I had read it was abolished in 1971, but I also read it was in 1933. Which one is it? Also, why was it abolished in the first place?
In: 306
Both are somewhat correct. I believe it was 1934 when US citizens were no longer allowed to exchange US dollars for gold. However other countries were still allowed to do so (mainly European countries) where until 1971 Nixon abandoned the gold standard. Until then, European currencies were pegged (fixed) their currency to the USD and the USD was pegged to gold ($35/oz).
The gold standard is no way to run a global economy. The problem being that liquidity needs to be managed by Central Banks who could then adjust the money supply to local economic situations. This prevents or moderates periods of severe booms and busts (as was common in earlier periods).
It was originally abolished in 1933, but then replaced by the Bretton Woods system wich claimed to be a gold standard but actually wasn’t one. It was a pinky promise to exchange Dollars for gold, but the US never had enough gold to actually go through with that promise when someone tried it with a larger amount (wich happened in 1971 when france called that promise in and blew up the entire bluff)
The gold standard was abolished because having it chokes your economy. Not being able to adjust the amount of money in circulation is severely limiting to investment, because if the economy grows but the amount of money doesn’t then money becomes more valuable simply from sitting around. And then why open a factory and take risks when you can just put your money in a sock as investment. A slight inflation is considered beneficial because it encourages people to use their money instead of letting it sit around.
The only way to increase the amount of money in a true gold standard system is buying more gold, wich is very expensive for the government and puts you at the mercy of gold exporting countries.
The reason why a gold standard was established in the first place was the fear that trust in paper money wasn’t enough to keep it valuable. Turns out it is enough, as long you’re careful about how much you print
Why?
Because switching to a fiat currency let the Fed have more control over inflation and responding to financial crisis’s. There were wild swings in business because the currency couldn’t be trusted. Also to [slowly drain workers of their pay](https://wtfhappenedin1971.com/) without them noticing.
Executive Order 6102 in 1933 forbade US citizens from having gold worth more than $100 (about 5 ozt). They were supposed to surrender it in exchange for dollars. The main reason was that the treasury needed to increase the money supply to help alleviate the depression and they needed more gold to do that as it was being hoarded due to hard times. It wasn’t until 1974 that it was legal to own and deal in gold in the US again. This was 3 years after the dollar was no longer backed by gold. However, since 1934 the amount of gold per dollar could be charged by presidential declaration, thus instantly changing the value of the dollar (it was used immediately after passing).
I like to think of the money supply for an economy as being like clothing for a person. You need slightly bigger clothes as a person grows and as an economy grows the money supply should adjust accordingly. The gold standard couldn’t expand as the economy grew. Also too big of an increase too quickly can be a problem as well – for example the Spanish empire when they found silver in South America.
This is not a rabbit hole. It’s a rabbit megalopolis of interconnected warrens.
Read up on the pro and con side of Keynseian economics and Modern Monetary Theory. There is a huge disagreement between those who believe in these and those who don’t. Each believes the other side is making things worse. It’s fun to read _The Creature from Jekyll Island_ as well.
Then to get up to speed on an interesting current developments around the the BRICs countries potentially releasing a new, gold-backed digital currency.
It’s going to take awhile for you to wrap your head around the main issues, why the US went off the gold standard and got a central bank, how it fits into global economics and politics, and why the experiences of living under the Article of Confederation actually had this banned by the Constitution, and to decide if that was the correct decision …
As I said, it’s a rabbit megalopolis and easy answers are simplified to the point of uselessness in my opinion.
I also thought it was because gold was very useful in technology like CPU pin-outs. If the gold standard still existed things like PCs would cost astronomical amounts and it would stymy accessibility and even tech evolution
As an individual: if you have a job, own a house, have savings gold standard/ deflation isn’t a bad thing. Might add run a profitable business too.
Isn’t The Wizard of Oz originally about the dollar no longer being backed by gold?
A good way to keep people invested in the government backing your fiat currency is for it to become worthless paper if the government collapses.
Not that gold doesn’t have problems of its own, but if the government issuing the gold coin collapses at least you still have the gold.
Latest Answers