Why Is the Gold Standard a Bad Idea?

BY busadmin  April 30, 2009 at 3:30 PM EDT

gold; covilha via Flickr

Question: Why is the gold standard such a bad idea? I know it is a discredited system, but having never studied economics, I don’t understand why. Right now, is our money just some arbitrary amount issued by the Federal Reserve?

BTW, your PBS pieces are always my favorite part of The NewsHour.

Paul Solman: Because a gold standard – paper money that must be redeemable for actual gold – means you can’t print any more money than you have of the hard stuff.

We want the economy to grow, right? That means more goods and services produced next year than this. But now suppose we can’t find or produce any more gold, so the money supply has to remain constant. How will we pay for the added goods and services? We’ll be short of money. Which means the producers will eventually say, ‘The hell with it’ – and stop producing more. And so the economy won’t grow after all.