Should the U.S. return to the gold standard?
The topic of changing from the gold standard to the system of floating money for the United States has been a debated topic ever since the United States had gone off of the gold standard in the year 1971. Before the system of floating currencies, most of the countries of the world had operated their monetary system upon the standard of gold. The gold standard had been a system where a country’s currency, such as the dollar, was pinned to a certain amount of gold. The currency would then be equivalent in value to an amount of gold, making the currency dependent upon the precious metal of gold. The United States is currently utilizing the system of fiat money, where the currency is floating, not dependent upon anything else. With the fiat system, the nation is controlling what value the currency holds, while depending upon the faith of the people in the currency.
The Gold Standard
The gold standard had certain benefits for the nations that had utilized it. One way in which the gold standard had aided countries was with increased stability for the currency of the country that used the gold standard, to prevent overspending by keeping the currency tied to an amount of gold that the nation had in store. The economist Alan Greenspan had stated that, “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value” (Alan Greenspan 1966). Alan Greenspan, with the quote, believed that the currency, was much more stable by being tied to gold, than free floating. Therefore, with keeping economic stability, supporters of the gold standard say that the gold standard would aid in preventing the overprinting of money and the consequence of more inflation, which would devalue the currency of the nation. The gold is also supported with the ideas of that it reduces the pull of government debt and deficit by making sure that the government of the said state would not be able to spend more money than the country has to spend.
Although the gold standard has its benefits, it also contains certain negatives such as with the entire country’s economy being dependent upon a supply of gold that the nation has in store. Along with that, the nations that do not have a supply of gold, were at a severe disadvantage, with the economic situation being worse off in comparison to other nations.
The Fiat Standard
The fiat system of currency, differed from the gold standard in that the currency was free floating and not tied to anything at all with the currency being held by the people’s faith in its worth. In the modern day, most of the world’s nations are currently operating upon the fiat system of currency. A benefit that existed with the fiat system was increased competitiveness between economies based upon the production output of that country, rather than the supply of gold that nation had. The competitiveness allowed for the free trade between different countries and for the country to control their interest rates along with exchange values. The fiat system of money is also said to allow for easier growth, with the amount of spending money not being pegged to a value that could run out. With such, the fiat system also allows for a nation to spend a quantity of money upon an expensive affair, such as investing into the sustainability of a certain business with capital investments without being limited by gold.
The fiat system, itself, had also carried negatives with its proneness to hyperinflation, which would make the currency worth at higher prices, yet the purchasing power of that currency would be in danger, placing trade in potential jeopardy. The famous philosopher, Voltaire, had once stated that, “At the end fiat money returns to its inner value—zero” (Voltaire 1694-1778). Due to the floating currencies, dependency upon the faith of the people in its worth, it makes the fiat currency susceptible to falling and crashing, if the people of a country lose trust in the worth of that money with soaring inflation.
The Gold Standard
The gold standard had certain benefits for the nations that had utilized it. One way in which the gold standard had aided countries was with increased stability for the currency of the country that used the gold standard, to prevent overspending by keeping the currency tied to an amount of gold that the nation had in store. The economist Alan Greenspan had stated that, “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value” (Alan Greenspan 1966). Alan Greenspan, with the quote, believed that the currency, was much more stable by being tied to gold, than free floating. Therefore, with keeping economic stability, supporters of the gold standard say that the gold standard would aid in preventing the overprinting of money and the consequence of more inflation, which would devalue the currency of the nation. The gold is also supported with the ideas of that it reduces the pull of government debt and deficit by making sure that the government of the said state would not be able to spend more money than the country has to spend.
Although the gold standard has its benefits, it also contains certain negatives such as with the entire country’s economy being dependent upon a supply of gold that the nation has in store. Along with that, the nations that do not have a supply of gold, were at a severe disadvantage, with the economic situation being worse off in comparison to other nations.
The Fiat Standard
The fiat system of currency, differed from the gold standard in that the currency was free floating and not tied to anything at all with the currency being held by the people’s faith in its worth. In the modern day, most of the world’s nations are currently operating upon the fiat system of currency. A benefit that existed with the fiat system was increased competitiveness between economies based upon the production output of that country, rather than the supply of gold that nation had. The competitiveness allowed for the free trade between different countries and for the country to control their interest rates along with exchange values. The fiat system of money is also said to allow for easier growth, with the amount of spending money not being pegged to a value that could run out. With such, the fiat system also allows for a nation to spend a quantity of money upon an expensive affair, such as investing into the sustainability of a certain business with capital investments without being limited by gold.
The fiat system, itself, had also carried negatives with its proneness to hyperinflation, which would make the currency worth at higher prices, yet the purchasing power of that currency would be in danger, placing trade in potential jeopardy. The famous philosopher, Voltaire, had once stated that, “At the end fiat money returns to its inner value—zero” (Voltaire 1694-1778). Due to the floating currencies, dependency upon the faith of the people in its worth, it makes the fiat currency susceptible to falling and crashing, if the people of a country lose trust in the worth of that money with soaring inflation.
Sources
- Harrison, Mark. “Did the Gold Standard Work? Economics Before and After Fiat Money.”CFA Institute Enterprising Investor, 9 Jan. 2017, blogs.cfainstitute.org/investor/2013/04/16/gold-and-international-reserve-currencies/.
- Bordo, Michael D. “Gold Standard.” Gold Standard: The Concise Encyclopedia of Economics | Library of Economics and Liberty, www.econlib.org/library/Enc/GoldStandard.html.
- “Gold Standard ProCon.org.” ProConorg Headlines, gold-standard.procon.org/.
- www.globalresearch.ca/.
- “Alan Greenspan, Gold and Economic Freedom (1966).” Constitution Society Home Page, www.constitution.org/mon/greenspan_gold.htm.
Moshe Seluanov 2017