Based on my limited understanding, bringing the gold standard back would help limit inflation, something Rep. candidate Ron Paul is arguing for, calling inflation a de facto tax on the middle class (and lower for that matter). [You can read a basic summary of Paul’s thoughts here]. But I also believe that the gold standard may inhibit investments in various things as well. I’ll now open the floor to those who are more knowledgeable than moi’.
First you have to buy the fact that inflation is all bad. Moderate inflation is usually good. The three choices are inflation, no inflation, or deflation. Deflation can be the worst of the lot because people actually gain by hanging onto their money and hiding it in their mattress. That is very bad because less money is changing hands and the economy will slow or deflate itself because of it. Moderate inflation isn’t bad because it encourages constant investments to keep up or hopefully beat it. Almost anyone should be able to outpace moderate inflation in their investments over time. I am not sure where the tax on the middle class thing comes from. Most people get raises from their job to compensate for inflation and any money invested should meet or beat it as well over time.
I don’t know enough about tying our modern economy to a fixed standard but I don’t think the fear of inflation is justified even though it probably was back in the 70’s.
The United States holds approximately $164,000,000,000 worth of gold. If we went on a gold standard we would have that much money. The M2 money supply (as of March 2007) is $7,170,300,000,000 - in other words our money:gold ratio is over 40-1. If we tried to switch over (ignoring the inevitable difficulties of such a huge endeavor) we’d end up with dollars that would be worth about forty times their current value. Which sounds like fun until you consider how many people have existing debts in current dollars amounts.
Besides, specie currency was a bad idea and we were smart to switch to fiat currency. The problem with specie was that it placed a fixed upper limit on how large your economy could get. If your population increased, everyone got poorer on average because there was only a fixed amount of currency to be divided up. With fiat currency an economy can grow with no theoretical upper limit.
Inflation rates in America are generally pretty low. I have liked what I’ve heard of Ron Paul, but there just isn’t any way to put the genie back in the bottle, and he should know that.
Now, anyone who wants us back on the Gold Standard is a tin-foil hatted loony, and has no concept of 21st century economics. Or even late 20th century.
It wouldn’t nessesarily limit inflation- gold can radically change prices. Inflation isn’t mostly caused by “printing more money” and in fact the USA doesn’t really do this - every paper dollar is backed by* quite a few dollars* collected or borrowed. ( There are nations that do occasionally start the “printing more money” thing and inflation there gets to be crazy very fast- like 100% inflation. Or more.)
No nation in the world is still on a Gold standard.
It would make those who have invested heavily in gold quite wealthy.
What?!
Gold isn’t worthless, presently. Presumably these countries are mining gold because it rewards them with money; I’m sure they aren’t doing it for their health.
Maybe it is just me, but I fail to see the difference between mining gold because it is worth money, and mining gold because it is money.
That’s not to say I don’t agree with everyone else in this thread about the silliness of a gold standard. From what I can tell it is basically a superstition that our money has to be ‘based’ on something tangible, rather than wealth in general.
The difference is that putting the U.S. back on the gold standard would inflate the value of gold holdings way beyond their current market value – see post #4.
Back in the late 19th Century, the loudest cries for “Free silver!” came from the mining states of the West. Same reason.
I can’t figure out why these Libertarian types get all fired up about the gold standard. I heard Michael Badnarik (last election’s Libertarian candidate) speak once and he certainly lost me at this point. I don’t really care if the US government has legal authority to issue fiat money or not; if it ain’t broke, don’t fix it.
I would think there would be a lot more pro-business/low tax types who could get behind the Libertarian cause if they would drop it with the gold standard thing.
There is a consistent fringe belief that gold==money. But of course gold isn’t money, it is an economic good that has several characteristics that make it useful as a key good that can be used as money. Throughout history other key goods have been used…shells, whiskey, cigarettes, cows, and so forth. But precious metals have some valuable properties that other key goods lack…metals are durable, they can be divided without losing their value, they are rare, they are portable, and so forth. Coins were originally simply a way to divide up precious metals into useful standarized ingots. Of course, once people get used to these ingots, the temptation exists for the standardizing authority to skim off some of the value…mix base metal, issue light coins (decree that the new .9 ounce coins must be accepted on an equal basis as the old 1.0 ounce coins), and so on. So even precious metal coins aren’t proof against government meddling, it’s just that government meddling is more obvious.
Now we come to paper money. An entity such as a goldsmith’s shop will have gold on hand in their vault. Other people don’t have such secure facilities, so they arrange to have their gold stored at the goldsmith, and the goldsmith issues a paper reciept. Any time the customer wants the gold, they take the recept to the goldsmith and the goldsmith goes to the shelf in the vault where that gold is stored and returns it. Of course, pretty soon it becomes obvious that it doesn’t matter exactly what gold objects are returned, as long as the exact same weight is returned it can be any gold. And it becomes obvious that rather than giving someone a gold coin in payment, you can simply hand over your gold reciept as payment, and that person can go down to the goldsmith and get the gold. Viola, paper money backed by gold. And governments get in on the business too.
But it becomes clear that since one bit of gold is as good as any other bit of gold, the goldsmith doesn’t have to keep 100% of the gold on hand to redeem all their notes. They could issue notes for the gold, only keep half of it, and spend the rest. Money created from nothing! But still backed by gold. In fact, the goldsmith could keep only a small amount of gold on hand, and the notes are simply a promise that whenever asked, the goldsmith is obligated to come up with enough gold to redeem the note.
And this is what a “gold standard” currency is. It isn’t backed by gold, in that each note corresponds to an ingot of gold in Fort Knox. It must means that the government promises to sell you a certain amount gold on demand. But this is no protection! The government won’t actually have that gold. They can issue as many gold notes as they want. And any time the government likes they can simply refuse to redeem those notes for gold. This is what happens during wars. The so-called gold backed currency is turned into a fiat currency, and there’s nothing anyone can do about it.
So what’s the point of the gold standard? Unless we’re going to use actual gold coins, the mere existance of a promise by the US government to hand out a certain amount of gold is worthless. At least the promise for fiat currency, that the notes can be used to pay taxes, is an honest promise. Fiat currency is simply currency that is not tied to any key good. And tying the currency to a key good is simply foolish, because that good is subject to supply and demand. Gold, whiskey, shells, whatever, there is no need for the government to tie the currency at a fixed rate to any good. If you want gold for your fiat dollar, go down to the coin shop and buy gold. The price of gold will go up and down, but so what? So does the price of every other good. And if the fiat dollar is tied to gold, the value of the dollar would increase and decrease with every fluctuation in the gold market, unless that gold market is highly regulated by the government. Which defeats the whole point of precious metal backed currency.
So the gold standard is a fantasy. It will accomplish nothing more than to destroy the free market in gold and tie the rest of our economy in knots.
A lot of people (myself included) really identify with some libertarian ideology, then the actual libertarian candidates start speaking and remind every one why no one votes for them. 
Come to think of it, why is all that gold stored at Fort Knox? It doesn’t “back” the Federal Reserve notes, it earns no interest, so why not just sell it?
You got that right. I am technically a big “L” Libertarian because I am the only person in my town of 13,000 registered as a Libertarian. The party is a bunch of fucking wack-jobs that wants to throw the borders open and go on the gold standard. I have no idead how it ended up that way.
What was the party like when it started (1971)?
Not entirely sure, to be honest. At West Point, New York, there’s an operating unit of the U.S. Mint that also stores tons of gold bullion and some silver bullion. The West Point mint (which has minted coins for decades and even applied the “W” mark to many coins in that time wasn’t an official mint until 1988) makes American Silver Eagle, Gold Eagle, and Platinum Eagle coins. The Silver Eagle comes in a $1 denomination, the Gold Eagle comes in $5, $10, $25, $50 denominations, and the Platinum Eagle comes in $20, $25, $50, and $100 denominations. All of the coins’ face values are not indicative of much of anything, you have to buy them at the current going rate of the value of the precious metal in the coins each coin has a legally mandated and Mint guaranteed set amount of the precious metal in it, with the higher face value coins having a large amount of the precious metal. The $5 American Gold eagle is around $75, for example.
All of these coins can be used in official government IRAs.
So the U.S. government does actually use some of its bullion to mint bullion coins. Aside from the above coins commemorative coins are also minted. However, Fort Knox doesn’t mint any of the coins above, they are all minted in West Point (Philadelphia used to mint some, but I don’t believe they do any more) so I’m not entirely sure why the huge repository in Kentucky.
Also of interest is the gold depository at the Federal Reserve Bank of New York, it’s the largest gold depository in the world with 5,000+ tons of gold which typically has a value around $100 billion. Most of this gold is held in trust for foreign entities.
I don’t know and I doubt many people do. Small “l” libertarians like myself tend to pick up on the libertarian philosophy independent of knowing there is a political party by that name. When we learn the news that there is a real party, it is usually 
followed by 
:eek: when we see what they are all about.
It makes people feel better. Seriously, the American dollar is basically worth as much as people think it is. The gold reserve makes people feel the dollar is more trustworthy even though there’s no real connection.
And gold is basically worth as much as people think it is. It’s fiat currency without a government fiat, only the value agreed upon by gold traders.
Don’t overthink it, dropzone. Everything has a price set by what the buyer and seller agree on. But fiat currency has a value set by a government act. Gold has a value that has always historically existed independant of any government.
I agree with most of the “anti” arguments stated above, especially as regards the unworkability of going back on the gold standard. Just posting to add one point. What the gold standard argument overlooks is that the primary purpose of money is not to be value. It’s a medium of exchange. I do work and get paid with money. With that money, I can buy food, pay rent, etc. Money works so long as it fills this role. (When it doesn’t, e.g., Weimar Germany, the wheels come off the wagon.) Whether it has any intrisic value is irrelevant.