The Gold Standard

A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold.

It is the idea that all currency should be backed by a measure of gold equal in value to that currency. In other words, you should be able to turn in a one dollar bill to get one dollar in gold and you should be able to turn that gold in for paper, all happening at equal value.

Three types can be distinguished: specie, bullion, and exchange.

In the gold specie standard the monetary unit is associated with the value of circulating gold coins, or the monetary unit has the value of a certain circulating gold coin, but other coins may be made of less valuable metal (such as silver, platinum, or palladium).

The gold bullion standard is a system in which gold coins do not circulate, but the authorities agree to sell gold bullion on demand at a fixed price in exchange for the circulating currency.

The gold exchange standard usually does not involve the circulation of gold coins. The main feature of the gold exchange standard is that the government guarantees a fixed exchange rate to the currency of another country that uses a gold standard (specie or bullion), regardless of what type of notes or coins are used as a means of exchange. This creates a de facto gold standard, where the value of the means of exchange has a fixed external value in terms of gold that is independent of the inherent value of the means of exchange itself.

Most nations abandoned the gold standard as the basis of their monetary systems at some point in the 20th century, although many hold substantial gold reserves. A survey of leading American economists showed that they unanimously reject that a return to the gold standard would benefit the average American.

Supporters argue with a perfectly functioning gold standard one can hope for a stable, sound currency, no inflation, self regulating balance of trade, and an economic realty which prevents malicious or foolish rulers (whether kings, ministers, financiers, Presidents, parliaments, or voters) from being able to perpetrate such mischief as debauching the currency, deficit spending, uppity labor forces, revolution, oligarchical caballery, and others.