Should the U.S. return to a monetary policy based on the Gold standard?

Essay by jimtc17University, Master'sA+, February 2006

download word file, 6 pages 3.7

The gold standard today has nearly disappeared as a political issue. The world has abandoned the gold standard in favor of so-called "paper money," and only a diminishing group continues to call for its return. However, if mainstream economists have anything to say about it, there will never be a return to the gold standard. Even so, defenders of the gold standard include such former presidential candidates as Jack Kemp and Stephen Forbes. Furthermore, even the current chairmen of the Federal Reserve, Alan Greenspan, has written in the past on advantages of returning to the gold standard. Therefore, reviewing these arguments is worthwhile in discovering whether or not reaching back into the past can help lead to a more prosperous future. The reason why the far right opposes the current money system is because it allows the government to control the size of the money supply ( They argue that an unscrupulous government might pay its bills by printing more money, which would cause inflation.

They also argue that shrinking the money supply allows the government to create recessions. Under a gold standard, the total value of money would be nearly fixed, and the market would adjust itself efficiently around it (Kemp, 2001). Mainstream economists, however, have a powerful counter-argument. The current system might, in theory, allow a government to create inflation or unemployment, but it also allows the government to fight inflation and unemployment ( That is a tremendous achievement, because not one nation around the world using a fiat based monetary policy has experienced a depression in the last six decades. It appears that we eliminated depressions when we eliminated the gold standard.

How did we get here from there? In order to understand why some are pushing for a return to the gold standard today, one must...