Gold Standard vs Fiat Currency

Economics Economics Questions
1

I’m a solid supporter of 100% reserve banking and the gold standard. There is one thing I’d enjoy some feed back on though.

My questions have to do with this following paragraph:

“The arguments for the gold standard are fundamentally ridiculous, since we know from past experience that the government can go OFF the gold standard whenever it wishes to. The only way to prevent it from doing that is for a solid majority of the public to be vehemently opposed to such an action – but with a solid majority like that, the government couldn’t get away with inflating a fiat currency either.”

Let’s assume that the government is the one managing the money supply and that they have opted for a gold standard. Logically, this would be a good thing as it would restrict the expenditures of government by not allowing them the power to expand the money supply as easily as they could if it was just a matter of printing up a new order of money.

Now, let’s say that they one day decide to go off the gold standard (which is something governments have done many times in the past, usually with destructive consequences) . They then move on to paper money and destroy the currency. Here’s what I’m curious about:

#1 how do you prevent a government from going off the gold standard.

#2 Since government is elected by the people, you first require an educated populace to decide to elect a government to elect pro-gold standard officials. A populace that well educated would also probably not tolerate the reckless expansion of a fiat-currency system.

#3 Presupposing point two, does it then become irrelevent whether or not you have gold or paper so long as the voters do not allow it’s expansion? In other words, is it the people and not the type of money?

Does the point that gold cannot easily be fabricated like paper become worth somewhat less considering that a governmant can just go off of it as long as the populace permits it or that it could be restricted to 0% expansion of a fiat currency if the people who were careful enough to dictate a gold standard, ensured that 0% expansionary policy?

I’m pretty sure there are good answers against this train of thought and I want to know what they are :slight_smile:

2

But that’s the whole point of the gold standard, the government has nothing to do with it whatsoever. The gold exchange standard is just another form of government fiat money.

3

Like GilesStratton said, the whole point is to remove gov’t control of the monetary system.

In recent history the strategy has been to suggest a non-gov’t monopolized monetary system that isn’t gold backed. This is because the public sees gold money as something that is archaric. A free money system controlled by private industry wouldn’t require gold and would work. If you’re interested you may find the following an interesting read:

http://www.scribd.com/doc/10325489/A-FreeMarket-Monetary-System-and-The-Pretense-of-Knowledge