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
Gold back currencies never worked how some people thought they did. There was never a 1 to 1 relationship between how much was printed and how much was in the bank vault.
Countries would lie, say they have a trillion in gold reserves, then print 10 trillion in notes. Reserve would sell their gold, then place an entry in the accounts that if there was a requirement to, they would buy it back. Value of gold would go up, yay free moeny run the printers, gold price declines, no note callbacks.
It always has been a confidence game, how capable do you think this govenment is at providing a value equal to this piece of paper?
If you don’t have a fiat currency, your money supply is tied to how much gold there is in circulation. You can end up with inflation if someone finds a big new gold mine, as happened to Spain when they conquered the Aztecs and Incas. This inflation happens at a random time, not necessarily at a time that is most beneficial for a country’s economy. There’s arbitrariness in the system; why not make it so a government can use that arbitrariness as a tool to help the economy?
There’s a few misunderstandings you’ve got there.
>which is why we now struggle with inflation and soaring debt.
You can still be on the gold standard and have rampant inflation. They can and did change what amount of gold the dollar was worth. When first enacted $1 was 1oz of gold. They changed it a lot, when we got off the gold standard 1oz of gold was worth $20.67. Meaning that roughly 2000% inflation had occurred during the time we were on the gold standard.
All a “standard” does is mean the government changes the exchange rate to that standard whenever more money is introduced. It’s just more work on the back end for quite frankly no tangible benefit. Maybe the inflation was a little more obvious since someone had to come out and say the government will now give you $5 instead of $4. So you can know that 25% more dollars are now in circulation since the last change.
The gold standard also has nothing at all to do with debt. That’s a completely unrelated thing.
Also, gold is not inflation proof. You can go dig up more.
Gold is also harder to know the value of because, is it pure gold? Is it 80% gold? Is it fools gold? The layman doesn’t know, you have to go get that professionally tested. Nobody has time for that.
>arbitrarily make up the value
We arbitrarily make up the value of gold too. Gold has very few practical uses. It’s valuable because we like it. If we didn’t like it, it would be worthless. How much someone likes gold will determine how valuable it is to them. There is no universal and objective value of gold.
>readily appraisable value
Again, this kind of goes against all ideas of trade and commerce. There is no one agreed upon value of anything. Everything has to be more valuable to some people and less valuable to others. Nothing can ever have an objective set value.
Government debt and inflation occurred all the time when precious metals were used as currency. Rampant inflation played a part in the fall of Rome and the Spanish empire. Government debt was a main contributor to the French Revolution.
Governments do not arbitrarily set currency valuation. They are based on economic fundamentals like supply and demand. See George Soros and the Bank of England. Soros made billions based on those fundamentals that the UK currency was over valued.
It’s pretty difficult to do an ELI5 on currency. The ELI5 view of currency is why there are people that view gold as some magical cure all for inflation, debt, and everything else.
It wasn’t. Getting off the gold standard created the concept of inflation and it’s the cause of all the monetary issues we deal with today. From record CEO wages and stagnant workers wages to insane price hikes to interest rates. It’s all tied to inflation caused by getting of the gold standard which kept it all in check and forced government and businesses to be fiscally responsible.
You can’t make gold to buy stuff from other countries, but you can print money to buy stuff from other countries.
Like you are 5:
when you are playing with toys, and things go bad, would you rather have control to fix things or wait for things to get worse?
But they *can’t* arbitrarily make up the value of fiat currency, or at least not without creating an economic shock. The value of a free-floating currency isn’t solely determined by what the issuing government *says* it’s worth. It’s determined by the demand for the currency versus the supply of the currency.
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