Pros and cons of the gold standard: Is the current system better
Updated Feb 2023
While many gold bugs and hard money advocates still cling to the idea of returning to the gold standard, they fail to recognize the impracticality and inconvenience of such a system in today’s world. The masses, often the driving force behind economic decisions, are unaware of gold’s historical role as currency and would be unwilling to embrace a system that requires heavy, cumbersome gold coins.
Furthermore, the gold standard was not foolproof and was subject to theft and manipulation by bankers. It also requires a stable supply of gold, which is not always feasible and neglects the importance of other hard assets such as silver, palladium, antiques, collectables, and timber.
The current generation also lacks the education and understanding of the actual function of gold and money, making it challenging to introduce the gold standard. Instead, the future may hold a different solution – governments backing their currencies with a basket of commodities such as oil, gold, silver, palladium, and others. This approach would give investors confidence in the currency and help stabilize its value.
Current Generation: Lost Understanding of Hard Money
While countries like the United States, China, and Russia are positioned to back their currencies with commodities, China appears to be leading the charge. Their rapid progress and resource-rich economy make them a prime candidate for such a move, and in the next 30 years, they could potentially set the standard for a new form of currency. In the end, it is not the gold standard that will prevail, but rather a new, more practical solution that considers the needs of the modern world.
Overall, the pros and cons of the gold standard are often overstated and misunderstood. It is time to move beyond the romanticized notion of returning to gold and focus on developing a system that better serves the needs of today’s society.
Balancing the Pros and Cons for a Better Future
For those who understand how to invest wisely. It is not wise to cling to an outdated system that served its purpose at a different time. The world has moved on, and we must adapt to the changes that have taken place. The modern economy requires a flexible monetary system responding to changing market conditions. The gold standard does not offer this flexibility. It is an inflexible system that cannot be adjusted to meet the market’s changing needs.
The notion that the world will return to the gold standard is a fallacy that ignores the realities of the modern economy.
The phenomenon of inflation, when viewed from a broader perspective, need not be regarded as entirely detrimental. Governments may indeed increase the money supply by a certain percentage, increasing prices for goods and services. However, astute investors know that certain assets have the potential to surpass the rate of inflation far, providing a significant return on investment.
Indeed, some assets can appreciate by 30% to 100% or more per year, which is an immense advantage for those who possess the necessary wisdom to make strategic investments. This is, in fact, the little-known advantage of inflation, which can be leveraged to accumulate and safeguard wealth.
The Truth About Inflation:
It’s Only Bad if You Don’t Understand It.
However, the issue at hand is that most central bankers are currently preoccupied with making their products the most competitively priced in the global market. This has resulted in a “devalue or die” mentality, where maintaining a fixed inflation rate is simply beyond their purview.
The remedy to this situation lies in governments choosing to back their currencies with diversified commodities, such as gold, silver, oil, palladium, and others. This would instil global investors with the confidence to exchange their money for a country’s currency, and Russia and China possess the resources to undertake such a venture.
Rather than fixating on the gold standard or the future of paper money, the focus should be on investing in assets that inflate faster than the government inflates the money supply. In this regard, gold and silver bullion remains a reliable and trustworthy method to achieve this objective. Rather than attempting to halt inflation, the key is to possess assets that can maintain pace with or surpass it.
Is the Gold Standard the Answer?
The pros and cons of the gold standard have been debated for centuries. On the one hand, the gold standard can also be rigid and inflexible, limiting the ability of governments to respond to economic shocks and crises. It can also restrict the money supply, leading to deflationary pressures and harming economic growth. Additionally, the costs associated with maintaining a gold standard can be prohibitively high, as it requires significant resources to mine, transport, and store large quantities of gold.
Therefore, while the gold standard has its merits, we must also recognize its limitations. Instead of obsessing over returning to the gold standard or discarding it entirely, we should focus on developing a flexible and adaptable monetary system that can respond to the economy’s changing needs.
In the end, we need to weigh the pros and cons of the Gold standard in the context of today’s world. While it may have been a sound system in the past, it may not be the best solution for our modern, complex economy. Instead of returning to the past, we should focus on finding innovative and practical solutions for today’s challenges.
Summary of the Pros and Cons
Pros:
- Gold has been used as a currency for thousands of years and is widely accepted as a store of value.
- Gold can help protect against inflation, as its value tends to rise as the value of paper currency falls.
- The gold standard can help limit government spending, as the government is limited by the amount of gold it holds and cannot simply create more money to spend.
- The gold standard can help prevent financial crises, as banks cannot lend out more money than they have.
Cons:
- The gold standard can be inflexible and limit a government’s ability to respond to changing economic conditions.
- Maintaining a fixed price for gold can be challenging, and fluctuations in the gold supply can significantly impact the economy.
- The gold standard can limit economic growth, as it may be difficult for businesses to access capital when the supply of gold is limited.
- Gold can be subject to market speculation and manipulation, leading to price volatility.
Research
- “The Gold Standard: A Critique of Friedman, Mundell, Hayek, and Greenspan” by Murray Rothbard: https://mises.org/library/gold-standard-critique-friedman-mundell-hayek-and-greenspan
- “Why the Gold Standard Is Not the Answer” by The Balance: https://www.thebalance.com/why-the-gold-standard-is-not-the-answer-4174042
- “Why We Can’t Return to the Gold Standard, in 1 Chart” by Vox: https://www.vox.com/2014/10/21/7025403/gold-standard-currency
- “The Gold Standard: History, Facts and How It Works Today” by The Street: https://www.thestreet.com/markets/gold/gold-standard-14764826
- “The Gold Standard: A Brief History and Why It Failed” by Time: https://time.com/3666131/gold-standard-history-failure/
Succulent summary
The pros and Cons of the Gold Standard and its limitations in today’s world are discussed in this text. The Gold standard’s inflexibility, high costs, susceptibility to manipulation by bankers, and the need for a stable supply of gold are some of its cons. The current generation’s lack of education about gold’s historical role as currency makes it difficult to reintroduce the system.
Instead of the Gold standard, a flexible monetary system that can respond to changing economic needs is essential. Governments backing their currencies with a basket of commodities, such as oil, gold, silver, and palladium, can instil investor confidence and stabilize the currency’s value. The focus should be on finding innovative and practical solutions for today’s challenges rather than returning to the past. Lastly, instead of halting inflation, possessing assets that can maintain pace with or surpass it is the key.
Other articles of interest
BBC Global 30 Index Signals Dow industrial Index will trend higher (11 May)
Stock Market Bull not ready to buckle (4 May)
Fear mongers are parasites that profit from your fear (2 May)
Gold Bugs think & stop listening to Fear mongers (1 May)
Fear mongers are parasites that profit from your fear (27 April)
Plain evidence that financial experts know even less than Jackasses (26 April)
Negative rates are fantastic for speculators but terrible for global economy (16 April)
You might be on to something if we can get rid of the bankers-a minor flaw in the plan.
The minor flaw in the plan as you put is not so easy to fix. For now the world is hooked on hot money. So this scam will continue, The idea here was to show the Gold bugs who think that everything will end if we are on Gold standard that there is an alternative and that an all or nothing approach is fool hardy. In the mean time, expect hot money to continue flooding the markets. After all it can be created with the click of a mouse.
The million dollar question is will the people support such an effort and can they. Most don’t even know the difference between Fiat and real money, so asking them to implement something along these lines is a long shot at best.
The problem is the monetarist system. What we need is a credit system, as elucidated by Alexander Hamilton. Money itself has no instrinsic value. It is a medium of exchange only. It is human energies and innovation that drive development. This must be directed by the government, which alone should have the power to create money–being that only the government owns all the territory and can properly direct national development. Gold and fiat play off each other, each insufficient as concepts in and of themselves. Each obfuscates the real issue, which is the monetarist system. Money is a social contract and a currency is only as healthy as the society itself. The health of society cannot be trusted to bankers. The real economy is the physical economy and this must be tended and regulated by the government, not by private international bankers.