General Question

admackbar's avatar

What are the costs and benefits of the Gold Standard and the Federal Reserve System that is in place today?

Asked by admackbar (21points) April 30th, 2011

The Constitution states that only gold and silver should be legal tender. Creating a central bank is not authorized by the Constitution. I’m looking for benefits and problems of both the Gold Standard we used to have and the Federal Reserve or current monetary policy.

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9 Answers

SeaTurtle's avatar

I’m no economist, far from it but I will venture a part answer.
The problems with the current monetary policy are clear so I wont waste my time any longer with that part. The benefits that I can see are that we were getting a lot more productivity and advancement when all the faux wealth was in circulation.

It will not be the solution but some people need to be held accountable for the current state of affairs, too many laws broken and too many wealthy/powerful people being allowed to break them!

Now the Gold standard, that was the true & honest economy but it limited advancement and I cant see any way for us to merge gently back into it short of a revolution..

Response moderated (Off-Topic)
Bagardbilla's avatar

Think about how under the gold standard, a country’s economy grew. Then think about how an economy grows when under a system where wealth can be generated out of thin air… Then try and figure out which may be more apt at holding the confidence of investors from around the world… Hopefully this will help you answer your homework question.
Good luck.

HungryGuy's avatar

The gold standard prevents inflation. The problem with the gold standard is that the population increases, but the money supply remains constant. This causes deflation which is worse than inflation. With inflation, income and property values increase over time. But with deflation, income and property values decrease over time. The big problem with that is that you buy a house for $200,000 and your mortgage is $1500 a month. As time passes, your house value and your income go down, but end up owing more than your house is worth and you still have to pay that $1500 a month. The recent recession is an example of deflation when people’s houses lost value and people couldn’t sell their houses for what they owe to get out of their mortgages when they lost their jobs (“thank you for that, Mr. Bush”).

Dominic's avatar

The Constitution does not state that gold and silver are the only permissible legal tender.

The Constitution explicitly gives Congress the authority to regulate the value of money.

The gold standard is silly and outdated; I’d much rather have monetary policy dictated by economists than our nation’s ability to mine gold.

Nullo's avatar

The idea is that the value of the dollar would remain the same.

In light of @HungryGuy‘s post, one possible (but risky and definitely un-PC) solution is to put the currency on the voting-age-citizen standard.

wundayatta's avatar

Money is a metaphor. It stands for the value of all the stuff in the world. There has to be enough money to equate with the value of stuff. When more stuff is made, more money has to be created in order to represent the value of the stuff being made.

If you use a physical thing as your metaphor for value, then, as @HungryGuy said, there is a finite amount of your value metaphor and a constantly growing about of valuable stuff. Thus the money becomes more and more valuable relative to stuff, and you get deflation which destroys an economy.

We don’t need anything to be a metaphor for value. Most transactions don’t just money any more. The vast majority of trading uses electrons. Trying to switch back to the gold standard would crush the economy instantly. A huge depression would occur as transactions become impossibly slow.

An efficient economy needs lightning-fast transactions. Gold is simply too ponderous and stupid to work as currency any more. Even as a standard for currency, it is inflexible, inefficient and just plan bad, overall.

The people who advocate a gold standard have no clue what they are talking about. Fortunately, we would never go back to it because there are too many knowledgeable people in the world. What amazes me is that this idea is still floating around and that anyone pays attention to it at all. Then again, there are still some flat-earthers around, aren’t there?

tranquilsea's avatar

A good primer on our monetary system is the excellent, ”Money as Debt”. Watch it and you should be able to draw your own conclusions about the current state of affairs.

SmartAZ's avatar

We never had a gold standard, except sort of from 1964 when silver backing was dishonored to 1971 when Nixon abolished unofficial gold backing. Federal law still defines the dollar as a weight of silver.

Countries that have tried to declare both gold and silver as standards have gone broke as traders swapped one for the other when prices varied. Silver is money, gold is not. Gold is very valuable, but not as a unit of money.

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