Gold Standard Debate

History and Debate of Gold Standard

In the gold standard system, the standard economic unit is a predetermined weight of gold. There are several types of gold standard systems, but none are currently used by any country as the basis for a monetary system. Some countries do, however, hold significant reserves of gold, so the gold standard could potentially arise.

Arguments in Favor of the Gold Standard Debate

First, gold is an appealing metal to use. Gold is shiny, beautiful and rare. Gold is used for fine jewelry and artwork and is definitely associated with wealth. If gold is the standard, people are drawn to the beauty of the metal and it gives a certain appeal to the financial state. Another advantage of the gold standard is that it helps to restrict inflation. Gold is available in limited quantities, so this limitation helps prevent abuse of inflation. If citizens notice that inflation is happening, they can simply exchange paper money for gold from the government at a fixed rate.

Another benefit is that the money grows at a steady pace, helping to keep prices stable. If gold becomes overvalued, then production of gold increases which helps to bring down the value. Additionally, if gold is undervalued, then production decreases and the values move upwards. Gold was a financial item for thousands of years. There is an incredible history of gold used in economic situations, so the gold standard has the backing of history throughout the ages.

Arguments Against the Gold Standard Debate

While the advantages in the gold standard debate are great, there are also a number of disadvantages. First, it is incredibly hard to transition to a different monetary system. The biggest problem is, of course, that the Federal Reserve is not in possession of enough gold to back all of the paper money in circulation. While this is a problem, this disadvantage is definitely not an ultimately unsolvable issue. Next, while gold has a certain appeal as a highly valued object, it is not connected to the standard of living that is desired. The disconnect between value and standards of living might not cause issues, but the disconnect could also wreak havoc. For example, even if gold is mass-produced, it does not mean that standard of living increases for all involved.

Gold mining is absolutely necessary in order to utilize the gold standard. Unfortunately, this mining consumes a significant amount of resources. The resources dedicated to mining gold are often of much better use in other ways. The fact that gold costs money to mine can cause difficulties with the economy.

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