ABSTRACT: There have been many calls for reforming the gold standard since the end of the classical gold standard and especially since the end of Bretton Woods. While these calls have somewhat abated in recent years, this article will attempt to show that the gold standard is still a superior monetary system, and that the reform of the monetary system is still a desirable policy.
Key Words: gold standard, monetary policy, austrian economics, populism
Kristoffer Mousten Hansen ([email protected]) is a research assistant at the Institute for Economic Policy at Leipzig University and a PhD candidate at the University of Angers. He is also a Mises Institute research fellow.
The author thanks Dr. Joseph Salerno for comments as well as an anonymous referee.
We will proceed by first analyzing the shortcomings of the present fiat-money order, indicating how it distorts the market and society through inflation, redistribution, by artificially increasing the importance of financial markets, and by hampering US industrial production in international trade. Then we will show that these problems would cease to exist under the gold standard, and we will indicate a possible reform for returning to gold in the US. Finally, we will argue that such a reform in order to be successful must become a popular crusade—i.e., it must become a populist issue.
INTRODUCTION
Politics have become increasingly populist throughout the Western world since the Great Recession. Both left-wing and right-wing parties thunder against political and other elites, suggesting that their specific programs and ideologies will put an end to what they see as unfair exploitation of the people by an unaccountable and increasingly out-of-touch elite. In the United States recent populist movements are the Tea Party movement and Occupy Wall Street, and both Donald Trump and Bernie Sanders used populist rhetoric in their presidential campaigns.
The rise of populism is, in hindsight, perfectly understandable. The war in Iraq would be a “cakewalk”; “if you like your health insurance, you can keep it”; my opponent’s voters are a “basket of deplorables”—mainstream politicians have again and again shown themselves to be out of touch with reality and increasingly, it seems, also with more and more of their voters. Most important for our purposes, the Federal Reserve, charged with managing the money supply and securing low inflation and low unemployment, was oblivious to all dangers on the eve of the Great Recession, and seemed to do what it could to help big banks and investors weather the storm, no matter what the price would be for the rest of the country.
Indeed, the Federal Reserve has proven unable to achieve the goals set for it since its establishment and especially since the final end of the gold standard and the introduction of the fiat dollar in 1971, when its control over the money supply was vastly expanded. The Fed did manage to break the inflationary expectations that had led to double-digit inflation in the 1970s, but this slight improvement has not canceled out the many evil effects of fiat…
