I was listening to the radio today and some commentator mentioned that going back to the gold standard is totally unreasonable because we “don’t have enough gold”. This is really a silly objection. The merits of gold take some explaining while the “don’t have enough gold” line is just a slogan type phrase without any thought put into it. So lets take a look at the “don’t have enough gold” line and root out the falsehoods impregnated in it.
Gold has traditionally been used as money precisely because it is rare. The freemarket picked gold and silver because they are precious metals. What makes them precious? They are uncommon/rare. It’s pretty simple, we don’t want gold to be common place because it would not work well as money. The maket could have chosen steel but, steel production is about 545,500 times that of gold. If I wanted to buy stuff with steel, I would need a huge truck to transport it. The reason that gold has been used as money is because of its high value per unit of weight.
It is true that if the U.S. returned to the gold standard today that their would be far more dollars in circulation than in the past in proportion to U.S. gold reserves. I would say “so what?” The fact that there are more dollars in circulation simply means that gold would have to be re-linked to the dollar at a higher amount. This has been done before in the 1930s when FDR revalued gold because of all the money that was printed under his and the Hoover administration. Today we could re-link to gold in much the same way (but hopefully without confiscation). So instead of 36 dollars for every ounce of gold it would be something like 1500 dollars an ounce or maybe even 40000 dollars an ounce according to some estimates. This would simply mean that I would need to turn in 1500 dollars to the bank to recieve an ounce of gold. With modern banking electronics and bank cards I would not even need to turn in Federal Reserve notes to recieve hard currency. When I swipe my card for $15 it would simply remove gold from my alloted pile in the bank and put it into another alloted pile that is owned by the seller of the good I just bought. Whether the gold is physically moved or just kept track of in a ledger would probably be up to the bank. As you can see, modern technology would make a present day gold standard much more cost effiecent than 100 years ago when you had to physically withdraw gold from the bank.
I would also argue that the “not enough gold” argument misses the whole point entirely, or more precicely three points.
1) The fact that gold is linked to the dollar means that the federal government could not print off money at will. This money printing steals wealth from the population and hurts the poor and the middle class the worst because their wages are largely fixed and do not benefit from inflation like Wall Street and other politically connected groups. Putting a check on government inflation(theft) is the whole point of the gold standard. The dollar could be linked to anything hypothetically; silver, copper, land, or even oil could be used in the same way. The reason gold has been used is because of its high value per weight but, this doesn’t mean that something else could not be used in the future. Hell, the governemnt could use sea shells and it would still limit how much money it could print.
2) Gold has value in itself. I know pundits on TV and on financial shows say that gold does not have any value because it does not do anything but, they are simply wrong. Go into any pawn shop or Jewelry store. Gold is obviously highly valued by large segments of the population. The reason it is money is because it is widely in demand. This does not mean that everyone has to want gold but, instead means that someone, somewhere down the road will want to own gold. This could change to silver or maybe energy units (like oil or killowatts) but gold has traditionally been the most widely valued good and that is why it is used as money.
3) Gold also provides a function as well. Gold provides a unit of account that allows all of society to make long term investment decisions. Other things can be used as a unit of account but, gold arose on the free market because its supply is relatively stable, only growing at a very predictable rate of about 2% a year. Today we use Federal Reserve notes as a unit of account but, we never know how much inflation is going to be year after year. This creates massive distortions in the economic system that makes society poorer because of peoples inability to make long term investment decisions because of the intertemporal nature of investment. All of civilization is based on people being able to judge the value of things in the present and over time. Gold does this pretty well, government bureaucrats are pretty poor substitutes. Once again, many things can be used as a unit of account but in the past, the freemarket has used gold.
In conclusion, the whole “not enough gold argument” is pretty naive. There are some better arguements against gold that are more intellectually sound like the “we need to inflate to save the economy!” argument. You can read more about that here, here, and here.
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