Richard Thaler Quotes

Economists they world over have differed as to how critical it was to have a money supply that is based on a gold standard or other precious metal. United States history has had a dispute over whether the money should be backed by gold or silver. Finally, under the Richard M. Nixon administration, the United States went off the gold standard and American money ever since is only backed by the ‘full faith and credit’ of the United States. Some politicians like Paul believe this is a poor policy since it allows governments to control their own money supply irrespective of their gold or silver holdings. Paul goes further than most and sees freedom itself dependent on a precious metal standard. Most politicians disagree.

What Franklin Delano Roosevelt began, President Nixon would in 1971 complete by removing America from the gold standard entirely and ending fixed rates of exchange. There have been those in government who did not understand the modern economics of money and who believed that currency had to have a fixed rate of exchange for gold or silver otherwise it was worthless. Roosevelt had to deal with them as did Nixon later. Even into the 21st century when it had been amply demonstrated that the best currency in the world was the United States dollar precisely because it was backed up by the full faith and credit of the United States Government, there were those who complain that United States money is not sound currency and argue for the return of the gold standard.

There has always been a fear of inflation and currency debasement by governments. Since ancient times, rulers issued coins and when they were made of cheap metals like copper or iron, the ruler could mint as much as he wanted and when he did so the value went down. By using only precious metals, gold and silver, for coins, there would be a natural restraint on government. Garfield was one of those who believed that we should always have money of gold and silver. The United States would use that principle for the next century even backing its paper money with gold and silver. In the Nixon administration the United States abandoned the gold standard. Today, it is the ability of a country to produce things that maintains value of paper money which has been supplanted in many cases by electronic money.

There were more silver mines than gold and the owners and others who wanted to increase the money supply had advocated using silver as well as gold to back the money supply. As silver was more plentiful, financiers felt that the American money had been diluted and other its value went down. Cleveland proposed that the legislation allowing so much silver be repealed. It was. Note the appeal to international opinion. At the time the United States was not one of the world’s superpowers and what the English and French thought about our money was extremely important and likely to persuade voters. A century later, American public opinion was not as influenced by that of other nations.

At the time the United States was on the Gold Standard and all our money was backed by gold. Root and others were afraid that a Federal Reserve Bank, a proposal that was being debated in Congress, would cause a large amount of paper money to be printed which other nations would obtain through trade and then exchange that for American gold—a process which would deplete the American gold supply. A few years before, William Jennings Bryan had argued that the Gold Standard did not allow America sufficient ability to increase the money supply to serve the growing population and economy. See {640992}.

Most of the Founding Fathers would be scandalized by the banking and finance system we have in modern times. There is not a single bank in the nation that would meet Adams’ criteria for not being a “cheat.” See {615649} for a similar view and {630666} for another quote by Adams regarding banks. Interestingly, Adams was a very conservative politician and generally supported the establishment, but banks at that time were not thought of as part of the establishment. They had a somewhat unwholesome reputation at best.

At the time, a bank note—paper money issued be a private bank—was not backed by any gold or silver and was not insured bym the government. A bank could print as much as they wanted, so it was always worth less as the further you were from the particular issuing bank, the less you could get your bank note, because no one knew whether or not the issuing bank would redeem the note or even be in existence. So every private bank note had diminished value for the public. However, carrying gold and silver around and making change for precious metals was difficult and often impractical. So people used banknotes. The same thing happens with credit cards today. The merchant has to pay a fee to the credit card company and the bank and therefore charges us more for whatever we buy. But most consumers and merchants are willing to pay the difference to obtain the convenience of the credit card,

This was a very astute prediction. At the time, the United States gold mining production was second only to South Africa and American currency was based on the gold standard which seemed to all to be permanent. Half a century later, the U. S went off the gold standard.

This is an excellent historical example of how damaging it can be for a country if its leaders do not understand the technicalities of economics and currency manipulation.