The government hasn’t used the gold standard in 1971. Should it be brought back?
Context
Since the earliest days of America until 1971, the country had used the “gold standard” for money. Under this system, U.S. currency was backed by physical gold, much of which kept in a heavily guarded location in Fort Knox, Kentucky. This was intended to keep the price of money relatively standard and prevent runaway inflation, i.e. one dollar equals x grams of gold.
With a few exceptions, proponents say the system generally worked. Although the value of a U.S. dollar fluctuated a bit — since preventing that entirely would have been impossible — for the most part those fluctuations were far less than they would be after 1971, when the U.S. fully abandoned the gold standard. (They had partially abandoned it for domestic transactions in 1933, and abandoned the other part — for international transactions — in 1971.)
In other words, inflation was generally much less. Gold standard supporters note that the two decades in the past century with the highest inflation were the 1910s (when the Federal Reserve was created and started exerting control over the money supply) and the 1970s (when the gold standard ended).
What the bill does
H.R. 5404 is a bill introduced by Rep. Alex Mooney (R-WV2) that would bring the U.S. back to the gold standard once and for all. It would take effect exactly 30 months after the bill was passed, to allow an adjustment period in the American economy.
Interestingly for a Republican-introduced bill, if the bill was enacted any time after July 2018, that 30-month window would come under the administration of the 2020 election winner — possibly a Democrat.
Mooney claims it’s the first bill introduced in Congress to return to the gold standard since 1984.
A search of GovTrack’s legislative database provides no evidence to the contrary. Previous House members such as two-time presidential candidate Ron Paul have advocated a gold standard, although it does not appear that Paul ever actually introduced any legislation to that effect after 1984.
What supporters say
Supporters argue that many of America’s existing economic problems, such as the sharp decline in manufacturing employment, can be traced to the lack of a gold standard.
“President Trump has rightly blamed bad trade deals, particularly those with Mexico and China, for contributing to this [American manufacturing] meltdown. But the Federal Reserve deserves a share of the blame, too, since its inflationary policies priced out U.S. manufacturers from global trade,” Mooney wrote in a Wall Street Journal op-ed.
“Since 2000, their prices have risen nearly 50%, compared with about 25% for German competitors — mirroring the domestic inflation rates in each country.” (The exact U.S. inflation number since 2000 has been 45 percent.) “As a result, manufacturers fled the U.S., much the way American families have fled high-tax states.”
“The solution is to take control of the money supply away from the Fed and give it back to the American people — in other words, to return to the gold standard.”
What opponents say
Opponents argue we abandoned the gold standard decades ago for a good reason, and it would be foolish to return.
When the Great Depression hit, “People hoarded gold instead of depositing it in banks, which created an international gold shortage,” Federal Reserve vice president and deputy director of research David Wheelock said. “Countries around the world basically ran out of supply and were forced off the gold standard.”
“The U.S. mines a lot of gold, but we’re not the biggest producer,” Wheelock continued. “The bigger suppliers of gold would have more control over our monetary policy, and there’s no reason to have it because we can get the advantages of the gold standard and avoid the disadvantages without being on a gold standard.”
Research suggests also that the sharp decrease in domestic manufacturing employment in recent decades is primarily due to other factors, such as automation.
Odds of passage
The bill has attracted no cosponsors as of yet — although there are at least a few other Republican Congress members who have previously indicated support for returning to the gold standard, such as Ted Cruz.
It awaits a possible vote in the House Financial Services Committee.
This article was written by GovTrack Insider staff writer Jesse Rifkin.
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