What is the Gold Standard?

What does it mean to have a gold standard? What does a gold standard do?

Lawrence H. White

Lawrence H. White is an Economics Professor at George Mason University who teaches graduate level Monetary Theory and Policy. He is considered an authority on the history and theory of free banking. His writings support the abolition of the Federal Reserve System and the promotion of private and competitive banking.

Before 1974, U.S. dollars were backed by gold. This meant that the federal government could not print more money than it could redeem for gold. While this constrained the federal government, it also provided citizens with a relatively stable purchasing power for goods and services. Today’s paper currency has no intrinsic value. It is not based on the value of gold or anything else. Under a gold standard, inflation was really limited. With floating value, or fiat, currency, however, some countries have seen inflation reach extremely high levels—sometimes enough to lead to economic collapse. Gold standards have historically provided more stable currencies with lower inflation than fiat currency. Should the United States return to a gold standard?