Return to the Gold Standard? Ursula Bettendorf Shannon Bowen Kristina Appel Pepe Montoya Midori Maxwell Eva Jimenez

Gold Standard: Introduction to pros The Gold Standard Promotes Better Consumer Confidence The Gold Standard Promotes Better Consumer Confidence –Gold is a commodity. It will Always have Value. –Gold has a Higher Purchasing Power Gold as a Single World Currency Gold as a Single World Currency –Can be Used to Further Facilitate International Trade –Contains a Self Regulating Mechanism Fiat Money is Government Control Fiat Money is Government Control –Government has Unlimited Control Over Monetary Policy –Redistributes Wealth Through Creation of Additional Currencies and Credit

Gold Standard: Introduction to cons Too many problems Too many problems –Too costly –Limited supply –Liquidity trap –Deflationary bias Positive benefits of fiat currency Positive benefits of fiat currency –Simplicity –Government control to facilitate economic growth and stability

Gold Standard: Introduction to cons Historical precedent of failure Historical precedent of failure –Caused recessions that deepened into Great Depression »Countries which abandoned gold standard earlier than the U.S. largely escaped the Great Depression –Constricted economic growth »Bank runs

Gold Standard: Debate Less complications with the Gold Standard Less complications with the Gold Standard More Benefits with Fiat Money More Benefits with Fiat Money Gold is the customarily accepted medium of exchange Gold is the customarily accepted medium of exchange Fiat Money is a More Appropriate Medium of Exchange, and More Customarily Accepted Fiat Money is a More Appropriate Medium of Exchange, and More Customarily Accepted

Gold Standard: Debate Negative Side of the Fiat Currency Negative Side of the Fiat Currency –The costs imposed on society –The costs imposed by special interest groups –The costs in the form on inflation –induced misallocations of resources –The costs incurred by businessmen

Gold Standard: Debate Fiat Standard can Expand Money Supply to Counter Unemployment Fiat Standard can Expand Money Supply to Counter Unemployment –Credit Expansion, Foreign Aid, Trade, and Government Aid Programs Are also Encouraged The Standard can Manipulate the Currency to Avoid Recessions and Depressions The Standard can Manipulate the Currency to Avoid Recessions and Depressions Under the Gold Standard, the Automatic Adjustment Mechanism Causes Outflows which Hurt the Economy Under the Gold Standard, the Automatic Adjustment Mechanism Causes Outflows which Hurt the Economy

Gold Standard: Debate Misconceptions linked with the Gold Standard and the Great Depression Misconceptions linked with the Gold Standard and the Great Depression –The idea that the Pancea for debt is credit –Prosperity is a product of credit rather than the increase and exchange in wealth

Gold Standard: Debate The U.S. Suffered 8 Depressions while on Commodity Money The U.S. Suffered 8 Depressions while on Commodity Money Gold Standard was the Root of the Problem in the Great Depression Gold Standard was the Root of the Problem in the Great Depression –In the 1920s there was Nothing to Force Surplus Countries into Higher Prices to Manage the Balance of Payments –President Roosevelt Cured the Great Depression by Changing the Fixed Price of Gold –Countries that werent on the Gold Standard in 1929 or that abandoned it, escaped the Great Depression. Those that didnt, suffered the most.

Conclusion to the Pros The Great Depression caused by other factors besides gold standard The Great Depression caused by other factors besides gold standard Less government interference Less government interference Lack of historical information on the fiat system Lack of historical information on the fiat system

Conclusion to the Cons Depression Caused by the Gold Standard Depression Caused by the Gold Standard Experienced Recessions Under the Gold Standard Experienced Recessions Under the Gold Standard No Government Control No Government Control –Cant Expand Money to Finance the Country –No Welfare or Public Benefits –In Reality, No One can Control the Supply of Gold Costs of Gold Costs of Gold –Mining –Limited Supply Governments are Unlikely to Return to the Gold Standard, because it would Mean Turning Monetary Policy Over to Uncontrollable Swings in the Stock of Gold. Governments are Unlikely to Return to the Gold Standard, because it would Mean Turning Monetary Policy Over to Uncontrollable Swings in the Stock of Gold.

Conclusion to the Cons Using Gold as a Commodity to Barter or to Directly Support the Value of Paper Currency is Unrealistic and Impractical to Effectively Stabilize an Economy of Change. Nor does such a Standard Encourage Economic Development. Also it is both Irrational and quite Impossible for a Floating Economic System to Successfully and Fairly become a Fixed System, like that of the Gold Standard. Using Gold as a Commodity to Barter or to Directly Support the Value of Paper Currency is Unrealistic and Impractical to Effectively Stabilize an Economy of Change. Nor does such a Standard Encourage Economic Development. Also it is both Irrational and quite Impossible for a Floating Economic System to Successfully and Fairly become a Fixed System, like that of the Gold Standard.