From my understanding, remove from the gold standard just allows government to arbitrarily make up the value of the now fiat currency, which is why we now struggle with inflation and soaring debt.
It seems obvious that you’d want your dollar to theoretically be fixed to another medium with a readily appraisable value simply to maintain stability and prevent government corruption through manipulation of the monetary supply.
But then again, I’m no economist.
In: Economics
The first thing to understand in this is that the amount of money in circulation and the interest rate for borrowing and repaying money are inherently linked. The interest rate is the “price of money” (or really the price of money over time). The more money in your system, the lower the interest rate (the cheaper it is to borrow). The less money in your system, the higher the interest rate.
So the question is, what do you want to set the interest rate in your economy? One answer is to say it should be set by “market forces”, meaning you hold the quantity of money fixed, tied to the quantity of gold. But there are issues here. One is that the quantity of gold, and the value of gold, are not fixed, and change over time due to forces that are pretty arbitrary when it comes to financial stability (e.g. gold mining technology could improve and cause your interest rates to go way down — not the best).
But the broader idea is that governments want to be able to influence interest rates, and most people do, too. When an economy is crashing, it’s better for most people if you can lower interest rates and try to reduce the amount of unemployment that happens. When the economy is really heating up and prices are going way up, you want to be able to adjust interest rates up to try to get that under control.
There are a lot of debates about the extent to which governments should do this, but the real world experience is pretty clear that you want to be able to do this to some extent. For example, being able to lower interest rates at certain periods and for certain sectors was critical for the US to enable industrial development, development of the western territories, and middle-class home ownership. Unlikely that the US would have the middle class it has now without it.
That doesn’t mean that all monetary policies are good. Some governments are irresponsible with this, and some governments try to use this to control international exchange rates, which is very risky.
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