History has shown us that times of trouble and crisis can happen regardless of anything. In the long run, and particularly in times of economic disparity, having a gold standard can make it harder to deal with money supply. This essentially has the power to affect international economies.

The reality is that it would be incredibly difficult to implement this since we’ve moved so far way from it. Internationally we have so many currencies that in order for this to even be plausible, all currencies would have to change and that would be incredibly difficult. Sure, it can be argued that the euro is a great example of having multiple countries under the same currency, but there are still various European countries that do fall under the euro. Returning to a gold standard would be old-fashioned solution for modern situations that would not help in the long run. I agree with the comment, “if it isn’t broke, don’t fix it.”

Those in favor of the gold standard argue that it would lead to stable price levels and fewer business cycles. They argue that stable price levels will occur because the supply of gold is fairly stable; it is not easy to dig large quantities of it out of the ground and we already have a pretty large quantity in existence. However, the price of gold is not stable, it is actually quite volatile. The price of gold in the past year, for example, has skyrocketed. Therefore, if the price of gold is volatile, price levels will also be volatile. The price of gold fluctuates in reaction to speculation of other price levels, such as the dollar. It is clear that a nation switching to the gold standard could be disastrous. If the entire world were to do so it could work, but if only the US decided to do so, it would put our economy in danger. Monetary transitions are hard on governments and the gold standard could easily result in erratic price levels. Even more, sudden inflation or deflation would immediately prove this experiment a failure.

The conversation on the gold standard ends with Roberts and Cowen examining why gold is used as a hedge against crises, terrorist attacks, nuclear holocausts, etc. Why do people but so much economic faith in a substance that comes from the earth? They say it is mostly because of human psychology, and the belief that gold will maintain a certain level of wealth. However, this belief no longer applies today as much as it has in the past. People no longer feel economically secure by carrying around a pouch of gold. This I think adds to the above argument that a gold standard would not prove beneficial to our economy.

However, the price of gold, I believe is extremely volatile. The regulation of the amount of currency in circulation depends on a supply and demand model. Gold, however, unlike paper currency, cannot be regulated in that manner because it cannot be produced. Therefore, its more or less fixed amount allows less flexibility and thus less control on a government’s part to regulate.

A reversion back to the Gold Standard would bind countries to a restrictive inefficient system of monetary regulation. Although, application of a gold standard may have made sense and worked in the 19th century, the effects of the Great Depression showed that it has become an outdated system. The move away from the Gold Standard was with good reason, and the current monetary systems are stable enough to work in tandem with modern economic conditions. A move back to the Gold Standard is unnecessary and might actually have more disadvantages than advantages.

Though the advantages of a gold standard may bring out 1) a feeling of security of one’s money and 2) a prevention of overprinting money, Cowen suggests that gold is merely a commodity, comparing them to diamonds or any other product on the market. Because the price of gold is so volatile (which depends on the political situation and economic status of the world), Cowen believes that when governments start transitioning from gold to dollars, they set the wrong exchange rate. If they do that, it will set off an immediate deflation or inflation in the economy and governments will give up on the idea of a gold standard anyway. The example of the Great Depression is also very convincing in that Cowen believes that the Great Depression wouldn’t have been severe if the government had printed more money. However, the gold standard held them back from doing so. Some disadvantages of the gold standard are that in a depression or deflation of the economy many of people will convert into not having a gold standard because the value has dropped and will begin depleting national reserves. Money supply is key when having a gold standard as well, and without having growing gold stocks, it’s impossible to have a growing money supply.

So if anything, I believe that the advantages of not having a gold standard outweigh those of having one. Gold is just like any other commodity and is highly volatile in price and should be relied on as a standard use of currency. Cowen does agree however that the gold standard MAY work only if the entire world also abides by the gold standard. If only one country begins to use the gold standard, there will be negative results because shock deflation is more possible. Thus, it should be noted that though there is a possibility of the gold standard working, it requires the cooperation of all other nations as well. It is all psychological, as they said, and people have come to view money as a fetish and they just “believe” in it and trust it. The psychological aspect of the gold standard and the way consumers regard paper money vs. gold is also something to take into account, because if gold is just like any other commodity with no set exchange price…then why are we even using it. Might as well just exchange with paper money.