Good Planet Money piece on both sides of the gold standard

I found this interesting, and for anyone who looks at it's appearance in the perennial economics threads, it presents both sides with solid arguments for their positions.

Because gold is scarce, the gold standard keeps governments honest, Grant said.

If you're not on the gold standard, the government can print as much money as it wants. That can cause inflation: The more dollars that are out there, the less each dollar is worth.

On the gold standard, money isn't something you can just create out of nowhere. It's something physical. Constant.

It's only relatively recently that we adopted our current system — the system in which our central bank, the Federal Reserve, gets to decide how much money should be out there.


Parker told us the gold standard a pernicious anachronism that should be kept in the history books. And to think that modern people today want to speak about its resurrection should absolutely horrify and terrify anyone who understands economics even a little bit.

The reason the gold standard should horrify you, Parker says, is that in a financial crisis, like the one we just went through, it can make things worse. In fact, most economists agree that the gold standard was one of the causes of the Great Depression.

Parker says when you're in a situation like the Great Depression, what the Fed needs to do is put more money out into the economy to get things going again — to make it easier for businesses to borrow money and hire people. But if you're on the gold standard you can't do that. There's only so much gold in the world. That means there's only so much money.

While it does present solid reasons for having a gold standard or having fiat money, it still presents the gold standard as a fringe argument and a huge step backward for our current situation. I'd hardly call it unbiased (which I'm not sure if you are)

I'm just speaking as a private citizen with some small investments as well as savings. I know my cash will lose value to the tune of about 4% a year, while my securities fluctuate according to their properties. It seems to me that keeping a fiat money system encourages private citizens to keep as much of their cash in the market doing useful things as possible, which I see as a positive. However, when the government is showing a wanton willingness to devalue my savings with wild borrowing, that scares the living piss out of me and frustrates what I'm trying to do for myself as an independent participator in the market.

If going to a gold standard or other hard currency is a huge step backward and our current fiat money model looks fairly battered (with predictable stable investment in Treasury Bonds in serious doubt) then what's the answer? If there isn't a new model available, how do we fix the fiat model?

(I'm not trolling and I know there's a ton of threads on this already. But I consider myself fairly knowledgeable in finance and economics for the average layman and love the food for thought from the local Goodjer experts.)

I thought it pretty clearly described the mainstream view (and fairly, according to both of the interviewees) and explained *why* it was considered fringe (two reasons at least). As I described, though, it's got a pretty pithy explanation of the basic arguments for and against.

It's my understanding that how to move forward now that the Chicago school has sunk into the lake is a huge topic for research these days. I expect we'll hear more ideas over the next few years.