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Defending the Gold Standard

Things like this irritate me.

The gold standard has a problem. Not a real economic problem, but a problem of attribution. The gold standard is always getting blamed for worsening the Great Depression. This sort of reasoning completely mis-identifies the villain.

The gold standard was not the problem. The problem was rampaging monetary inflation caused by the government and by the Federal Reserve. The economy "got into trouble" because the gold standard was forcing this monetary inflation to slow down and reverse. <Insert standard description of the Austrian business cycle theory here.>

As countries went off the gold standard and "saved" their economies by devaluing their currency, they ignored the very real victims of that policy: people with savings, who saw the purchasing power of their savings evaporate. The penalty should have been borne by those responsible, the politicians and bankers who inflated the currency, but they instead deflected the burden onto innocent savers. We have endured a repugnant rate of currency devaluation ever since.

In the United States, gold was confiscated and then made illegal to own. If fiat currency was truly better than gold in any objective sense, it would not have been necessary to apply force to get people to switch. Gold and silver were the choice of the free market. Fiat currencies were imposed by force.

Incidentally, when people say how ridiculous it would be to carry gold coins today (because the gold content of $1 or $10 is so small), they've got the argument entirely backward. Before going off the gold standard, $10 was approximately one-half troy ounce of gold. The fact that today the same quantity of gold is worth about $260 is a measure of how much inflation has robbed the value of the dollar over the years. (And it significantly understates the robbery, because the demand for gold as money is much lower than it would be if we were still on the gold standard.)

Tiny Island