You’ve undoubtedly heard Glenn Beck shill for Goldline, so I’m assuming you have all heard that Republicans are calling for a return to the gold standard. It’s true. Republicans want us to return to the gold standard. But is this a good idea or a bad one. Let’s examine the advantages and disadvantages of the gold standard.
Since the founding of this nation, America’s monetary system was governed by the gold standard up until Republicans took us off of it in 1971. Now, Republicans, especially those of the far right, are screaming for a return to the gold standard. But is this a golden opportunity, or just another GOP ploy to destroy the United States government and middle class? The number one reason they want to return to the gold standard is the claim that the Constitution only allows gold and silver as currency. This is a lie. The Constitution only gives the federal government the power to coin money and says nothing about the federal government using gold, silver or any other specific legal tender as currency. To be exact, the Constitution only says that the STATES are prohibited from making anything other than gold or silver coins legal tender for payment of debts. The STATES are also prohibited from coining money. All of this means that only the United States government can coin money and has the power to decide what constitutes legal tender. Don’t you just love it when self proclaimed strict constitutionalists misread the Constitution? Hilarious isn’t it? Now that we’ve answered the constitutionality of paper money, let’s examine the alleged advantages of returning to the gold standard.
Perhaps the greatest advantage of the gold standard is long term price stability which means inflation is rare and hyperinflation nearly impossible because the money supply can only grow as the gold supply increases. High levels of inflation, however, do occur during times of warfare which isn’t any different from the system we have now.
Another advantage of the gold standard is that it limits the power of governments to inflate prices through excessive printing of paper currency. It provides fixed international exchange rates between those countries that have adopted it, and thus reduces uncertainty in international trade. This assumes that other nations also switch back to the gold standard which is unlikely meaning that international trade could be even more difficult.
The last advantage of a gold standard is that deficit spending by governments is more difficult, as it prevents governments from inflating away the real value of their debts. A central bank cannot be an unlimited buyer of last resort of government debt. A central bank could not create unlimited quantities of money at will, as there is a limited supply of gold. Essentially, Republicans want a gold standard so they can kill the power of the federal government and destroy the Federal Reserve, which is the central bank of the United States. Now let’s discuss the disadvantages which are more numerous.
The most major disadvantage is that the current money supply is worth more than the amount of gold the United States has. For example, the total amount of gold ever mined equals 142,000 metric tons, and that is less than the value of circulating money in the U.S. alone, where more than $8.3 trillion is in circulation or in deposit. Therefore, a return to the gold standard, if also combined with a mandated end to fractional reserve banking, which Republicans are also calling for, would result in a significant increase in the current value of gold, which may limit its use in current applications. To put it bluntly, Republicans are all for this because it makes them and the wealthy even wealthier because the price of gold would shoot up tremendously. Any Goldline client would see their portfolios skyrocket. Just another scheme to make the rich richer. But it would also make the poor poorer.
The deflation caused by a return to the gold standard would reward those who have saved money (mostly the wealthy) and would punish those in debt (most of the rest of the American people). Debt burdens would rise, causing borrowers to cut spending to service their debts or to default. Lenders would become wealthier, but may choose to save some of their additional wealth rather than spending it all. So, the wealthy would get richer and would hold on to their additional wealth rather than lend it or spend it. If I’m not mistaken, they do this now, and it’s choking the country, so why would we want to make the situation even worse?
Deflation also prevents a central bank of its ability to stimulate spending, which leads us to the next disadvantage. Mainstream economists believe that economic recessions can be largely mitigated by increasing money supply during economic downturns. A gold standard would prevent the Federal Reserve from pumping money into a weakened economy to stimulate it. If we had instituted a gold standard before 2008, the Great Recession would have been a second Great Depression because the ability to stimulate the economy by pumping money into the system would have been very limited. That’s certainly something to think about. The gold standard is also partially to blame for the Great Depression in the 1930’s as the Federal Reserve was powerless to stimulate the economy as much as it could have because of the gold standard.
Yet another disadvantage of the gold standard is that monetary policy would be governed by gold production. This could be a problem since gold production in the United States is decreasing because most of the gold here has already been discovered.
Here’s another disadvantage of the gold standard. In addition to possible short term price volatility which would mostly harm the middle class, if a country wanted to devalue its currency, it would generally produce sharper changes meaning that China’s devaluing of its currency would have produced harsher effects if a gold standard had been in place. So basically, a gold standard would favor China at the moment.
While a return to a gold standard is intriguing, it would most certainly be disastrous to an already struggling middle class. Most Americans are in debt and a gold standard would just hurt them more. Meanwhile, the wealthy would make huge profits. Are we surprised by this? Any fiscal policy the Republicans have pushed for over the last three decades has only been a way to help the wealthy. That’s why the wealthy control over two-thirds of the wealth of America.
Let me warn state Republicans, especially those in Virginia, Utah, Georgia, North Carolina, and South Carolina. If you pass legislation that replaces the dollar with gold and silver, or if you print your own money, you are knowingly committing an illegal act against the Constitution. Only the federal government has the power to coin money and only the federal government has the power to declare what constitutes legal tender. NOT STATES. There is a reason why states cannot have these powers. Under the Articles of Confederation, the fiscal policy of America was a complete mess. Every state coined its own money and made up its own exchange rates. It was a complete disaster fraught with confusion. So, the founding fathers met in secret in 1787 to not only change this fiscal system, but they GREW the size of government and EXPANDED the power of government to do it. By doing this, every state would have the exact same money, and it would be worth the same amount everywhere, resulting in an easier to follow fiscal system. The gold standard is over. The many fiscal crises and problems that arose because of it throughout American history led to its decline and end. Ironically, it was a Republican that ended the gold standard in America. We now have the current system, and like it or not, its the best system we have when Republicans aren’t busy abusing it for the gain of the wealthy.
In conclusion, I judge the calls to reinstate the gold standard as just another attempt by Republicans to rebel against the federal government and the Constitution that defines the powers it has. It is also an attempt to make the wealthy few even wealthier which keeps the pockets of Glenn Beck, Goldline, and Republican politicians lined with cash. Just another scheme to steal money from the middle class. That’s the real standard of the Republican Party.