’t toe our line. We’re also just like the Soviets and Russians in selling “monkey models” of our equipment. They look the safe but lack the key features on the inside.