The libertarian Cato Institute recently hosted an event revolving around the Gold Standard. Many, perhaps most libertarians believe that taking America off the Gold Standard was a mistake and that we should go back on it. Gold has really always been essentially useless. As a professor of mine once pointed out, you cannot eat it, build with it, use it for transportation, or cover your body with it as clothing. Still, for ages, the vast majority of humans have agreed that gold has value, and so it must be considered a viable method of backing up currency.
Even when I was a conventional liberal, as opposed to a liberaltarian, I came to the conclusion that the Gold Standard should never have been abolished. I came to this conclusion by studying the history of the issue. The debate over the Gold Standard first became a major national issue in the late 1800s. The Populist Movement had become powerful in both political parties. Populist leaders like William Jennings Bryan alleged that the interests of the rural poor and working class were being trampled on by wealthy elites in Eastern cities. To combat this, they advocated a variety of reforms, some of which would today be considered right-wing (like immigration restriction) and some of which would today be considered left-wing (like nationalizing the railroads.)
Perhaps the paramount aim of the Populist Movement was taking America off of the Gold Standard by coining silver to help back up the dollar. Why? Many farmers had become saddled with debt to rich urbanites. Coining silver would decrease the value of the dollar and make it easier for said farmers to pay off their debt. The populists seemed to care little that this would hurt almost everyone who had loaned money and almost everyone who had saved money. A sixty year old who had pinched pennies to save up a thousand dollars for retirement now had to face the fact their nest egg had lowered in value. In fact, such a policy would also hurt working class farmers in the long run by causing prices to artificially rise as the buying power of the dollar declined. Populists tended to have a single-minded obsession with pushing through their reforms regardless of the collateral damage. In the 1890s, Northeastern Republicans like Senator George Frisbee Hoar and Speaker of the House Thomas Reed had to watch a bill that they had sponsored as a last ditch effort to protect black voting rights in the South be sacrificed by Western Republicans in exchange for pro-Silver coinage votes from Democrats. Making sure that black people were not kept from exercising their right to vote was considered less important than debasing the currency.
In 1896, William Jennings Bryan captured the Democratic Party’s presidential nomination and temporarily gave populists control of the Democratic Party. Meanwhile, the “gold bugs” maintained control of the GOP, nominating William McKinley. McKinley beat Bryan both that year and in the next election. Bryan got a third chance in 1908 but lost again to Taft. While FDR moved America in the direction of getting off the Gold Standard, it was not until the presidency of Richard Nixon that the Gold Standard was officially abolished. The problem with ending the Gold Standard was that, as stated above, it artificially lowered the value of the dollar. This had a negative impact on a lot of other people who had to watch their retirement benefits decline in value and the prices of the goods and services they purchased rise. Whenever inflation or deflation occurs, there are a myriad of effects. When government artificially causes inflation or deflation, it is playing with fire, and it is the American people who tend to get burned.
With all of that said, it may surprise many readers to learn that I do not favor a return to the Gold Standard. Just as the government’s decision to artificially lower the value of the dollar had serious negative consequences, artificially raising it would as well. Increasing the value of the dollar would seriously hurt people who had borrowed money with every intention of paying it back. Students who have taken out loans to pay for college could easily be hurt the most. For instance, if Susan the college student has taken out a fifty thousand dollar loan to pay for her education, she might now have to pay back the equivalent of seventy-five thousand. The lesson of America’s decision to abolish the Gold Standard is that government has no business screwing with our currency. Two wrong economic decisions do not make prosperity.