Would a New Gold Standard Work? Steve Forbes Thinks So

August 5th, 2013 by

In an editorial at Forbes magazine, founder Steve Forbes writes an editorial titled “What The New Gold Standard Will Look Like.” In it, Forbes argues that we should undo what Nixon did, and return to pegging the dollar to gold. Forbes starts with a brief history of the gold standard, then talks about what a new system would look like:

The American dollar was linked to gold from the time of George Washington until the early 1970s. If the world’s people are to realize their full economic potential, relinking the dollar to gold is essential. Without it we will experience more debilitating financial disasters and economic stagnation.

What should a new gold standard look like? Representative Ted Poe (R-Tex.) has introduced an original and practical version. Unlike in days of old we don’t need piles of the yellow metal for a new standard to operate. Under Poe’s plan–an approach I have long favored–the dollar would be fixed to gold at a specific price. For argument’s sake let’s say the peg is $1,300. If the price of gold were to go above that, the Federal Reserve would sell bonds from its portfolio, thereby removing dollars from the economy to maintain the $1,300 level. Conversely, if the gold price were to drop below $1,300, the Fed would “print” new money by buying bonds, thereby injecting cash into the banking system.

An effective gold standard can be that simple. What gets lost in the discussion is that the yellow metal is merely a means of measuring the value of the dollar. The fact that a foot has 12 inches doesn’t restrict the number of square feet you can have in a house. The fact that a pound has 16 ounces doesn’t restrict your weight, alas–it’s simply a measurement.

This wouldn’t be an old-time “gold backing 100% of dollars in circulation” gold standard, but going back to the post-WWII system of tying currencies to an ounce of gold. Do you think it would work?

by David Peterson