For the first time since the age of Reagan, the Republican Party is considering the gold standard. The platform adopted last week at the GOP convention includes a plank in favor of a commission to study the way back to a fixed value for the dollar. Such a commission would jumpstart a national debate on monetary reform, something needed now more than ever. But instead of participating in this, critics have objected with myth after myth about the gold standard.
Here are four of the most popular:
Myth 1: The gold standard leaves no discretion in the economy over the money supply.
This is a common refrain from Federal Reserve officials, including Chairman Ben Bernanke. The truth is that the gold standard does not make the money supply static; it simply shifts control over it from the central bank to the people. When the economy demands more money, people exchange gold for new dollars; when it needs less, they redeem excess dollars for gold. This is the market-guided alternative to the system we have now where the Fed controls the money supply through market intervention based on its interpretation of the economy.