Jeff Horwich: When the Republican national convention gets into full swing, one of the items on the agenda will be whether the US should return to the gold standard. Marketplace’s Krissy Clark has a brief history of our on-again-off-again relationship with gold.
Krissy Clark: Once upon a time we bartered with furs and shells. Then something standardized, like gold coins, seemed simpler.
Economic historian Barry Eichengreen, from U.C. Berkeley, says the trouble with that approach?
Barry Eichengreen: Having to cart around gold coins in your pocket was not very convenient.
So, in the 1800s, we went to a system where central banks held the gold themselves and issued paper currency that anyone could convert back to gold, on demand. This is what we called the Gold Standard.
But, during Great Depression, President Franklin Roosevelt was desperate for more financial tools. He unlinked the worth of the dollar to the price of gold, so the government could manipulate interest rates and try to stabilize things. That’s why Eichengreen thinks it would be a very bad idea to go back to the gold standard now.
Eichengreen: It would remove all ability for the fed to intervene and stabilize financial markets and banks when they’re in distress.
That’s also why some conservatives, like Jeff Bell of the American Principals Project, like the idea.
Jeff Bell: Ph,Ds don’t do a very good job of deciding how much money should be in circulation. If you go back to the gold standard, the American people have the decision.
Even backers of the gold standard say if we returned to it, we’d be in for a jolt. There’s only so much gold in the world, so we’d have to quadruple the price to cover all the dollars in circulation, sending the price of everything else up too.
I’m Krissy Clark for Marketplace.
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