“>>"You want a commodity backed money supply...how do you set the value of the commodity?"
You don't set the value of the commodity, the commodity sets its own price- the price of the commodity is determined by 'supply of the commodity' x 'demand for the commodity' x 'the quantity of money in circulation ( which determines the value of each individual unit of money )'. When the money supply is stabilized ( because it is recognizable as a representation of the tangible assets that underwrite it ), then the price is formulated from the three variables listed in the equation above.
What causes huge shifts in prices ( like in housing currently ) is the instability of the money supply. Houses don't go from 200K to 500K and then back to 200K in the course of ten years because the supply and demand for houses changed that radically- the price rose and fell sharply because the third variable ( the money supply, born of credit ) was manipulated. Those homes were not worth double at the peak of the bubble, they experienced a doubling in price- and price is not value. Price is value that has been modified by the value of the currency the price is denominated in.
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