These guys ditched gold, and their successors could too (Universal Images Group) 6) The gold standard wouldn't eliminate political money The Federal Reserve is a far-from-perfect manager of the economy, but it does a lot better than that. The Great Depression lasted 43 months, and only ended when the United States quit the gold standard and allowed itself to reflate the economy. It was followed by a 38 month recession from March of 1882 to May of 1885. The recession that started in October 1873 during the heyday of the classical gold standard lasted a shocking 65 months. The recession associated with the 2007-2008 financial crisis lasted a long and painful 18 months. The fact that nobody is doing this is sending us a powerful message about the suitability of the Fiat Dollar as a currency. If it were actually the case that the Federal Reserve was systematically debasing the dollar in a way that could be easily avoided by pegging its value to gold, you would see people attempting to exploit this in their economic interactions. But people put up with lots of hassles for the sake of money - that's the whole premise of working for a living. In part nobody does it because it would be a hassle. Workers could try to demand gold-denominated salaries. ![]() Businesses could pay their workers in gold or gold-linked instruments. But one of the pleasures of living in a free society is that you don't have to follow official statistics. Goldbugs sometimes profess to believe that the official inflation statistics are somehow rigged. 4) There's nothing stopping you from writing gold contracts These days the inflation rate is very low - in the 1-2 percent range - so there's no inflation problem for gold to fix. Then when Volcker's interest rate cuts led to a massive economic boom in 1984 and a landslide re-election for Ronald Reagan, most conservatives sensibly realized that there's a lot to love about countercyclical monetary policy. When Paul Volcker proved in 1980-82 that he was perfectly capable of ending inflation in the context of a fiat money system, people lost interest in novel inflation-fighting measures. That led to a surge in thinking of ideas about how to curb that inflation. In the 1970s, the collapse of the Bretton-Woods exchange rate regime was followed by a big burst of inflation. But it doesn't consider the question of why it fell off the agenda. The Standard spends considerable time dwelling on the fact that a return to gold was part of the original supply-side agenda of the late 1970s and early 1980s. I whipped inflation with fiat money (Universal images) But it has nothing to do with gold, and would constitute a massive regulatory intervention - not a step toward freer markets. The argument that it would be better to ditch floating exchange rates and return to a system of fixed exchange rates would be interesting to make. ![]() It's the common pegging that's doing the work there, not the gold. ![]() But that's not because the United States dollar was backed by gold, it's because all major currencies had their value pegged to gold. One property of the classical gold standard that people are sometimes nostalgic for is that it prevented exchange rate fluctuations. 2) A gold standard wouldn't stabilize exchange rates Gold is just another commodity and using it as your currency offers no guarantee of protection against rising prices, especially of the kind of rising prices of staple commodities that most bother people. You can see that gold does not have some magical property that causes this to be stable. But there is no reason to think that pegging the dollar to the price of gold would systematically stabilize prices.Īs an example, above you will find the price of a barrel of oil measured in troy ounces of gold. There is essentially one-to-one overlap between gold standard enthusiasts and people worried about inflation. Here are 7 reasons it's a bad idea: 1) A gold standard wouldn't stabilize inflation This idea pops up in right-of-center circles constantly, but it's a pure figment of ideological thinking totally devoid of upside to anyone at all. I'm skeptical, largely because as you move into the further reaches of crankery you find plenty of hard-right monetary views that clearly make no sense.įor example, the new issue of The Weekly Standard has a piece urging the GOP to "Go Bold With Gold" as in the gold standard. Paul Krugman was writing a bit last week about the enduring appeal of economically harmful hard money policies and whether there was some way you could tie to this to the class interests of the super-wealthy.
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