In light of recent economic challenges, a return to a gold standard has been suggested as a simple solution. It is often the case that the best solutions to complex problems are those that are elegantly simple, as opposed to those that are needlessly complex and lead to chaos. Unfortunately, central banks tend to adhere to a single economic doctrine that involves creating wealth out of thin air and using this power to interfere with the free market as they see fit. To many, this approach appears dubious.
Those who argue against a return to the gold standard suggest that it would cause a catastrophic loss of wealth, given that central banks hold far too little gold in reserve to back up the money supply. However, fiat money is not wealth in and of itself. It is a commodity created out of nothing, and its value in a free market is solely based on the agreement of two parties to exchange it. This inherently unstable purchasing power creates an illusion of wealth.
In contrast, gold’s purchasing power has remained virtually constant for thousands of years. Wealth held in gold cannot be created or destroyed by any government, and it endures while the false wealth of fiat money is eventually rendered worthless. While some argue that the gold standard would interfere with a central bank’s ability to manipulate the economy, this is based on a misconception. Inflation is simply the result of too much currency in circulation, a problem that would be mitigated by a true gold standard.
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