Top Pro & Con Arguments


Gold standards create periodic deflations and economic contractions that destabilize the economy.

Under a gold standard, economic growth can outpace growth in the money supply since more money cannot be created and circulated until more gold is first obtained to back it. When this happens deflation and economic contraction occurs. Between 1913 and 1971, when the United States was on some form of a gold standard, there were 12 years in which deflation occurred. [10] According to Federal Reserve Chairman Ben Bernanke, “the length and depth of the deflation during the late 1920s and early 1930s strongly suggest a monetary origin, and the close correspondence… between deflation and nations’ adherence to the gold standard.” [41] Since leaving the gold standard in 1971 there has only been one year (2009) in which any deflation occurred (-0.4%). [10]

Between 1879 and 1933 the United States had financial panics in 1884, 1890, 1893, 1907, 1930, 1931, 1932, and 1933. [45] During the panic of 1933 alone 4,000 banks suspended operations. [48] Many of these panics were exacerbated by contraction in the money supply caused by the gold standard (more money could not be printed without first acquiring additional gold to back it). [41] Many economists contend that the gold standard played a role in preventing the United States from stabilizing the economy after the stock market crash of 1929, and prolonged the Great Depression. In 1933, when the United States went off the full domestic gold standard, the economy began to recover. [49] [44] [50]

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