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
>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.
In fact, it’s the opposite. Precisely because they can make up the value of the currency, they can ensure inflation is kept in check.
The tool used to do this isn’t perfect (there are still periods of high inflation) but it’s far better than no tool at all, which is what they’d have if the dollar was pinned to a commodity price. Inflation in the US is back to normal now – prices might still be high, but they’ve stopped getting higher.
Most countries with advanced economies have a “central bank” (the US calls theirs the Federal Reserve). The central bank’s job is, basically to control money supply and interest rates. When inflation gets too high, they might raise interest rates. This discourages people from spending, bringing inflation down again. When inflation gets too low (yes, there is such a thing, and it’s not good), they lower interest rates (and, in extreme circumstances, pump up the money supply) in order to encourage people to spend, and so bring inflation back to a healthy range (typically between 2% to 4% per year).
Government debt is a different matter, and is far less serious than people sometimes think. Government debt accumulates when governments don’t collect enough tax to cover their spending. This might happen because they’re spending too much, or it might happen because they’ve cut taxes too much, but sometimes it just happens because the economy is lousy, and taxes automatically drop. None of this has anything to do with the gold standard. In fact, government debt is (like inflation) a bigger problem if the currency is tied to a commodity. After all, if you owe a ton of gold, you’ll always owe a ton of gold, but if the economy is growing in dollar terms (because of innovation, education, and also because there’s manageable amount of inflation), then $X billion dollars of debt slowly becomes a smaller and smaller amount of actual value. Or, if the economy is trash, and your dollar is pegged to a commodity, you can’t get out of the recession so easily – after all, the central bank doesn’t have the tools it needs to encourage people to spend.
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