Why we need a Gold Standard

Like most Americans I assumed the guys at the Federal Reserve knew what they were doing. In my government university I even studied monetary policy. I had classes in banking, money supply theory, was exposed to Friedman, Keynes, Smith, and the usual economist. I scantly remember much discussion about the gold standard other than it was bad because the government could not control the money supply. That was a bad thing in all the text books. My how times have changed. With the Federal Reserve flooding the markets with liquidity, increasing the monetary base 200% in three years, we are on the verge of a major inflation ass whipping.

So as to highlight the inflationary actions of the Federal Reserve since 1971 I thought it appropriate to look back to 1833 and the price of gold throughout the decades. It is awe inspiring to look at the price stability past generation enjoyed.

Federal Reserve Chairman Paul Volcker, 1981-87

Notice between 1833 and 1918 gold increased in value 0.32%. Between 1918 and 1932 prior to FDR’s devaluation gold increased in value 8.95%. From 1932 to 1934, after FDR’s devaluation gold increased 67.7%. And from 1934 to 1971 when Nixon removed the United Stated from the Bretton woods agreement and our commitment to exchange dollars for gold payments to foreign central banks gold increase 17.1%.

So from 1833 to 1971 when the United States was on one type of gold standard or another the price of gold went up 114.6% or 0.8% per year. Gold served as a remarkable restraint, compared to today, on the federal government and latter the Federal Reserve printing money.

From 1971 to 1980, during the Carter inflationary years, gold increased 1414% from $40.62 to $615. Paul Volcker killed inflation and the price of gold declined 27.3% to $447 when he left the Fed in 1987. Greenspan, back in his “irrational exuberance” days, resided over a further decline of 39.4% to $271.04 in 2001. Since 2001 the price has gone up 490%. You do the math.

1833-49 18.93 1901 18.98 1953 34.84
1850 18.93 1902 18.97 1954 35.04
1851 18.93 1903 18.95 1955 35.03
1852 18.93 1904 18.96 1956 34.99
1853 18.93 1905 18.92 1957 34.95
1854 18.93 1906 18.90 1958 35.10
1855 18.93 1907 18.94 1959 35.10
1856 18.93 1908 18.95 1960 35.27
1857 18.93 1909 18.96 1961 35.25
1858 18.93 1910 18.92 1962 35.23
1859 18.93 1911 18.92 1963 35.09
1860 18.93 1912 18.93 1964 35.10
1861 18.93 1913 18.92 1965 35.12
1862 18.93 1914 18.99 1966 35.13
1863 18.93 1915 18.99 1967 34.95
1864 18.93 1916 18.99 1968 39.31
1865 18.93 1917 18.99 1969 41.28
1866 18.93 1918 18.99 1970 36.02
1867 18.93 1919 19.95 1971 40.62
1868 18.93 1920 20.68 1972 58.42
1869 18.93 1921 20.58 1973 97.39
1870 18.93 1922 20.66 1974 154.00
1871 18.93 1923 21.32 1975 160.86
1872 18.94 1924 20.69 1976 124.74
1873 18.94 1925 20.64 1977 147.84
1874 18.94 1926 20.63 1978 193.40
1875 18.94 1927 20.64 1979 306.00
1876 18.94 1928 20.66 1980 615.00
1877 18.94 1929 20.63 1981 460.00
1878 18.94 1930 20.65 1982 376.00
1879 18.94 1931 17.06 1983 424.00
1880 18.94 1932 20.69 1984 361.00
1881 18.94 1933 26.33 1985 317.00
1882 18.94 1934 34.69 1986 368.00
1883 18.94 1935 34.84 1987 447.00
1884 18.94 1936 34.87 1988 437.00
1885 18.94 1937 34.79 1989 381.00
1886 18.94 1938 34.85 1990 383.51
1887 18.94 1939 34.42 1991 362.11
1888 18.94 1940 33.85 1992 343.82
1889 18.93 1941 33.85 1993 359.77
1890 18.94 1942 33.85 1994 384.00
1891 18.96 1943 33.85 1995 383.79
1892 18.96 1944 33.85 1996 387.81
1893 18.96 1945 34.71 1997 331.02
1894 18.94 1946 34.71 1998 294.24
1895 18.93 1947 34.71 1999 278.98
1896 18.98 1948 34.71 2000 279.11
1897 18.98 1949 31.69 2001 271.04
1898 18.98 1950 34.72 2002 309.73
1899 18.94 1951 34.72 2003 363.38
1900 18.96 1952 34.60 2004 409.72

2005 444.74
2006 603.46
2007 695.39
2008 871.96
2009 972.35
2010 1,224.53
2011 $1,600

Trade Weighted Exchange Index-Federal Reserve