I hear this more and more from people. So should we return to the gold standard? My hunch is no but I know very little about it. Thoughts?
Here's what I've gathered when reading about foreign currency. blah blah blah...Bretton Woods...blah blah blah...forex
The Wizard of Oz is actually a story about the gold standard. (Follow the yellow brick road!) The following is from the link above: [rquoter] From 1880 to 1896, the price level in the U.S. economy fell by 23% (deflation). Most farmers of the west during that time were debtors, making their interest owed to the banks worth more than expected due to the deflation. According to the Populists' beliefs of the time, the solution to the farmers' problem was free coinage of silver (the U.S. was operating under a gold standard at that time). Democratic presidential nominee William Jennings Bryan supported the free silver requisition, summarized in his Cross of Gold speech. However, Republican William McKinley won the presidency and the gold standard remained. Historian Hugh Rockoff interprets the story of the The Wonderful Wizard of Oz, in the Journal of Political Economy: Dorothy: traditional American values Toto: Prohibitionist party (also called Teetotalers) Scarecrow: western farmers Tin Woodsman: industrial workers Cowardly Lion: William Jennings Bryan Munchkins: citizens of the East Wicked Witch of the East: Eastern business and financial interests, Grover Cleveland Wicked Witch of the West: William McKinley Wizard: Mark Hanna (chairman of the Republican party) Oz: abbreviation for ounce of gold Yellow Brick Road: gold standard Cyclone: the free silver movement Emerald City: Washington D.C. Emerald Palace: the White House Silver Shoes: the vote of the American people At the end of the story, Dorothy finds her way home, but it is not by just following the Yellow Brick Road. After her journey, Dorothy finds that the Wizard is incapable of helping her or her friends. In the end, she finds that the magical powers of her silver slippers help her. Since the silver slippers are the vote, she realizes that she had the power to fix the problems all along. It should be noted, however, that the historian David Parker, in an article referenced in this article, cites evidence that Baum was in fact an 1896 McKinley supporter who opposed "silverism" as undermining business confidence and believed that the answer to America's economic problems lay in the Republican policy of "sound money" and protective tariffs. [/rquoter]
We won't because it'd bet stupid. Basically, anytime gold is found anywhere around the world we'd experience inflation and in turn a recession. Not the best way to run your country's monetary policy.
That standard lasted for several centuries without any hiccups. Current governments and most economists favor jimmying the money supply to control inflation and growth. Then again, the next economic disaster could lead us to reinvent the wheel.
I thought the Vietnam War was bankrupting America. America didn't have enough gold reserves or something like that. So Nixon took the U.S. off the gold standard an placed the value of the dollar on faith. So far so good on the faith approach.
that was my question apparently we both know very little on the matter. saint louis somewhat answered it. where are the old people that were alive back then?
Yes. David Hume in the 18th century came up with a brilliant theory called the price (gold) specie mechanism. Instead of controlling trade like the mercantilism practiced then, he brought the notion that all nations share the same gold supply. If the US had 200 gold/person and France had 50, then the prices in the US would generally be higher due to inflation and France's prices would be comparatively lower. Even with artificial trade barriers, that difference would be eventually felt. The genius in Hume's theory is that they would eventually fall into equilibrium and self correct. Under the Gold standard, it worked pretty well stabilizing the world economy. WW1 changed that. Countries need $$$ to war so the Gold standard was abandoned. After WW1, when they came back to the Gold standard, there was a distortion each country's value in their currency under pre-war exchange rates. Countries with undervalued currencies faced the prospect of depleted gold reserves. One way to counter that would be to leave the gold standard or raise domestic interest rates, which Herbert Hoover did and was burned for doing. With the Great Depression, countries forced their currency to devalue in order to boost jobs and exports. But since Hume hasn't been proven wrong, one country's devaluation meant it came at the expense of another. The Breton Woods agreement tried to fix that post WW2. Countries under the agreement pegged their currency to the Dollar and the dollar was redeemable for gold. Unlike the gold standard, it wasn't a fixed standard, but the details can be found with further reading. Instead of the dollar being the de facto currency today, it was the world standard during Breton Woods. The conditions during the creation of Breton Woods saw the US at the top of the world with Europe rebuilding under the Marshal plan. US exports were unrivaled. The decades that followed saw Europe miraculously rebuilt, American corporations investing outside home, and eventually, the Vietnam War, which made the dollar even more overvalued and created budget deficits. Like today, foreign banks began accumulating insane amounts of dollars. The Dollar was still redeemable for gold, so if the US government decided to devalue later, it'd make sense to cash in now. As our gold reserves fell, Nixon had no choice but to abandon Breton Woods despite the power and control Breton Woods gave the Dollar. Today's current system is less uniform and not as easy to summarize. But what I will say about it is with China pegged to our dollar, it's a lot harder to shake them off and equalize the trade imbalance. blah blah sober blah
Well that probably won't happen, but if the massive monetary expansion we've had over the past couple of decades results in a serious recession or depression, some sort of monetary changes will probably be made.
Nixon stopped it because all the gold was flowing out of the country. Its said that Ft Knox is empty.
This is the era of trusts and of Pinkerton Detective Agency busting up union organizers and killing people. They were, indeed, wicked and very much at odds with factory workers and farmers in the age of 16 hour days, no minimum wage, no safety standards, and automatic termination if you were hurt on the job. Labor was viewed as a resource, much like corn or iron ore to be used up in production, and any remaining dross to be discarded afterwards. They work conditions would be worse than what you would find in the bottom of the barrel sweat shops in the third world today. I think it is fairly universally agreed that the proprietors of sweat shops are not good people.
And every time gold was discovered the economy suffered a recession shortly thereafter. People in the US are just have to get used to the idea that with globolization taking over, the US is going to have to lose economic power over other countries as they get richer, even while the increased trade and production is going improve our absolute standard of living (ie we have more stuff) in the net scheme of things. The gold standard is NOT going to come back. sorry.
