This may end up in GD eventually. I’m not sure if the answer is factual or a matter of opinion.
I have read that US currency used to be on the Gold Standard. In other words, you could take your paper money and trade it for actual gold at the bank. At one time there was a debate about whether we should stay on the Gold Standard, move to the Silver Standard or not have the currency be linked to precious metals at all. I may well be wrong in some of these assumptions and, if so, please correct me.
What difference would it make if it was a gold or silver based standard? Why was that conroversial?
In retrospect, would we have been better off sticking with the Gold Standard? (Here’s where the GD may come in.)
I’m sure there are threads in our archive which have gone into this.
As tcb said, there wasn’t enough to go around. It is sometimes referred to as an “inelastic” system. It produced incredible highs and lows in the economies of the 1800’s which we call “depressions” and “inflations” today. Extreme in their magnitude.
Excellent question, hajario, I’ve always wondered about this too. Hopefully a doper will be around soon to explain it in more detail.
Obviously. But you’re not really answering the question (at least not in much detail). What was the silver standard movement really about? What were they hoping to gain by changing the standard to silver? Who exactly was behind the silver movement? And, to ask again, why was that controversial? In other words, what were the arguments made for keeping the U.S. on the Gold Standard VS the Silver Standard?
On your question about whether or not we would have been better off sticking with the gold standard, most economists (myself among them) would say a firm “no”. The benefit of the gold standard was that it took exchange rate risks out of international financial transactions and consequently facilitated the highest level of international investment (inflation adjusted) the world has ever seen.
The downside, as mentioned above, was that fixed exchange rates don’t absorb economic shocks by changing (like floating exchange rates do). As a result, the severity and magnitude of economic downswings was enormous. It is not often remembered that the depression of the 1890’s was just as bad, if not worse, than the Great Depression.
To some extent, the point is a moot. The world changed far to much through the 20th century for the gold standard to remain viable and, as others have mentioned, there simply wasn’t enough gold anymore.
The main argument in favour of the gold standard these days is that it would stop governments interfering with the values of currencies for political and other purposes. I think the Cato Instiute tends to run this argument. The counterargument is that there are benefits to governments using fiscal policy to modify the severity of the extremes in the economic cycle.