A Return to Sound Money

The best monetary system is the one that offers the most stability, day-to-day, year-to-year, century-to-century. Throughout history, we’ve seen that the gold standard is the standard of stability. Even when followed imperfectly, it’s far better than a devaluation-based floating system. Haven’t we seen that just since the end of World War II, monetary devaluations—the first route to solving a crisis—never create a lasting fix. Instead, devaluations set the stage for future strife.

A gold standard links the value of a paper dollar to the value of gold. This keeps the money supply in check, because there must be a means to adjust the supply of money so that the currency maintains its fixed value relative to gold.

A quarter is always a fixed value—25 cents—to the dollar, right? Why should the dollar be any different in regard to gold?

The discipline that gold-dollar convertibility imposes would fix a lot of problems we’ve written about in these pages.

It would clap handcuffs on Treasury’s access to its Federal Reserve credit card. If the Federal Reserve created more money than individuals in the market wanted to hold, people would get rid of the inflationary excess by promptly exchanging paper dollars for the gold equivalent.

This in turn would force banks to be solvent, and have higher reserves. It would force Congress to no longer use the Treasury like an ATM card on promises it can’t pay for.

Obviously, the dollar isn’t worth 1/35 an ounce of gold as Franklin ...

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