Steve Forbes personally took to his own magazine to debunk a recent New York Times article bashing the gold standard. Read why here…
Likely spurned by the growing body of advocates for the return to a gold standard, the New York Times recently ran a piece that sought to discredit the idea and picture it as outdated and ill-advised. The article prompted the editor-in-chief of Forbes Magazine, Steve Forbes himself, to write a follow-up to try and dispel some common myths and reduce misinformation.
For one, while the dollar’s price fluctuates on a daily basis based on market sentiment, the yellow metal’s value is unchanging: “Gold keeps its intrinsic value better than anything else on Earth,” Forbes says. Therefore, a gold standard would help give our currency a fixed value, and Forbes doesn’t see any reason for it to keep fluctuating.
With this system, the Federal Reserve would have an easy time gouging whether there is too much or too little money in the economy and could apply policies accordingly without needing to own a single ounce of the metal. In fact, that’s where another misconception lies – many believe that gold would constrain the money supply and hurt the economy. In truth, mine supply would not affect money supply in any way. When the dollar was fixed to a gold standard between 1775-1900, global output of gold went up 3.4-fold while money supply skyrocketed 163-fold.
But what about some other warnings against this system? A big one is the gold standard’s supposed deflationary effect on the economy, which Forbes dismisses as nonsense. The effect is actually the opposite: from around 1947 to 1971, the average annual industrial growth was a remarkable 5%. Abandoning the gold standard in 1971 caused growth to slump to less than half of the amount from there onwards. Gold is blamed for severe hardships that farmers experienced in the late 1800s, but the real culprit was something even simpler: supply and demand for wheat, both completely unrelated to the metal.
Another argument against a gold standard is that it limits the ability of central banks to respond to crises. Not only is this untrue, as regular banks would simply need to present collateral to get a loan, but it actually serves to promote a gold standard more: a fix would prevent counterproductive meddling by central banks and would help avoid crises like the one in 2008, caused by artificially weakening the dollar. As Forbes puts it, “smart money has never caused an economic crisis.”
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