Talking about the gold standard is strictly taboo in economics and among politicians. It’s long past time to get rid of this taboo, says Steve Forbes, founder of the media publication Forbes.
“From the time of George Washington until the early 1970s, the gold standard operated successfully in the United States. For years, the gold standard has been a taboo subject among economists and politicians, who have sneered at even discussing it,” Forbes said in his video appearance.
“It’s bad because the gold standard would have prevented the economic disaster of the century and the current troubles. We can’t have gold standard inflation. This would have prevented the horrors of the 2008 financial crisis,” explained Forbes.
According to Forbes, this would also have helped to avoid the unprecedented suppression of interest rates and the frenzied money printing that occurred during and before the pandemic. All this led us to the current mess, he says.
“Money is a measure of value, just as a scale measures weight, an urn measures time, or a ruler measures distance,” says Forbes. “We all know instinctively that we need fixed weights and units of measurement in the market as well. A gallon doesn’t change every day, nor do how many ounces equal a pound, how many inches are in a foot, and how many minutes are in an hour.”
An economy works best when its currency is a reliable measure of value. For many different reasons, gold has held its intrinsic value for thousands of years better than anything else — better than silver, platinum, palladium, copper, cryptocurrencies or coconuts, Forbes explained.
“When the price of gold changes, its value does not change, but the value of the currency in which gold is measured. Money that has a fixed value makes it easier to buy, sell and invest – just as knowing the weight of specific products makes shopping easier. A pint of ice cream is the same size today as it was yesterday,” said Forbes.
If we go back to the gold standard and fix the price of one ounce at, for example, $1,900, this would mean that if the price of gold rises above $1,900, the amount of money has to be reduced. Forbes said that if it falls lower, then the amount of money needs to be increased.
“Contrary to popular myth, the gold standard does not artificially limit the economy’s money supply. It simply means that the money created has a stable value,” he explained. “There was no plan to abandon the gold standard in the early 1970s, but the US blew up the system and we have never recovered.”
According to Forbes, average economic growth has been well below the historical average since then. After recovering from the distortions of World War II, the average annual growth rate of the United States was 4.2 percent until the gold standard was abandoned. Since then, the average growth has been 2.7 percent until the start of the pandemic.
“If we had maintained this growth rate thanks to the gold standard, the average household’s annual income would be $110,000 instead of $70,000,” he gave as an example. “Let’s throw away the gold taboo and start a debate!”