The Gold Standard: A tool of the past? or an ideal to strive toward?
Many conservatives will tout the gold standard as an idea which the world should/will eventually return to. While this may or may not be true there is no denying that it has its merits. These merits present themselves when you start to realize that the value of the gold standard has very little to do with the intrinsic value of gold. In fact, when you look at it closely you can see it actually has very little to do with gold at all, instead it is about control, automation, and power. The gold standard was a monetary policy employed widely in the international system before the first world war, and to a less successful degree afterwards as well. It linked each unit of currency to a set amount of gold, which made for easier international exchanges. One needed just exchange domestic bank notes for their value in gold, and then buy foreign bank notes with that gold, no complicated exchange rates involved.
The gold standard made the international economy a zero sum game. Any gold held by one nation cannot be held by another. An Outflow of gold in Canada, for example, would automatically lower the domestic currency supply, which would cause prices to drop. If the prices drop to a certain level, Canadian goods would look better to an international market, which would cause more gold to flow in. As gold from these outside sources flowed into Canada its gold stores would rise, its currency supply would rise, and with them the prices would adjust. This is the true value of the gold standard, not the gold itself. The gold is just a scarce resource which no person has control over. Because of this an economy entirely backed by gold has the ability to regulate itself and does not allow government intervention.
Those against the gold standard, argue that it is an archaic system which sacrifices the intricacies of our economic needs for the surface level simplicity of a self regulating system. Its self regulation, although profound, cannot be enough to erase its short comings. The most obvious being that the relative scarcity of gold makes it hard for economies to grow quickly. This would have make something like the tech boom we are in the middle of now, very near impossible. Another argument against it is that a gold standard can cause governments to become fixated on hoarding gold, often at the expense of other, potentially more important goals like the social wellbeing of their populations.
The biggest argument against the gold standard, surprisingly, also seems to be the biggest argument in favour of it. The system takes the power to control monetary policy away from governments and central banks. However, this also takes away their ability to act against recessions. This ability is widely believed to be the reason the industrialized world has only ever seen one depression. While the management of the money supply to counteract recessions may be a necessary evil, and a definite necessity in our current monetary climate. This power should be used sparingly and never be entrusted to an individual or small group, where it is likely to be abused.
The other side of the argument looks at the gold standard’s automatic regulating abilities as being of the highest value. They eliminate the need for any central authority to exercise control over the money supply. Gold is found by luck and has a set amount. Therefore, the only way for governments to reliably increase their gold stores should be to create more value for their populations, both domestically and internationally. Any benefits given by government control over money are said to be clearly negated by the instances of abuse.
The economy is an extremely complex machine, and history has shown us that even the brightest among us cannot hope to interpret it. It seems obvious that the intelligence of the group will always be higher than that of any individual. So it should seem ridiculous to anyone, that in our current monetary system, the money supply can be controlled by such a small number of people. As mentioned above many believe that the ability of governments and central banks to manipulate money is a powerful tool to be used for good. However, its potential for abuse creates a clear and imminent threat. Instances of government caused hyperinflation can be seen across history. Most recently in Zimbabwe and Venezuela, of whom, neither nation has fully recovered.
Moving Forward
I personally do not believe that the gold standard is something that Canada, the U.S. or any other nation should be striving to return to. This is not to say that none of its ideas are valid. Any modern day implementation of the gold standard of old would surely end in disaster. At the same time, just throwing away its ideas would be equally as destructive. A self regulating monetary system is a good idea. One that is capable of automatically dealing with the financial waves caused by the fickleness of people, a utopian idea. We should attempt to move forward with what we have learned from the past, in an effort to create something better, something which meets our vastly changed needs.
The ideal solution would take ideas from both our current system and the gold standard. It would 1) be an international monetary system, allowing for money to easily flow across borders. 2) The total supply would grow, slowly and by a reliable amount over time, but would never be capped. A capped supply would just cause the value to rise endlessly as the population continued to grow and would block many from participating in the economy. 3) the system would be capable of detecting and correcting the rises and falls in the economy through automated quantitative easing. This would make for a self regulating international monetary system completely free of human intervention and controlled entirely by the markets themselves.
