I'm not sure how an oil standard would work in practice, but I think it is related to the proposals for a commodity reserve currency which were developed by Frank Graham and Benjamin Graham during World War II, and later on refined and submitted to UNCTAD in 1964 by Hart, Kaldor and Tinbergen. Milton Friedman was a strong opponent. I don't know what happened to the idea subsequently, though there do seem to be scattered papers about it almost to this day.

Returning to the original idea: Suppose we had an oil standard, and "peak oil" becomes a reality. Then as the supply of oil dried up, there would be drastic deflation. As prices collapsed, so would credit, as it did in the early 1930s. Would we have another Great Depression?

Benjamin Graham also proposed the adoption of a "commodity-reserve currency". This would work effectively like a Gold Standard, except that backing up currency would not be that single volatile commodity, gold, but rather an entire basket of commodities. Gold and money fluctuate in their purchasing power of staple commodities. The "gold reserves" which previously determined the supply of money in the Gold Standard would be replaced with the very "commodity reserves" of the ever-normal granary, thus anchoring the money supply to real purchasing power, impervious to political manipulation (as in the modern system) and far more stable than a single commodity (as in the Gold Standard).

Wow, a guy takes a few days vacation and misses the most interesting conversations.

Having read a paper by Keynes, my habit is to always follow with something by Hayek, and vice versa. 

This Hayek paper: http://www.iea.org.uk/files/upld-book409pdf?.pdf has some interesting ideas about granting the ability to issue currency to the common man, but I don't think it's practical. It's still an interesting paper, based on when it came out (mid-70s, after Nixon had reneged on his promises to follow the Chicago school), and its criticisms of the Keynesian view. If nothing else, it's an interesting look at how frustrated Hayek was becoming in the days before Thatcher and Reagan.

Back to the topic of a commodity-linked currency, I wonder how you would decide which commodities get included? I start with the premise that the purpose of such a thing is to link to 'real' assets (non-financial, in phorgy terms), so that governments would lose the ability to have loose monetary policy. In that case, should real estate count? The difference with real estate is that it is not so easily measured, one unit of real estate can't be easily measured. But what about wheat or orange juice? They can be measured in standardized units, but they are different in that they are the result of a production process, and if you include them you're giving a lot of power to certain producers, purely because their output is easily measured. There's room to argue that all commodities fall into that category, like Apine said: it's just a measurement of how fast you pull certain things out of the ground.

Even water could be a candidate commodity for the index. You may chuckle, but it fits all of the same criteria of oil and gold, and what if there is a global draught? It would become very valuable. Water water everywhere, and not a drop to spend. 

-t.

Yes but DrWes, a blackout could be highly deflationary, the speed of money could increase in the dark.

IAE: The reason not to use water is that a liter of Disani doesn't cost the same as a liter of Evian. Actually, put Frank Herbert's books on the list that you don't have time to read, the Dune series is a good place to start for water economics.

apine: if people are in charge, there is no difference from a federal reserve system   That was Hayek's criticism also. I think everyone agrees that regardless of the mechanism, freedom from political pressure is a crucial element, he writes that a government can never attain that sort of system. I think the position of the Fed does a decent but imperfect job at this. It is interesting to me, though, to try to think of ways to tie monetary policy to some sort of free market mechanism. Maybe not commodities, but I think there's still something there. It's not immediately evident that it would be better, just an interesting thought. Some people seem to think of capitalism like stem cells. Got acne? Just rub some of these stem cells on it, that'll fix you right up. And if not capitalism, are there other non-discretionary mechanisms, such as some sort of tie to employment numbers. Did I just start down the path to DoctorWes's labor reserves?!?

-t.