Is There a Best Way to Return to a Gold Standard?

Is There a Best Way to Return to a Gold Standard?

By Terry Coxon, Senior Economist

Many of us see hair-curling rates of price inflation not too far down the road. Today inflation is hardly noticeable. But what’s coming will be so painful and so disruptive that soaring prices will become the voting public’s number-one complaint. How will the politicians respond?

They will be responding to an audience for whom the idea of fiat money (even with a picture of a dead president on every bill) has been discredited. The obvious alternative to fiat money will be a return to a gold standard, and it’s hard to imagine what competing proposals might get in the way. In such an environment, being pro-gold will be politically smart. Championing the idea of re-linking the dollar to gold would serve any politician nicely as an I-dare-you-to-disagree challenge to his competitors. And supporting such a proposal would be a convenient way for politicians to distance themselves from the mistakes of the past.

I believe we are going to hear a lot of talk about a return to “the” gold standard. But none of the talkers will be saying much unless he tells you what kind of gold standard he has in mind. There are different ways to link the dollar to gold. Each of them involves an official price for gold at which the government is committed to transact with any and all comers. But there are important differences.

Symmetric bullion standard. The government sets an official dollar price per ounce of gold. Then (i) it pledges to buy an unlimited amount of gold from the public and pay for it in paper dollars, and (ii) it pledges to sell an unlimited amount of gold to the public and accept payment for the metal in paper dollars.

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