Alternative to fiat currency susceptible to price shifts, supply limitations
The pocket economists that insist the United States needs to return to the gold standard as the foundation from which we can fully recover our lumbering economy may want to take a recess in their arguments to brush up on some historical context.
Personally, I’m not so sure about the appeal to having our currency backed by the value of gold. Perhaps it’s the tangible security that, short of a national crisis of incredible scale, the dollar in your pocket can be traded in for something with intrinsic value. Maybe it’s more ideological, such as the image of the sanctity of our monetary system being guarded by a legion of Americans dedicated to the prosperity of this country. One thing I do know, however, is that those that think the gold standard is superior to the fiat money in our wallets in propagating forward market progress may be rationalizing with more pathos than should be afforded to a social science as rigidly logical as economics.
History shows that in previous depressions, the first countries to ditch the gold standard have been the first countries to recover, although I will grant that correlation is not necessarily causation. Nonetheless, it is a relevant fact to a country that’s trying to find some forward momentum. A more concrete fact, however, is that economies operating underneath the gold standard are limiting their supply of money to grow alongside its domestic product, which naturally leads to lower prices. Sounds great, right? Well, maybe if you’re looking to purchase that BMW you’ve had your eye on, but for a growing economy, it’s not quite so cut and dry.
Falling prices may be awesome in individual cases, but macroscopically it’s a sign of economic strain. Generally, market momentum and velocity greatly falls with lowering prices. The main rationale being why buy something today when it will be cheaper tomorrow? Consequently, stagnation begins, companies report drops in sales and shares alike, costs must be cut, jobs are severed and the lifeblood of the national economy — employment — suffers.
Finally, the gold standard places the economy’s entire security on the possession and value of gold, leaving the economy vulnerable to dramatic shifts in the price of gold. Not to mention that a newfound use for gold — perhaps in a technological innovation — would make hoarded gold effectively useless.
Ultimately, the fiat system is best for our country, just like it’s best for the rest of the world. In the hands of a responsible government, fiat money is immune to the ebbs and flows of a global economy that could render a gold standard currency unreliable. Rather than invest our economy’s power into a simple commodity like gold, it invests its power in the people. It’s the ultimate system of democratic economics, and the best fit for a rapidly changing global market. To this end, our problems rely not in our business methods, but our government.