Summer:

The definition you linked for a gold standard is but one possible definition of a gold standard. Unfortunately the editors at Wikkipedia (which I like, on occasion), in trying to produce a really, really concise definition of “gold standard,” manage instead to misrepresent it.

There are gold standards and there are gold standards. The type that Wikki describes has the government establish a legal exchange rate between a dollar and a specific weight of gold. Most often this applies to gold in coined form; commodity gold can have an entirely different value in the market (another issue). A dollar will always exchange for the same quantity of gold under a fixed gold standard. The desired effect is to stabilize prices. This is a policy that falls apart badly, however, once the commodity price of gold diverges from the official price of gold.

An entirely different gold standard simply requires that paper money be exchangeable for gold at the market price of gold. A given quantity of gold will “cost” you different numbers of dollars at different times. Conversely, the amount of gold you can claim with a given number of dollars, unlike under the fixed standard, will change as the value of commodity gold changes. If the value of commodity gold rises, your dollars will “buy” you fewer ounces of gold, etc. This is akin to purchases of mutual fund shares, where the total number of shares you own varies inversely with the market price per share. There are no guarantees of stable money prices in a flexible system, so value and cost are fundamentally tied to the relative value of the real commodity, gold.

Neither of these gold standards insulates you from changes in market prices. Under a fixed standard, you pay more dollars if prices of goods rise. Under a variable standard, you pay the gold-equivalent price of a good translated into dollars; the number of dollars you pay is simply a consequence of the relative price of gold at that moment.

Wikkipedia may be trying to present a too-simplified version of this concept, resulting in a non-representative snapshot. I have sympathy for the task of providing a simple description of a complex topic, though.

As Douglas Adams fans will recall, the description of “Earth” in The Hitchhiker’s Guide To The Galaxy offers this very, very concise summary: Mostly Harmless. A bit too economical, perhaps?