At Wednesday night’s GOP presidential debate, Sen. Ted Cruz (R-TX) called for returning to a policy idea that died in 1933 and has gone unmourned ever since.
“We need sound money,” Cruz said when asked about Federal Reserve policy by CNBC’s Rick Santelli. “And I think the Fed should get out of the business of trying to juice our economy and simply be focused on sound money and monetary stability, ideally tied to gold.”
American money hasn’t been based on the price of gold since the early months of Franklin Roosevelt’s presidency. Returning to a “gold standard,” as the policy was known, would send the broader economy into the kind of jittery and deadly tremors usually seen only in lab mice who’ve been fed cocaine.
The idea of “sound money,” as the libertarian crowd that worships the gold standard prefers to call it, is that it takes away the Fed’s ability to manage the value of a dollar. The supposed benefit of this is that your money’s worth is more real because it is pegged to a shiny, rare metal.
But when you let the market for gold determine the value of every piece of paper money in every person’s pocket on any given day, you leave your entire economy exposed to catastrophe. The gold standard forced governments around the world to restrict monetary policy just as markets crashed in the late 1920s, which helped turn a crash into the Great Depression.Actually, it was the Federal Reserve de facto move away from a true gold standard as Murray Rothbard chronicled in America's Great Depression that caused the economic collapse (and aggravated by government intervention into the economy).
As for gold versus government paper money, there has never been a hyper-inflation crack-up when gold was the medium of exchange, quite different from the record under paper currencies.
The Washington Post has reported:
This is not complicated to understand. The theory was sound in the 1930s and it is sound today: Governments can't print gold, but they sure can print horrific amounts of paper currency, and they have done so many times.
