The Demise of the Gold Standard
This is the fiftieth anniversary of the demise of the gold standard and the beginning of the current fiat paper standard. Many will say “good riddance” to gold and “thank goodness” for the “good ole greenback”! Reflection, however, produces an alternative conclusion.
To be sure, the opinion of current experts places great weight on paper money. Economists, bankers, and central bank bureaucrats are so universally in support of paper and in opposition to gold that a person would be hard pressed to think otherwise. However, Larry White has shown that monetary and macroeconomists are biased by the professional incentives they face.
In contrast, history has much to say in support of commodity monies, such as gold. Paper monies have lost value over time, with price inflation, as more and more paper money has been created. Paper money economies have also experienced instability in the form of business cycles and economic inequality, including the Great Depression and the post-1971 experience. In the limit, economies have resulted in hyperinflation or have facilitated war, most especially World War I and subsequent wars.
To resurrect the potential of gold, one only needs to reflect on the current use of the term “gold standard.” While we can no longer rely on gold for money, companies often attach the “gold standard” label to their products and services to advertise the quality, consistency, and reliability of their business. It could be protein shakes, delivery companies, or security systems; everyone knows what the term means even though they have no personal experience with gold itself.
President Richard Nixon ordered the “gold window” closed, preventing other nations’ central banks from exchanging their US dollars for our government’s gold hoard at $35 per ounce, as agreed under the post–World War II international agreement known as the Bretton Woods system. Why did he do so? Why in 1971, and why has this temporary dictate lasted fifty years?
Money came into existence thousa
Article from Mises Wire