Is the gold standard more stable?

With a gold standard, inflation, growth and the financial system are all but stable. There are more recessions, greater swings in consumer prices and more banking crises. When things go wrong in one part of the world, distress will be transmitted more quickly and completely to others. No one has found any “stable” measure of value that is superior to gold, which is why many investors turn to gold IRA firms to help them diversify their portfolios. Gold also has what we could call political advantages.

Let's just say that a group of imbeciles from the Federal Reserve came up with a statistical invention that, according to them, has an even more stable value than gold. This has never happened, partly because they don't even try. Let us believe that it is not impossible, even if it seems impossible, but it really happened. The gold standard wasn't perfect, but the fiat dollar has been even worse.

Fifty years after the Nixon shock, it's worth remembering how well the gold standard worked. As an example, above you will find the price of a barrel of oil measured in troy ounces of gold. You can see that gold doesn't have any magical properties that make it stable. Gold is just another commodity, and using it as a currency offers no guarantee of protection against rising prices, especially the kind of rise in commodity prices that bother people the most.

This version broke in 1931 after Great Britain left gold due to enormous outflows of gold and capital. However, periodic increases in global gold stocks, such as the discoveries of gold in Australia and California around 1850, caused price levels to become very unstable in the short term. Since new gold production would only add a small fraction to accumulated stocks, and since the authorities guaranteed the free convertibility of gold into money other than gold, the gold standard guaranteed that the money supply and, therefore, the price level, did not vary much. In addition, because the gold standard gives the government very little discretion to use monetary policy, economies that follow the gold standard are less able to avoid or compensate for monetary or real shocks.

However, gold reserves reduce confidence in the United States' ability to exchange its currency for gold. According to a gold standard, the temptation to overinflate is supposedly absent, meaning gold cannot be “created out of thin air”. England adopted a de facto gold standard in 1717, after the owner of the mint, Sir Isaac Newton, overvalued Guinea in terms of silver and formally adopted the gold standard in 1819. In other words, they were supposed to increase their discount rates, the interest rate at which the central bank lends money to member banks to accelerate the inflow of gold, and reduce their discount rates to facilitate the outflow of gold. Under this standard, countries could hold gold reserves or dollars or pounds, except for the United States and the United Kingdom, which only had gold reserves.

When you come to understand that money must have a stable value, free from human intervention, and you realize that linking the value of money to gold has always been the best way to achieve this goal, then there is no other conclusion than a system of reference. If, for example, the central bank of France wanted to prevent the inflow of gold from increasing the country's money supply, it would sell securities in exchange for gold, thus reducing the amount of gold in circulation. The gold standard broke during World War I, when major belligerents resorted to inflationary funding, and was briefly reinstated from 1925 to 1931 as the Gold Exchange Standard. Roosevelt nationalized gold owned by private citizens and repealed contracts in which payment was specified in gold.

Two months later, a joint resolution of Congress repealed the golden clauses of many public and private obligations that required the debtor to repay the creditor to the creditor in gold dollars of the same weight and fineness as those borrowed. The United States, although formally adopted a bimetallic pattern (gold and silver), switched to de facto gold in 1834 and de jure in 1900, when Congress passed the Gold Standard Act. The trade deficit was financed by the outflow of gold (species) to its trading partners, which reduced monetary gold stocks in the United States. .