Hence we must assume that embodied in all products is some unit of output, and hence of price, that is recognizable to producers and consumers and upon which they will base their decision. He dismisses the ability of price indices and inflation-indexed bonds to provide the proper substitute, though he does not mention what the standard may then be. As Chairman of the Fed, this silence is to be expected. Because, as mentioned earlier, the advocacy of having gold a formally recognized anchor changes the rules of the political game. Indeed, once currencies stay stable, the flows of capital depend entirely on relative fiscal policies, and relative ability to attract and retain skilled people.
Recent events show how changes in gold prices, and flows of currencies do that.
If the dollar is no longer anchored in gold, yet people nevertheless continue to look for an anchor to price and to enter into long-term contracts, two things can happen. Yes, troubles start, in spite of some much quoted superficial evidence to the contrary. Some will price relative to the dollar, others relative to gold, still others relative to the DM or the Swiss frank. And this is the world we are dealing with now. Under an official gold anchor a drop in liquidity would be automatically remedied by selling gold to the central bank.