A recent article in The Atlantic suggested returning to the gold standard would be like crucifying our economy on a cross of gold. In other words: economic suicide. The GOP’s recently adopted a platform, a gold commission that would investigate ways to set a fixed value to the dollar, is receiving widespread criticism. Many economists claim a return to the gold standard is equally absurd as it is impossible. Paul Krugman described recently in the New York Times why he thinks returning to the gold standard is a bad idea:
Under the gold standard America had no major financial panics other than in 1873, 1884, 1890, 1893, 1907, 1930, 1931, 1932, and 1933. Oh, wait. The truth is that returning to gold is an almost comically (and cosmically) bad idea.Krugman raises a valid point. Why would the Republican Party want to return to a policy that has failed us in the past? I asked the director of policy at the American Principles Project (APP), Jeffrey Bell, what his response to Paul Krugman’s statement would be. He said:
In the 1930s, we had only a bastardized gold standard because of the rise of reserve currencies, the pound and the dollar, which suppressed the error signals inherent in the pre-1914 classical gold standard. Earlier panics and depressions did occur—no one ever said they didn’t—but they were much shorter in duration than the 1930s depression or today’s stagnation because the gold standard told all players to fix the problem.Bell’s reply suggests two problems with Krugman’s statement. First, he implies that financial panics prove the gold standard failed as a valid monetary system. Even under a perfect system—whatever that system might be—we should expect to have a crisis-free economy no more than we should expect to have a suffering-free life. Financial panics cannot be entirely avoided under any monetary system. Second, Krugman fails to accurately communicate what supporters of the gold standard claim. Gold advocates do not believe fixing the value of the dollar will eliminate economic cycles, rather they hold it would correct recessions faster, by providing the public with more information to consider in economic decisions. Bell makes it clear that the dangers of remaining with the present system are much greater than returning to a dollar with an independent value. Bell heads APP’s Gold Standard 2012 campaign, and he believes gold is as much an economic as it is a moral question. The current system allows the Federal Reserve to use their judgment in setting interest rates. Manipulating the interest rate in this way is a moral danger, not only because it allows the U.S. to finance huge budget deficits, but because it benefits big business at the expense of small business:
The zero interest rate the Fed has had in place since late 2008 discourages savings and paralyzes Main Street lending, while granting abundant credit via money-center banks and the stock market to the rich and huge businesses.”Some might argue it is necessary that the Federal Reserve have freedom in controlling the money supply, but this seems to be precisely the problem. Since the value of the dollar can be manipulated, often for political reasons, our currency lacks integrity and true value. Bell explains the devastating effect that fiat monetary has on our culture:
It means the money we use every day is not transparent, is uncertain in its value, and shows a lack of trust on the part of government, generating in turn a lack of trust in the people.Rather than questioning if the gold standard is an outdated monetary policy, voters should first examine its implicit moral values. Ignoring questions of ethics in monetary policy disconnects the human from the material, committing the same grievous error as the Marxists—that sounds like economic suicide.