I am currently listening to the book- Naked Money by Charles Wheelen. Before I started listening to this book, I would have said that we should go back to the gold standard for monetary policy but since listening to this book, I have changed my mind.
I had an uninformed view of the gold standard. I thought is was good to have a reserve of something to back-up every dollar but I didn’t think about several things.
- The gold standard pegged the dollar to the value of gold but inflation and deflation still happened when the price of gold went up or down. Economies where vulnerable to up or down swings in gold regardless of what their economy was based on.
- Who ever has the most gold wins and the finding of new gold would swing economic realities. Finding new gold would bring down the value of current gold. Countries with limited natural resources would struggle to make money regardless of fiscally responsible and knowledgeable they were.
- There are more economies in the world now but the amount of gold is finite. In the book it refers to a poker game where their are 50 chips which is fine for a single table but the amount of tables playing poker is multiplying but there are still only 50 chips for everyone.
These are the main points that have swung my preferences away from a Gold Standard but the book makes several more. I definitely recommend reading this book.
Skipp Symes 