Gold vs. the Fed: The Record Is Clear


"A gold-based system delivers higher employment and more price stability"

Next week, the FOMC is expected to signal its desire to increase the inflation rate with additional monetary stimulus. This policy is based on a false and dangerous premise—that manipulating the dollar's buying power will lead to higher employment and economic growth. But the past 40 years points to the opposite conclusion—guaranteeing a stable value for the dollar by restoring dollar-gold convertibility would be the surest way for the Federal Reserve to achieve its dual mandate of maximum employment and price stability.

From 1947–1967, the year before the U.S. began to weasel out of its commitment to dollar-gold convertibility, unemployment averaged only 4.7%. Real growth averaged 4% a year. Low unemployment and high growth coincided with low inflation. During the 21 years ending in 1967, consumer-price inflation averaged just 1.9% a year. Interest rates, too, were low and stable.

What's happened since 1971, when President Nixon broke the dollar/gold link? Higher unemployment, slower growth, greater instability and declining economic resilience. From 1971–2009, unemployment averaged 6.2%, 1.5 percentage points above the 1947–67 average, and real growth rates averaged >3%. We have since experienced the three worst recessions since the end of WWII, with unemployment averaging 8.5% in 1975, 9.7% in 1982 and >9.5% for the past 14 months. During these 39 years in which the Fed was free to manipulate the dollar's value, the CPI rose, on average, 4.4% a year. So, a dollar today buys only about one-sixth of the consumer goods it purchased in 1971.

Economists may disagree on why the gold standard delivered such superior results to the current system. But the data is clear—a gold-based system delivers higher employment and more price stability. It's time to build a 21st-century gold standard for the benefit of American workers, investors and businesses.

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