The return to the gold standard will stabilize the already falling value of the dollar, boost the confidence of foreign and domestic investors and discipline spending by the federal. The United States constitution enables for a gold standard for the nation with a specific direction that Congress define the dollar as a particular measure of gold (Lehrman, 2013). The dollar through such system will stabilize in value and without inflation, which increases the purchasing power of the dollar. The system is beneficial because a fixed asset backs the monetary value, providing a self-regulatory and stability in the economy. The government will only be able to print the money to correspond to the gold in reserve. As a result, discouraging the inflation and deficits.
The gold standard rewards the productivity of the nation; the country receives gold on its exports. Increased reserves of gold mean that the state can print more money, which will improve the businesses in the exportation sector (Forbes " Ames, 2014). However, there are some issues associated with the gold system economy, the size and health of the country's economy depend on the supply of gold. The economy system fails to recognize the resources of people and businesses and the fact that the system makes the nations obsessed to keep their gold (Lehrman). Some people belief that the country is too late to adopting the system making it difficult to pay foreign investors; others argue it as an isolation stance. Therefore, the question is, can the United States return to a gold standard?
Returning to the Gold Standard will increase U.S Economic Growth
Introduction
Economic powerhouses around the world are on the rise, the future economic performance of these countries, including America, will depend on the methods they adopt now. One of the most promising ways of ensuring American economic growth and prosperity is tying the dollar to the gold. The gold standard will restore booming economic growth and success for the entire nation. The dollar will stabilize, because it is not subjected to depreciation effect caused by the inflation. The state and federal authorities will have discipline while spending.
On the gold standard, working people will be paid in gold. All of whom will have the same rights to exchange the gold for the dollar. The salaries and wages will not be subjected to depreciation through inflation. The savings of the individuals in the system will worth the same anytime now and in the future. The cases currently relating to currency such as the increasing prices of oil, gasoline, and the basic food commodities such as sugar, wheat, soybeans and corn among others is eliminated, same case to the tax effect on inflation. The gold standard ensures that the system is regulating and stabilizing itself. Therefore, the government will only print the amount of money to correspond to the amount of gold it has in its reserves (Forbes " Ames, 2014). Hence, elimination of the inflation and its effect on the economy, the inappropriate fiscal policies and budgetary deficits.
The gold standard has a tremendous positive impact on investment. The investors know that they will receive the amount of the investment in gold with no depreciation effect over time. Such positive environment for investments will lead to the creation of more jobs through businesses developed and created in the process. The investment process in the economy will also raise the real wage for working individuals; this is because of the demand for labor increases. Workers' productivity also increases through the capital investments; the employees enjoy the new equipment and tools making them more productive (Dick, 2013). Hence, higher wages and salaries in line with economic growth.
Under the gold standard, the United States’ citizens will increase their savings and investments. The system will also facilitate the American economy to draw more investments across the world because the dollar will stabilize and therefore the world will have confidence in it. Responding to the stability of the dollar around the world will increase the investments in the country's economy. The economic conditions could be boosted under the system with further tax reforms, raising the capital investments both domestic and foreign (Lehrman).
The gold standard system gives the working individuals control over the supply of the money in the economy and not the bureaucrats. If the federal authorities print more money than the people demand, the people will in return exchange the cash for the gold. As a result, the people will stop the federal government before it creates inflation. Under the system, the people are also able to increase the supply of money to the economy if needed. The system allows banks and financial institutions to mint own gold coins provided they have the correct denomination, hence the institutions can raise the money supply to meet the demand (Belling).
Contrary to the belief by many, the money supply in the economy under the gold standard will not depend or be limited to the amount of gold held by the government. The federal can increase the supply of dollars to correspond to the demand, enabling the money in-need to provide for economic growth. Given that the quantity by the federal does not exceed the order, the amount of gold in central holdings is not affected by the rise in supply for money. Therefore, if the economy under gold standard demanded an increase in dollars to support the economic growth the federal government can supply.
The gold standard as an economic system, however, have some issues. The main problem relating to the system is that the gold determines the country's economic conditions. The financial health of the nation depends on the supply of gold and not the resources in its people and the business opportunities in the country. The system fails to consider the critical task of improving businesses (Ludwig).
The system also makes the government obsessed to maintain the gold, failing to recognize the conditions to boost the business activities. The country in the past raised the interest rates aiming to increase the demand for the dollar and limit the need for the gold, which it should have reduced the standards to facilitate the economic growth. The process resulted in the depression in the American economy.
Under the gold standard, the banks and the financial institutions should supply the mint gold to meet the demand immediately. If the supply fails and the people are not willing to hold the gold coin anymore, then none will take the newly minted coins.
Another major issue associated with this system is that the money in the economy are fixed to the amounts of gold in the federal reserves which will limit the economic growth of the country. Most of the businesses will not get adequate funds to further their activities. Hence, lack of enough capital will hinder the business activities which in turn limits economic performance in the country.
The other argument which could play a big role is the fact that the country might still not have enough reserves of gold to pay off its debt to foreign investors. Because of the present rates of dollar to ounce of gold. The other main concern is that the American economic system today is so much integrated to the global economy. As a result, various central banks work hand in hand across the world managing the monetary policies. Therefore, people might think it is too late to adopt the economic system, thought by some as isolationist economic stand.
Conclusion
Among other benefits, reintroducing the gold standard will help instill discipline in the spending behaviors of both local and federal governments, eliminate of the inflation and its effect on the US economy, discard the need for the inappropriate fiscal policies and financing budgetary deficits, and have control over supply of money. Although there are issues associated with the gold standard system including the tying of the country’s economic conditions to gold, and the risk of limiting the level of economic growth, America should adopt such a system snce other countries will follow suit otherwise their economies will remain behind. Chinese economy is already looking for restored stability for the dollar, another more reason the United States should. Therefore, if the US does not adopt then, China will assume the economic system for their currency.
References
Belling the Cat: Eli F. Heckscher on the Gold Standard as a Disciplinary Device. (2013). History of Political Economy, 45(1), 39-59. doi:10.1215/00182702-1965186
Dick, A. (2013). Conclusion: A Romantic Economy. Romanticism and the Gold Standard, 186-196. doi:10.1057/9781137292926_6
Forbes, S., " Ames, E. (2014). Money: How the destruction of the dollar threatens the global economy and what we can do about it. New York: McGraw-Hill Education.
Lehrman, L. E. (2013). Money, gold and history.
Lehrman, L. E. (n.d.). True Gold Standard - A Monetary Reform Plan Without Official Reserve Currencies.
Ludwig von Mises and the Gold Standard. (n.d.). Austrian Economics and the Political Economy of Freedom. doi:10.4337/9781781950098.00010
