Bloomberg Reports: The Gold Standard Is Popular Again
Bloomberg has published an article recently discussing the gold standard, its critics, and its backers. And according to the media company’s assessment, “one of the oldest ideas about money” appears to be finally making a comeback.
Associating the idea of sound money to a “fringe movement,” mainstream economists and former White House officials are quoted in the article as saying that while they do not like the idea of establishing the gold standard, that’s what “we’ll increasingly talk about” in the future.
According to Tony Fratto, who worked as a Treasury and White House official during the George W. Bush administration, the gold standard “let to some of the worst economic downturns and bouts of deflation in history.”
But the kind of deflation he is talking about isn’t a bad thing.
When discussing economics, many believe that both deflation and inflation are all about the drop and rise in prices. Once you look into the definition of these terms, you’re given an opportunity to understand why Fratto is wrong.
When “Austrian economists talk about inflation or deflation,” the Executive Director at the Carl Menger Center for the Study of Money and Banking Paul-Martin Foss once wrote, “they mean an increase or decrease in the money supply.” Therefore deflation, which is a contraction of money supply is, in fact, dangerous. But when mainstream economics use the term, they use it in reference to a fall in prices, not in money supply.
So what Fratto appears to be particularly afraid of isn’t the contraction in supply of cash, but a fall in prices.
He must really hate competition!
As Foss explained in another article, “the gold standard did not fall away because it was inefficient or counterproductive; it was actively destroyed by governments which did not want to continue to be bound by its strictures.” I
f the gold standard is in place, governments are restricted, and their creative methods of expanding power and reach are, as a result, also restricted. What brought the gold standard to an end wasn’t a drop in prices. Instead, governments sought more control and influence. Getting rid of the gold standard gave them power over the currency and over those who use it.
While the Bloomberg piece claims the idea of restoring the gold standard “is almost inconceivable,” the monetary theory’s growing popularity may be a sign that times are, indeed, changing. Take Russia and China for instance. While neither one of those nations are currently serious about instating the gold standard, they are leading the central bank gold buying spree.
As the price of gold increases, more and more individuals begin to wonder whether they too should get into the practice, exchanging failed, inflated, and worthless fiat currency for a commodity whose value has stood the test of time.
Perhaps Bloomberg’s Michelle Jamrisko is right and the gold standard is, indeed, making a comeback. We just hope it sticks this time.