On this day in 1971, President Richard Nixon ended the convertibility of US currency to gold, thus ending the last vestiges of the gold standard. The major move against the gold standard took place during the Great Depression, of course. But this move has given the Federal Reserve more power to fight recessions, although I personally feel that the Fed uses its power in far too conservative a way to fight inflation. But that’s what is so bizarre about the gold standard crowd: they are always freaking out about coming inflation. But other than during the 1970s, inflation has been far lower off the gold standard than it ever was on.
The truth is that gold prices are not at all stable. A couple of years ago, I wrote, Gold Is Not a Good Investment — at Least for 500 Years. It includes a graph that shows the overall volatility of gold’s value, and also that it’s value has done nothing but go down over time. But there is also the story of Musa I of Mali. In the early 14th century, he took a trip to the Middle East. He spent so much gold, that he destroyed its value, throwing the region into a decades long recession. There is nothing stable about gold.
Still, we continue to hear the gold bug nonsense. Now part of it I understand. There are people making lots of money selling gold to these easy marks. But the people pushing the ideas seem to really believe it. (Even Rand Paul and Glenn Beck who seem to make a lot of money off it as well.) And gold bugs have been saying the same thing for decades: economic collapse and hyperinflation! What they don’t seem to understand is that the rich are in control. The rich don’t want to allow inflation or economic collapse.
But it is easier to place all of their outrage on the backs of shadowy bureaucrats who want to destroy capitalism as we know it. These people are just silly. And there are a lot of them out there. I run into them all the time. Alex Jones and pretty much anyone who is into conspiracy theories will eventually get around to thinking that we must have the gold standard. All they do is give the rich even more power. They are the most useful of fools.