Top Pro & Con Arguments
The availability and value of gold fluctuates and does not provide the price stability necessary for a healthy economy.
Under a gold standard the supply of money would be dependent on how much gold is produced. Inflation would occur when large gold discoveries were made and deflation would occur during periods of gold scarcity.For example, in 1848, when large gold finds were made in California, the United States suffered a monetary shock as large quantities of gold created inflation. This rise in US prices caused a trade deficit as US exports became over priced in the international marketplace.
Between 1879 and 1933, when the United States was on a full gold standard, the inflation adjusted market price of gold fluctuated from the $700 range (1890s) to the $200 range (1920s). From 1934-1970, when the US was on a partial gold standard, the inflation adjusted price of gold went from $563 to $201.Fluctuations like these are damaging to a gold standard economy, because the value of a dollar is attached to the value of gold. For example, a 10% increase or decrease in the value of gold would eventually result in a 10% rise or fall in the overall price level of goods across the country.
The total world gold supply increases about 1.5% to 2% per year. To maintain a healthy rate of global economic growth, the nominal rate of growth in world trade should be around 6% to 6.5%.If an international gold standard were to be re-introduced this growth rate could not be maintained.
Further, gold mining is estimated to be “economically unsustainable” by 2050, with new gold supplies running out and large-scale gold mining becoming impossible by 2075. At current rates, gold mines in South Africa, one of the largest global gold producers, could be stripped by 2040.Read More