Senate GOP Votes to Put U.S. Back on Gold Standard, One of the Worst Ideas EverRoundup
tags: economic history, gold standard
Pulitzer Prize-winning journalist Michael Hiltzik is the author of six books, including The New Deal: A Modern History.
While most of America was fixated Tuesday on the coronavirus pandemic and what the future might hold, Republicans on the Senate Banking Committee voted to move the country’s economic policy back to the 19th century.
The action came in the form of a party-line vote to advance the nomination of Judy Shelton as a member of the Federal Reserve Board to a floor vote by the full Senate. The defining feature of Shelton’s economic viewpoint, you see, is a return to the gold standard.
The foolishness of this position is hard to overstate. During its reign, which ended about 100 years ago, the gold standard fomented unemployment and obstructed governmental control of national economic affairs. It helped bring about and subsequently worsened the Great Depression.
On the far right, the gold standard era is cherished as a beacon of economic stability. Modern economic thought finds that to be the opposite of the truth.
“Far from being synonymous with stability,” UC Berkeley economist Barry Eichengreen wrote in his 1992 book “Golden Fetters,” “the gold standard itself was the principal threat to financial stability and economic prosperity between the wars.”
To understand the possible ramifications of Shelton joining the Fed board, it will help to take a canter through gold standard history.
On the surface, the system is simple. The value of national currencies is pegged to an arbitrary value of gold, and through that pegged to one another.
In its purest form, at the end of the 19th century and the first decades of the 20th, currency could be converted to gold on demand. Balances of payment between countries were settled by the shipment of gold from one to the other.
The downfall didn’t result merely from the fiscal pressures and political turmoil of the war, but from the growing recognition that the gold standard benefited one particular economic class — creditors, who desired the returns on their assets to be protected from inflation.
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