I’ve been meaning to task this for a while and was finally spurred by today’s SD article. Do any current economists support going back on the gold standard? It seems like in a modern economy (and with a largely trustworthy government) that limiting the size of one’s economy on the amount of metal that can be dug out of the ground to be, well, dumb.
If I understand it correctly Milton Friedman supported the gold standard in theory but thought the US was too far along to go back on it. Has economics advanced since then?
Which, to summarize, basically says that “If we literally traded in gold coins - not paper money, not money in ledgers, etc. just gold in hand - you wouldn’t have to worry about the government spending money they don’t have. But that ain’t never going to happen and the closer you get to that, the more it costs to try and keep things running under such an inefficient system.”
Using a gold standard is not the most efficient, but it would hardly be inefficient either. The advantages that it offers are simplicity, a greater degree of transparency, and putting inherent constraints on the government causing inflation.
A lot of people do not trust the politics and bureaucracy controlling the money supply.
This is massively wrong, and wrong-headed to boot. Wrong, in that it is factually incorrect in material ways. Wrong-headed, in that it demonstrates an incorrect understanding of underlying concepts.
First, the gold standard is neither simple nor transparent. It is invariably a system of pegs and trust: Currencies are pegged to gold and each other in complex ways, and people have to trust that, first, the gold actually exists somewhere and, second, that it will be adhered to by all players in the future. Given the major inherent problem of the gold standard, trusting that the gold exists is idiotic, because every intelligent government would have every reason to grossly inflate their claimed reserves.
Second, the government doesn’t cause inflation. The economy causes inflation. It does this by growing. It works in reverse, too: If you prevent inflation, you hog-tie the economy, and prevent economic growth. This leads to economic stagnation and shrinkage, which, if you’re very lucky, leads to a total abandonment of the gold standard and, if you’re unlucky, leads to Honest, Adult True Leaders making the Difficult Decisions and toughing it out right into a second Great Depression.
You know what got us out of the Great Depression? Going off the gold standard. Countries that went off the gold standard first got out of the Depression first, and suffered fewer of the ill effects. (Nitpick: We only mostly went off the gold standard in 1933. It would take until the early 1970s to rip the rest of that bandage off.)
One big misconception is that the government does, or should, directly control the amount of money in the economy. That’s a load of nonsense. The economy should control the amount of money in the economy, by way of banks making loans (within the limits of reserve requirements, of course) such that the money supply is responsive to the needs of the people who actually use the stuff.
An even bigger misconception is the idea that the gold standard takes the government out of the loop. Who do you think maintains the gold standard? Who do you think makes sure the gold is in the vaults? Who do you think counts the gold and prints the money accordingly?
The gold standard is not Libertarian. Or Anarchist. However, unlike most ideas which are neither Libertarian nor Anarchist, it’s also massively idiotic. Which is why, to answer the OP, no mainstream economists are gold bugs, any more than any mainstream MDs are homeopaths or naturopaths.
But there’s no way to have a gold standard without trusting the government and politics.
As Derleth says, the gold standard works by pegging the value of the currency to a set amount of gold. That is done by law. There’s nothing stopping a future government from changing the law and the rate of the peg - except the politics of changing the peg.
As the reaction of countries to the Depression indicates, there’s also nothing stopping governments from going off the gold standard entirely.
There’s no way to insulate monetary policy from politics.
I think this point is a little off. Just a little though.
IFFF you have your currency tied a given amount of gold (or more specifically gold you actually have somewhere) then that is a SLIGHT hedge against government monetary shenanigans.
Sure, the government can lie about the gold they have. Or they can change the relationship between the dollar and a given amount of gold. But both of those can be controlled by a robust set of procedures that minimize the likelyhood of such things.
Now, with the dollar NOT tied to gold, the government has much more flexibility with the dollar.
Also, KEEP IN MIND that I am NOT saying a dollar pegged to gold is better for the economy than one not. I AM saying it is one less likely to be fiddled with.
I guess an analogy might be you lock your door to your house when you leave and you have so so locks. Versus you lock your house when you leave and you have good locks and strong windows and decent security system.
Either way, the bad guys get in. One just makes it a smidge more difficult.
How can the government “not fuck with it?” The government would peg the rate. It just needs to re-peg the rate to fuck with things. If currency is floated so that the market dictates the exchange value, the value of currency moves around more but it’s way harder for the government to “fuck with it.”
Because they have to change “peg rate” (for lack of a better term).
Don’t get me wrong. The difference between doing that and just adjusting the amount of available dollars (and or interesst rate) for non gold pegged dollars is slight when the government wants to do what it wants to do.
But at least when the government tries to adjust the peg rate folks can start bitching that “hey, those weren’t the rules we agreed by” as opposed to the feds adjusting the free floating dollar.
And a thief can get into a well locked house with only slightly more effort than a poorly locked one.
I thought I made my point clear, but let me repeat it. A gold standard IMO only makes government tinkering of the monetary supply a BIT…I repeat…let me fucking repeat that…A BIT FUCKING harder. And when they do do it, a slight bit more obvious.
OTHER THAN THAT…they can do what the fuck they want when push comes to shove.
And note that I NEVER said that this slight possible effect outweighed any of the other negatives that having a gold standard would likely entail. I actually noted that said effects would probably NOT be better for that matter.
I think a silver-only standard (NOT bimetallism) would have spared the USA the deflation and economic downturns of the later 19th century, and possibly would even have dramatically lessened the Great Depression. Unlike gold, there’s enough silver that production can track increases in demand pretty closely. Presumably we would have had to move to a legal tender system eventually, but a lot of pain could have been avoided.