Presidential hopeful Ron Paul is consistently criticized for his support of the gold standard. This stems mainly from the apparent success from leaving the gold standard and allowing the federal reserve print money on que. Since leaving the gold standard meant an increase in the circulation of money, everyone assumed that the “gold standard failed” while in reality, and as usual, it was government interventionism that was to blame. It’s sort of like taking vitamins when you’re sick and replacing them with antibiotics. Sure antibiotics will work for a while and cure short term illness – but don’t blame the vitamins as the source of the problem.
Let’s go over why printing money without backing can be useful.
When the fed prints more money, it can send the money into banks which in turn can loan the money for the creation of business and employment. This paper money can also be used for bailing out various companies that would otherwise be forced to close their business and dissolve a multitude of workers.
Now, what are the downsides of being able to print money endlessly?
The obvious answer would be the inflation and the buying power of the dollar. But has the dollar really been inflating like everyone has been crying it would? Surprisingly, it hasn’t. While it has fallen in comparison to more stable currencies, the truth is you don’t have to bring a wheelbarrow of dollar bills to your local deli for a bit of grub.
But isn’t it common sense that when you print money without backing, the value would fall? That would be the case if the US dollar was not the world’s reserve currency. The amount of foreign trust and investment is keeping the dollar afloat regardless of the consistent printing of the dollar.
So could we just rely on the US being the world reserve currency forever? Naturally, that’s one option – unless of course we plunge into an extreme amount of national debt (*cough* *cough*).
When too much money is introduced without an increase of the GDP, it allows for the government to create loan programs that would for example cause the housing bubble. The constitutional gold standard was written in order to put a strangle hold on the dollar and the government.
Finally one may ask, how will people get money without printing if our population is rising so fast?
When money isn’t printed freely, and the dollar relies on a standard other than foreign influence, the USD increases in it’s value. That means less money is in circulation, but that money has a lot more buying power.
Now people tend to ask why gold? Why not copper or any other metal?
Well let’s say we switch to copper. Then we’d be asking, why not gold, why copper? Gold is convenient and traditional and tends to be held internationally as a precious metal due to it having a high amount of value in even small amounts of density.
At the end of the day, printing money can work based on trust, but it’s more of a temporary solution (aka bubble). The Gold standard has proven to be the long term solution which provides for a more consistent, healthy, and constitutional economy.