Also, aggregate welfare is not a constant. Aggregate welfare is a variable. We increase welfare by creating value. By creating value we somehow create inflation.
That’s the opposite TC: increasing welfare --> increasing money’s value
Inflation is caused by increasing money supply, not by increasing welfareImagine a close economic system
Aggregate welfare (GDP) = 3 apples
Total money supply = 3 $
Everything works fine
GDP increases of 47 apples, so now we have
GDP = 50 apples
TMS = 3 $
Each $ can buy now much more apples than before. That’s the opposite of inflation.
Inflation is caused by increasing money supply, not by increasing welfare.
But let’s go back now to your main point: in a gold standard it comes to a point when there isn't enough money (gold)
So, GDP has increased, now in our closed economic system there are 50 apples vs. 3 $
The system can’t work anymore - you say - there are not enough dollars.
Of course there are enough dollars - I say: imagine each dollar = 100 cents, so
GDP = 50 apples
Total Money supply = 300 cents
Are 300 currency units enough in order to manage 50 apples?
Of course they are (remember: the purchasing power of each cent has increased through welfare's increase)
You say, well how about when GDP reaches 1000 apples?
Imagine living in a digital era, like ours, so minimum currency unit = 0,000001 $
GDP = 1000 apples
TMS = 3 millions currency units
3 millions currency units are more than enough vs. 1000 apples, I say
You are focused on quantity.
Quantity is a problem only where there is no currency divisibility (in our example, where there are only 3 $ banknotes, or 3 gold coins).
In a digital world, quantity is never a problem, because digital allows divisibility.