Speaking about the gold standard is strictly taboo in economics and among politicians. It’s long past time to break that taboo, says Steve Forbes, founder of the media outlet Forbes.
“From George Washington’s time until the early 1970s, the gold standard worked successfully in the United States. The gold standard has been a taboo subject among economists and politicians for years, who have ridiculed it even to discuss the topic,” Forbes said in his video statement.
“This is unfortunate, because the gold standard would have prevented the century’s economic catastrophe and current troubles. We cannot have inflation with the gold standard. It would have prevented the horrors of the 2008 financial crisis,” Forbes explained.
Forbes said this would have also helped to avoid the unprecedented suppression of interest rates and the tremendous money printing that occurred during the pandemic and before. All of this led us to the current disorder, he says.
Gold as a reliable unit of measure
“Money is a measure of value, just as weight measures heaviness, an hourglass measures time, or a ruler measures distance,” says Forbes. “We all instinctively know that we also need fixed weights and measures in the market. The gallon measure does not change every day, nor does the number of ounces equal to a pound, the number of inches in a foot, or the number of minutes in an hour.”
The economy works best when its currency is a reliable measure of value. For many different reasons, gold has held its internal value better than anything else for thousands of years – better than silver, platinum, palladium, copper, cryptocurrencies, or coconuts, Forbes explained.
“When the price of gold changes, its value does not change, only the value of the currency in which gold is measured. Money with a fixed value makes buying, selling, and investing easier – 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,” Forbes said.
Let’s start the debate
If we go back to the gold standard and fix the price of one ounce at, say, $1,900, then if the price of gold rises above $1,900, the amount of money must be reduced. If it falls below that, then the amount of money must be increased, Forbes said.
“Contrary to a common myth, the gold standard does not artificially restrict the money supply. It simply means that the money created has a stable value,” he explained. “The gold standard was not planned to be abandoned in the early 1970s, but the US blew up the system and we have never restored it.”
Forbes said that since then, the average economic growth has been significantly lower than historical averages. After recovering from distortions caused by World War II, US average annual economic growth was 4.2 percent until the abandonment of the gold standard. Since then, average growth has been 2.7 percent until the beginning of the pandemic.
“If we had maintained that growth rate thanks to the gold standard, the average household income would now be $110,000 instead of $70,000,” he cited as an example. “Let’s get rid of the taboo on gold and start the debate!”‘
The debate around the gold standard as a viable monetary policy has been a taboo in the economic and political spheres for decades. However, Forbes founder Steve Forbes argues that this stance needs to be re-evaluated and urges policymakers to consider the benefits of implementing a gold standard, including preventing inflation, financial crises, and instability, while providing a fixed value for currency and a reliable measure of value.