I touched on the … logistical difficulty … of returning to a gold standard just a while ago. I opened the piece with a quote from Megan McArdle on the subject before veering off. Here’s the relevant part of Megan’s post:
"In short, you don't get anything out of a gold standard that you didn't bring with you. If your government is a credible steward of the money supply, you don't need it; and if it isn't, it won't be able to stay on it long anyway. (See Argentina's dollar peg).”
Read the whole thing, as they say. Then read the Wikipedia entry on Gresham’s Law. And read a little history. “Hard” money, that is to say, money that is commodity-backed, has never prevented debasement of the currency when politically convenient. This has been true since governments first started coining money. Debasement of the currency isn’t a new phenomenon; it’s happened throughout history.
I put it this way in a tweet on election day ”On the subject of politicians, I'm Confucian - the upright man needs no law but his own, and the crooked man will follow no law but his own.” Financial shenanigans are a symptom of governmental shenanigans, not a cause. Fighting the symptoms is like fighting the tide. WE need more upright politicians, and less crooked ones.
Having a Gold Standard won’t stop the government from making free with the economy – it won’t even necessarily make it (much) harder – because the government sets the value of money by taxation ANYWAY. Especially in today’s economy – you could (conceivably) live by barter; but you have to pay the taxman in dollars.
And that brings us to another problem with a gold standard (or any other commodity-backed currency, by the way) – it’s governmental price fixing. By governmental fiat, the weight of a $1 gold coin is $1 worth of gold. Less seignorage and the discount for official purity, anyway. You may have a black or grey market in gold where the cost of gold fluctuate, but again, you have to pay the taxman his cut by selling him gold at the price he sets. Therefore, he has an interest in stamping out those markets where gold sells above or below its fiat value.
With the un-backed currency we have now, there is no commodity where the price is fixed – the only thing that the government can fix the price of is … its own money. Which, granted, really sucks if your wealth is stored only in that currency. But it doesn’t have to be. It is within the means of even the most modest investor to purchase non-dollar-denominated assets and instruments. Such as, yes, gold. Or lead, brass, and powder. Land. Multinational stocks and bonds. &c.
What I don’t have is a solution for those people who have a fixed income denominated in dollars; particularly those who believed the promises of every government since FDR (arguably, since Bismarck). I wish I did – I don’t like to see people suffer. But I don’t see hard currency helping them out any more than any other zany scheme is likely to.