The Inflation of Smaug
Original article from Slate.com
A correspondent writes in with an important question related to The Hobbit: If you killed Smaug the dragon and seized his apparently vast stockpile of gold (Forbes estimates it at $62 billion) wouldn’t you just get run-amok inflation?
Unfortunately, we don’t seem to have any way of estimating the total amount of gold knocking around Middle Earth so it’s difficult to know how large the impact would be. But this is essentially how the pre–World War I gold standard worked. Whenever a bunch of new gold mines were discovered, you’d get inflation. When existing mines lost their productivity, you’d get deflation. Most of the time this worked OK because gold shocks were relatively rare. But they did happen. Basing the monetary system on precious metal didn’t make inflation impossible, it simply meant it was a by-product of mining activity. Killing a very rich dragon would have a similar impact. To read the original article in full, click here.