If the very
idea seems at odds with what is currently happening in our country
– with Congress preparing to pass a massive economic stimulus bill
that will push the fiscal deficit to triple the size of last year’s
record budget gap – it’s because a gold standard stands in the
way of runaway government spending.
Under a gold
standard, if people think the paper money printed by government
is losing value, they have the right to switch to gold. Fiat money
– i.e., currency with no intrinsic worth that government has
decreed legal tender – loses its value when government creates
more than can be absorbed by the productive real economy. Too much
fiat money results in inflation – which pools in certain sectors
at first, such as housing or financial assets, but ultimately raises
prices in general.
the enemy of capitalism, chiseling away at the foundation of free
markets and the laws of supply and demand. It distorts price signals,
making retailers look like profiteers and deceiving workers into
thinking their wages have gone up. It pushes families into higher
income tax brackets without increasing their real consumption opportunities.