The Gold Standard Revisited

It has been nearly 40 years since Richard Nixon ended Your Income Profits Review the direct convertibility of the U.S. dollar to gold, putting an end to the international gold-dollar standard established by the Bretton Woods Agreements following World War II. In the pinch of the current financial crisis, are we now left susceptible to the powerful moral hazards that this quasi gold standard was designed to prevent?

A gold standard is a monetary system in which the standard economic unit is a fixed weight of gold. It differs from the current monetary system of the United States and many other countries, which use fiat money that has no intrinsic value.

During the Great Depression, many countries left the gold standard because they needed to pump money into the economy to spur growth, and a gold standard did not allow them enough monetary flexibility. But there is also such a thing as too much monetary flexibility.

John Maynard Keynes, the famous British economist of the time, argued, "By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some."



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