The Advantages of a Gold Standard

Gold is money.

And if you live in a country on a gold standard your money is gold.

Today there is considerable discussion about whether or not we, the countries of the world, should embrace a return to the gold standard. To solve the economic problems of today. Yet perhaps it is time that we move on from the debate... and on to a demand for its return.
Global economy solution

In this short but sweet outline on the gold standard and its advantages, you will learn why it is essentially the grand solution our global economy is seeking.
Gold Has Got Your Back

Being on a gold standard means the national currency is fully backed by physical gold. And thus, its citizens can freely exchange paper notes for a set rate of gold.

When a government embraces a full gold standard, they are effectively declaring that gold is the highest unit of trade. And that the currency is merely a tool for people, businesses, government and foreign investors to facilitate gold transactions more conveniently than trading physical bullion.

And therein lies a key to a truly free market economy. Gold is a rare, heavy mineral that nobody can print out of thin air. Making it difficult to manipulate. And allowing the principals of production, savings, capital and economic growth to create natural prosperity. Uninhibited by the clutches of politicians and central banks.

Tremendous Economic Stabilizing Power

A gold standard provides the stability needed to foster greater prosperity and productivity throughout the world.

The limited supply of gold creates a stabilizing effect on international trade & the business cycle. Effectively preventing potential for economic collapse by limiting over expansion, inflation, and major imbalances before they spiral out of control.

Former Federal Reserve Chairman Alan Greenspan, as a young and ideologically different man, best explained, in an article he published in 1966, why a gold standard fosters economic stability at home and abroad.

"Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one-so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.

Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World Was I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion."

Gold Enforces Responsible Government

A gold standard is necessary to the economic freedom of mankind. It acts as a tool for limiting the actions of governments and their ability to exacerbate economic problems.

Father of the legendary Wall Street investor Warren Buffet, made clear the correlation to a gold and its power to enforce responsible government. Warren's dad Howard Buffet, a serving congressmen at the time, stated in his 1947 speech:

"When the people's right to restrain public spending by demanding gold coin was taken away from them, the automatic flow of strength from the grass-roots to enforce economy in Washington was disconnected...The gold standard acted as a silent watchdog to prevent unlimited public spending."

Without a gold standard, the government is free to create an unlimited number of paper notes & dollars. Allowing inflation to spiral out of control. As they selectively bail out banks and other institutions, regardless of a poor track record. Or spend billions of dollars on unproductive social programs. Or to wage war overseas.

The Gold Standard Produce Prosperity

Sound money cultivates prosperity. And under a gold standard you have sound money. There is no inflation. And alternatively, consumer prices are constantly falling. Which increases the purchasing power of the people. Improving the standard of living of everyone.

For about 120 years, between 1790 and 1910, with the exception of wartime, prices for Americans fell almost continuously.

In times such as in the Civil War, when the government temporarily resorted back to printing money, inflation became rampant again. Yet as soon as sound money was restored, prices would fall back down, reducing the cost of living, and improving living standards.

Savings is at the root of economic growth and capital formation. And a gold standard encourages savings. Because when the prices are constantly falling, the value of money is constantly rising. And people are more inclined to save money that is increasing in value. Under a gold standard, savers are rewarded for having saved money. Because the money that they have saved has more purchasing power.
Lady Justice

The most prosperous period in American, and even British, history was when these counties were under a gold standard. And even though a truly free & consistent gold standard was never achieved worldwide, it is clear that the power of gold, in combination with capitalism & human ingenuity, served as the basis for the Industrial Revolution.

While mankind has lost its way, it is not too late to turn back. And now, more than ever, it is compelling to reverse the tides of inflationary money policy. To shift the focus from debate to a demanding roar that can be heard worldwide. To return to the proven model that is the gold standard.

Learn more about the gold standard at the Open Gold Exchange.

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