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Most coin collectors long for the time when our currency was based in precious metals. I hear allot about how they wish we were back on the gold standard and how great that was… But is the gold standard better for us today?

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I will try to answer that question in the next few paragraphs. but, in order to appreciate the answer, we need to understand how the value of our money really functions. Money either based on gold or legal tender status(fiat), is not a solid stationary value. Inflation and Deflation affects both.

Let’s look at Gold Specie Standard, this is where your currency is 100% backed by gold. Every dollar you have to spend, has to have a piece of gold in the treasury to exist. Gold is a physical element dug from the earth that has a limited supply. Let’s say we have to fight a big war and need to fund this very expensive enterprise. Demands on man and materials will cause inflation, draining the supply of available gold backed currency. Eventually there will be no more currency to buy needed war machines to fight the war. Our country may have enough man and materials to keep building these machines, but with no more money then no one makes the machines.  After the war another thing happens – deflation.  This is arguably worse than inflation. Some economists have argued that the great depression was partly caused by the gold standard going into a steep deflationary mode. When based on gold, man has almost no control over inflation and deflation.

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Now let’s look at fiat currency, this is what we use today.  it’s value is tied to everything in the economy because by law everything in USA must be purchased by us currency or barter. This law is what gives our money value. It can be said then that all of the things in our society that can be bought or sold is the backing of our currency. This allows the treasury department to have more control over the affects of inflation and deflation, there by giving us softer landings in hard times. We have since had stock market fluctuations worse than that of the great crash of 29. Black Monday in 1987 showed a 500 point loss, but yet because our economy was good, and due to good controls and proper decision making it had very little direct affect on our lives.  But as we see now with the bad management and poor decision making and deregulation, now in 2008 , we see the dark side of fiat currency. We still don’t know how this will play out yet. But it is defiantly a man made tragedy due to greed and horrible, maybe even criminal decisions made by the people we trust with our economy.

One last thing before I post my answer to the question I posed above. The population of the USA and the world has exploded since the end of the gold standard. There currently is not enough gold to back enough currency to supply our economy, let alone grow it. Here is my answer; no. The world and the economy is too complex and fragile to allow the whimsical  inflation and deflation of gold to cause sharp turns in the economy. Properly controlled by intelligent people at the helm, our currency can be very safe and allow for genital rises and falls. As I stated above not enough gold exists to allow an economy to grow which is essential to a world where the population is increasing every day.

But I too long for the simpler days where you can hold hard currency in your hand and can feel the heaviness of a coin’s value.  A number in a computer, and the lack of substance in a credit or debit card leaves me detached from my wealth feeling empty and worthless.

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