Friday, July 03, 2009

Mrs. S writes 

...about the gold standard. I was surprised she decided to do this topic, and when she sent me a draft of it I was quite surprised how much she had learned.
But after World War I came the Great Depression. Country after country abandoned gold standard after the Depression. During World War II the allies held a meeting at Bretton Woods, N.H., to establish that the dollar was fixed to gold and everyone fixed to dollar. But that ended in 1971 because the United States didn�t want to play by those rules either.

I asked [St. John's economics professor Louis] Johnston if the gold standard made sense for today, and he argued that it would not. �Governments have no better sense of what a currency �ought� to be than anyone else, so there is no case to give a government a monopoly in this area. Let markets determine what the value of a currency will be.�

It turns out the value of our currency is not assured by government promising to convert money to gold. Instead, it depends on government doing those things that a gold standard would require. If we have the gold standard and no discipline, it fails. If we have the discipline, we don�t need a gold standard to tell us what our dollar will be worth 20 years from now.

Do we have that discipline now?

See also, as always, the Concise Encyclopedia of Economics.

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