Anniversary Post: Death of the Gold Standard

Gold StandardOn this day in 1968, the US Congress repealed the requirement that the dollar be backed by a gold reserve. I haven’t been able to confirm this, actually. But it’s on Wikipedia, so it must be true! And it gives me an opportunity to rant about the gold standard.

The thing is, I don’t understand people who believe in the gold standard. Even when I was an idiotic libertarian, I didn’t understand it. The general thinking is that with the gold standard, the government can’t “print money” and “devalue the currency.” In other words: it’s about inflation. The problem is that inflation was a far bigger deal when we were on the gold standard than it has been since we got off it.

The very concept of money is mysterious. But as far as I can tell, as long as the flow of cash doesn’t increase faster than the economy is growing, there is no problem. Usually, there isn’t even a problem when it does! But somehow, we are supposed to wed the supply of money to one particular metal that used to be very valuable but really isn’t today. It’s value in no way tracks what’s going on in the economy. Starting in the mid-15th century, gold has done little but go down in value. (Other than spikes because gold bugs were freaking out.)

Long Term Gold Prices

What the fascination with the gold standard shows is that this stuff is not rational; it is a matter of faith. Gold bugs are convinced that the government is just itching to devalue the currency. This is despite the fact that the government itself would do very badly if inflation goes up. It reminds me of these people who claim that Obama wants to destroy the United States. He’s the most powerful man in the world because he is president of the United States and he wants to destroy it? At least liberals had a point when they noted that George W Bush was an idiot. No one ever accused him of wanting to do things that went entirely against his own interests.

I know how much of a rant this is. But it is has been a long time since I’ve been able to deal with supporters of the gold standard rationally. It just makes no sense. I’ve waited for decades to hear a good argument for it. And I’ve looked! But there is no good argument for it. It’s just a bunch of freaks who believe it the same way other people believe in gods. But you can’t prove that gods don’t exist. You can prove that the gold standard is a stupid idea.

18 thoughts on “Anniversary Post: Death of the Gold Standard

    • He did. But there were various phases of us decoupling our currency from gold. We weren’t completely off the gold standard until the early 1970s. But the most important part of this was done under FDR during the Great Depression.

  1. Bitcoinistas (who are mostly, if not all, techno-utopian libertarians) like to rail against the evils of “fiat money”, just as the goldbuggers do. Now, to me, the phrase “fiat money” merely denotes that it was created out of nothing – as in the Biblical Fiat lux* – but bitcoinistas insist that the creating-out-of-nothing must be done by a gummint, or else it doesn’t count.
    So eventually I had to back down and admit: Bitcoin isn’t a fiat currency. It’s a Yugo currency.

    * I always thought that Fiat had missed a trick by not producing a high-end model and calling it the Lux…

    • How is gold not a “fiat currency?” Who decides that gold is worth something? It has some practical uses, sure, but using it as a standard of exchange is completely arbitrary.

      • Traditional.

        They only think gold has value because it always has had value. Who back in the day looked at it and said “this is a great thing to use as currency” is unknown but it is a weird thing to think.

        Salt makes more sense since at the time, it was considered rare.

        • Interestingly, part of Mansa Musa’s fortune was in the form of salt. Salt has been hugely valuable in the past because it was hugely useful. Interestingly, when Mansa Musa took his great trip through the Middle East, he spent so much gold that it devastated the value of gold and through the region into a decades long depression. Gold bugs are idiots! Geez! I shouldn’t write about this stuff. It is so aggravating! A private judicial system makes more sense!

          • Go play with that toy I sent you earlier. It will amuse you to no end to have Trump losing everyone but the three white men still left in the country who like him.

      • The whole idea is nonsense. If there really was a “fiat currency” then certainly Robert Mugabe wouldn’t have “led” Zimbabwe through years of hyperinflation. Governments can claim that a currency is worth a certain amount, but that’s like yelling at the weather. So why is it that we don’t have hyperinflation? Because our economy is good. The idea of not basing our currency on the economy makes no sense. But these people are freaks.

    • I wish we could do sound effects around here because that joke really deserved a “wa wa waaa…” or at least a rim shot. But I think it is unfair to the Yugo. After all, the Yugo didn’t get 20 mpg on Tuesday and then 5 mpg on Wednesday. With bitcoin, you millage will vary — a lot!

      It’s almost always a mistake to even talk to people who use the term “fiat currency.” The government doesn’t define the value of our money; the economy itself does. So they don’t even understand the most basic notions. Really: would you rather the value of your cash be based on the largest and most stable economy on earth or the value of gold? That’s the choice. And then what bitcoin has shown is that it is very much like the gold standard: it’s price is incredibly unstable. These people claim they want the government out of the currency business for practical reasons, but it is all ideology — or theology, to be honest.

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