Should the United States Return to a Gold Standard - Essay Example

Should the United States Return to a Gold Standard? A variety of gold standards existed and operated in the United States before 1971. Gold reserves supported the dollar’s value and organizations, banks, and individuals could convert cash into gold when demanded. In 1971, President Roosevelt abolished these gold standards, adopted, and integrated a fiat currency framework into the United States economy. More than four decades later, the debate about the viability and feasibility of this fiat system over the gold standard ones continues (Schlichter, 2011). The following paper discusses conflicting viewpoints of whether or not the United States should reinstate the gold standard. I argue that the United States should return to a gold standard system. Premises of the Argument in Opposition to my Conclusion A gold standard system would make it more difficult for the government and Federal Reserve to implement monetary policies (Paulsen, 2012). A gold standard system prevents the government firm minting currency notes and coins that can it can endorse. This means that when there is increased demand for cash, the government cannot supply. As a result, the economy goes through reduced growth and more inflation as the value of paper money skyrockets. A gold standard system means the United States is neglecting its ongoing soaring currency rates and distribution problems instead of offering a solution (ProCon, 2014). In a period of economic turmoil, the government and its people should not focus on future likelihoods of forex and currency techniques. Instead, Americans ought to use every tool in the economic and academic arsenal to solve high jobless rates, the piling national debt, nonrenewable sources of energy, and corresponding environmental crises. A gold standard means the government lacks influence over the economy (Paulsen, 2012). The government currently prints paper money and mints coins, which is good for an era of intermittent economic crises. This role shows the government can make an effort towards restoring an economy and actually stimulate it. These efforts are retractionary activities that can reinstate the value of the dollar during an economic depression. In a gold standard, the government cannot restore the economy. This means that when a gold standard economy is in a meltdown, the government cannot make any decisions towards improving this economy. My Reactions to these Premises. The first premise is sensible considering gold would be the main medium of exchange instead of paper money. Monetary policies would be useless in such an economy. However, cash was a convenience used to embody gold. Returning to a gold standard would clearly require major amendments of policies that the government could enact to the advantage of the economy. The second premise is not strong since returning to a gold system is in fact a solution to the currently deteriorating fiat system. Increased unemployment and new sources of energy are certainly paramount economic issues and a gold standard system can solve them slowly. The third premise simply states the obvious. The government cannot regulate the value and prevalence of gold naturally. This is good for a gold standard system since controlling gold’s value means controlling the value of whole industries. In effect, producers will be angered and vast layoffs will ensue. An unregulated gold standard hampers these effects. Premises of the Argument in Agreement with my Conclusion The current paper currency system is vulnerable to inflation (White, 2012). Since 1913, the dollar has inflated more than 22 times in terms of value. This means a century of using paper currency has witnessed an inflation of over 2,100%. Clearly, the fiat system has failed in preventing inflation. As a result, pegging paper currency to the value of gold can protect the economy from further extreme rates of inflation. Gold has all the monetary features that the current market demands. Gold can be divided, moved, standardized, and is especially rare. Gold’s rare nature makes it able to store value steadily (Dowd, Hutchinson, and Kerr, 2012). History shows these features make up good money, which is precisely what markets look for. As a result, when the dollar depreciates, gold appreciates. However, this would not be the case if the dollar were pegged to gold in a gold standard system. A gold standard would compel the United States government to lower its military and defense investments (Dowd, Hutchinson, and Kerr, 2012). A reduction in defense budgets means unnecessary external conflicts would also decrease. Printing money allows governments to sustain an effortless war policy. By printing money, the United States government supports a vast worldwide defense foundation. The US defense expenditure for 2011 was $711 billion. Such levels of expenditure would not be possible in a gold standard. My Reactions to these Premises. Monetary policy is a more and more intense matter today. Inflation in a fiat system occurs spontaneously and uncontrollably. A gold standard system needs paper money to endorse its sustenance. When the cost of a given unit of gold rises, the dollar increased in value. This situation only favors imports growth and deteriorates exports growth. Introducing a new system of exchange would not add to the nation’s major problems. Biases I likely experienced when reading premises on the Pro side of the argument. First, a gold standard cannot establish a national purchasing power over other nations. Today, purchasing power is essential for raising employment, national productivity, and improving living standards (ProCon, 2014). Second, a gold standard would hinder all central banks from fighting economic downturns by contracting out monetary policy rulings to the amount of gold reserves held by the government. Lastly, a gold standard cannot hinder the government from making faulty monetary policies and incurring debt. Biases I likely experienced when reading premises on the Con side of the argument. First, a gold standard would raise the frequency of harmful ecological and cultural effects formed by extracting gold. Second, going back to a gold standard would cost a colossal amount of money, cause unemployment at mint plants, and trigger oceans of losses for established businesses (White, 2012). Third, a gold-pegged dollar could not grow quick enough to sustain a fit rate of global trade and economic development. Conclusion In brief, the United States should return to a gold standard system. Supporters of gold standards contend that gold offers lasting economic steadiness and expansion, hinders inflation, and lowers the government’s size (Schlichter, 2011). Opponents of the gold standard say it would make the United States’ economy unstable, trigger episodic economic deflation and shrinkage, and stop the government’s capacity to fuel the economy and lower jobless rates in times of economic turmoil (ProCon, 2014). References Dowd, K., Hutchinson, M., & Kerr, G. (2012). The Coming Fiat Money Cataclysm And The Case For Gold. Cato Journal, 32(2), 363-388. Paulsen, D. (2012). Why fiat money is a safe asset. Economics Letters, 116(2), 193-198. ProCon. (2014, Jun 06). Should the United States Return to a Gold Standard? ProCon.org Retrieved from http://gold-standard.procon.org/ Schlichter, D. S. (2011, Dec 02). Fiat money in crisis. Wall Street Journal Retrieved from http://search.proquest.com/docview/907128550?accountid=458 White, L. H. (2012). Making The Transition To A New Gold Standard. Cato Journal, 32(2), 411-421. Read More