The ever-decreasing power of the dollar has made many an advocate of the gold standard and in-fact many want to return to the gold standard as a monetary system. Over the past 2 years alone the purchasing power of the dollar has decreased 30%. In the exact same time frame, the price of gold has increased by over 100%. Throughout this paper I will try to prove why the use of the gold standard in modern day society would not be better than paper money thru various analysis and logic.
Definition of the Gold Standard
What exactly is the gold standard? The gold standard is a monetary standard under which the basic unit of currency is defined by a stated quantity of gold. Typically this standard was used in the 1800’s into the early 1900’s as a means of currency. This currency today no longer exists; our current currency is called the fiat system, which is merely paper money that is printed in to existence.
Using the gold standard in today’s society would be ludicrous; totally changing the way governing bodies would be able to conduct business. The gold standard is not a good monetary system for this day and age, though proven to be more stable in someway it lacks the ability to be readily available as the paper money is, in addition to acting as a line of credit to the government when needed. In order for the gold standard to exist, gold would need to become a fixed price commodity or asset. All debt that the government has would need to be paid off and the paper money would have to become inconsistent.
The return to the gold standard would inherently deplete the worlds gold reserve because the amount of paper money in circulation in comparison to that of gold is not evenly yoked. “Not to mention the increasingly numerous proponents of a gold standard persuasively argue that budget deficits and large federal borrowings would be difficult to finance under such a
References: 1. Can the U.S. Return to a Gold Standard?, Wall Street Journal, by Alan Greenspan, September 1981 2. Gold, Paper, Or…Is There a Better Money?, Cato Policy Analysis No 17, by David Friedman, September 1982 3. The relevance and importance of Gold in the World Monetary System, by Peter Millar, May 2006 4. http://www.gata.org/files/PeterMillarGoldNoteMay06.pdf 5. Greenspan Returns to "Barbarous Relic" Gold, by Don Luskin, February 2003 6. http://stats.bls.gov/data/inflation_calculator.htm0 7. www.USFunds.com