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What about the Gold Standard?

2019-11-20 by Peter Kosen

Use of the gold standard is a controversial topic. Proponents insist that it would limit inflation as well as government oppression and overreach. They say that the currency that we use should be tied to and be able to be exchanged for something physical which has intrinsic value.

In 1966 Alan Greenspan, who later became a long-term Chairman of the Federal Reserve, wrote “Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”

But there are also problems with the gold standard.

THIS IS A STUB ARTICLE WHICH WILL EXPAND ON THE FOLLOWING TOPICS:

First of all, the term “intrinsic value” is a myth. Or, rather, it does not mean what a lot of people seem to think it means. It certainly cannot mean that the substance or thing has a certain fixed value that does not change.

Value is itself a thing that is created in the minds and desires of people. Gold, as well as many other physical substances, has a value based upon its usefulness out in the world of production and human activities. But this value that is based upon usefulness is entirely subject to the laws of supply and demand and floats with any change in either. And, in the case of gold, it has the qualities of “shiny, glamorous and rare” adding to the capricious nature of its value. 

Tying the value of currency directly to gold necessarily requires tying the quantity of currency to government owned gold supplies.

What happens when, for some reason, economic or other, people decide that they would rather have gold than paper, they make a run on your gold supplies, and the government runs out of physical gold (or its supply is critically reduced)?

There is a certain amount of gold in the world. The mining of more of it is limited to the physical ability to mine. But there is not a particular amount of wealth in the world. Wealth is created and expanded exponentially around the world by the creative power of people’s minds and desires.

Total wealth divided by total gold can never be a constant. And the relationship is growing less and less stable as more and more nations become industrially productive and wealthy.

This subject requires more research and consideration before this article can be considered to be complete.

This topic might become the center of discussion between contributors to the site on both sides of the argument.

Posted Under: Economics

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