On the Gold Standard

One of the Republican candidates for the presidential nomination (Ron Paul) continues to support the gold standard--making the dollar convertible into gold at a fixed rate--one of the central aspects of what passes for his economic plan.

The best demolition of the theoretical underpinnings of the gold standard was written by John Maynard Keynes, in Chapter 4 of A Tract on Monetary Reform. Briefly, he argues that we have to choose between stabilizing the international value of our currency (the exchange rate between the dollar and, say, the euro) and stabilizing the domestic price level. He argues, quite cogently, that the gold standard will do the former, but will, in fact destabilize the domestic price level.

Not exactly a new argument. The Tract was published in 1923.

(Note: I've been rereading Keynes as my lunchtime reading. And it's a treat.)