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Is the Gold Standard Still
the Gold Standard among
Monetary Systems?
by Lawrence H. White
No. 100
February 8, 2008
Executive Summary
This study addresses the leading criticisms of
Critics have raised a number of theoretical and
the gold standard, relating to the costs of gold,
historical objections to the gold standard. Some
the costs of transition, the dangers of specula-
have called the gold standard a "crazy" idea.
tion, and the need for a lender of last resort. One
The gold standard is not a flawless monetary
criticism is found to have some merit. The
system. Neither is the fiat money alternative. In
United States would not enjoy the benefits of
light of historical evidence about the compara-
being on an international gold standard if it were
tive magnitude of these flaws, however, the gold
the first and only country whose currency was
standard is a policy option that deserves serious
linked to gold.
A gold standard does not guarantee perfect
In a study covering many decades in a large
steadiness in the growth of the money supply, but
sample of countries, Federal Reserve Bank econ-
historical comparison shows that it has provided
omists found that "money growth and inflation
more moderate and steadier money growth in
are higher" under fiat standards than under
practice than the present-day alternative, politi-
gold and silver standards. Nor is the gold stan-
cally empowering a central banking committee to
dard a source of harmful deflation. Alan Green-
determine growth in the stock of fiat money.
span has testified before Congress that "a cen-
From the perspective of limiting money
tral bank properly functioning will endeavor to,
growth appropriately, the gold standard is far
in many cases, replicate what a gold standard
from a crazy idea.
would itself generate."
Lawrence H. White is the F. A. Hayek Professor of Economic History at the University of Missouri­St. Louis and an adjunct
scholar of the Cato Institute. He is the author of Competition and Currency, Free Banking in Britain, and The Theory of
Monetary Institutions.
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