October 16, 2020

Gen Z Conservative

The thoughts of a young conservative on political issues relevant to all ages

the gold standard

The Gold Standard

If no one seriously wants to use Bitcoin as a currency, why would they want to use a fiat currency that could be equally as volatile?

the gold standard

The Gold Standard Article:

This afternoon I read an interesting article on RealClearMarkets about the gold standard and why it is an important piece of economic health. The article is called “Your Move, Gold Critics: Please Explain what Money is.”I think it is an interesting article that anyone interested in economic growth should read. The gold standard is often disparaged, but I think that if more people read this article, then they would understand why it is so important.

Summary:

In this article, the author discusses the differences between a dollar backed by gold, our current fiat currency, and Bitcoin.

The beginning of the article is about the volatility of Bitcoin. The author describes how its wild price swings are due to its inherent lack of value. For most, it’s only a novelty item, so it is only worth what someone will pay for it. It has no real value.

The author then gives an example of how that makes it practically useless in the real world. You would never want to pay for something in the future, or accept payment in the future, with Bitcoin because it is so volatile. There is an almost certain possibility that someone will end up worse off for using Bitcoin for the transaction rather than cash (unless they’re using it for nefarious purposes, as I discuss in “Cryptocurrencies and Hybrid Wars“). It will either be worth far more or far less, so it’s unusable as a future payment.

The author then uses that to explain why some want to shift back to the Gold Standard. Fiat currency could be just as volatile as Bitcoin. Like Bitcoin, it has no real underlying value other than people have so far accepted it as being worth a certain amount. It is just a floating currency that is constantly worth less because of inflation.

Tying that volatility to gold, however, takes volatility out of the equation. There is enough gold in the world, and a somewhat steady amount is mined each year, so when the dollar is tied to a percentage of an ounce of gold it has a steady value. As the saying goes, “an ounce of gold will always buy you a nice suit.” That has been true since ancient times (although the clothing equivalent was different then, obviously). That means a dollar would also have a constant value.

Furthermore, tying the dollar to gold would prevent fears of inflation, thus meaning that the Federal Reserve would no longer have as much of a reason to meddle in the economy.

Finally, the author ends by speaking out against the critics. All gold would do is give the dollar a constant value. It wouldn’t overly limit the money supply, or even require the US to buy a large quantity of gold. It would just have to be set at a current level and kept there. If no one seriously wants to use Bitcoin as a currency, why would they want to use a fiat currency that could be equally as volatile? The gold standard is a much better solution than fiat currency.

Analysis:

I think that this article made some astute and not oft discussed points. It was excellently supported and the examples given were particularly instructive. The comparison of bitcoin to our current fiat currency was excellent.

Much of America’s growth and prosperity occurred while there was a gold standard, which is a big issue discussed in the best book about the Gilded Age, The Republic for which it Stands. Additionally, while we were on a gold standard, recessions weren’t as bad and money was far more stable. Inflation was a non-issue. Those are benefits that come at the cost of slightly limiting the money supply.

As I described in another post (link below), the benefits far outweigh the cost. Especially because the growth caused by rationalizing money policy would be unlike any in recent American history. That substantial growth alone would cover the cost.

America needs to change its monetary policy if it is going to break out of the current secular stagnation. Readopting the gold standard would be a way to start on that path. It would make our currency more stable and lessen the role of the Federal Reserve.

The only part of this article that could have been better is if the author provided a plan forward. After reading the article, I agreed with him that a gold standard is needed. However, he gave no indication of how that could realistically be accomplished. I think that the ideology behind the article needs that if it is going to realistically move forward. A plan is needed. On the whole, however, I think it was excellent. Especially the part about the limitations of Bitcoin.

By: Gen Z Conservative


Links:

The article:  https://www.realclearmarkets.com/articles/2019/04/09/your_move_gold_critics_please_explain_what_money_is_103688.html

My previous article about this topic: https://genzconservative.com/the-magic-formula-of-economic-success/

Cryptocurrencies and hybrid wars: https://genzconservative.com/cryptocurrencies-and-hybrid-wars/

The gold standard was a big issue during the Gilded Age and is described well in The Republic for which it Stands: https://genzconservative.com/the-best-book-about-the-gilded-age/

Buy The Republic for which It Stands here, on Amazon: https://amzn.to/2XA3Lib

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