Donald Trump (photo credit: Gage Skidmore)

A Familiar Refrain: Trump Attacked Again for Gold Standard Support


Donald Trump (photo credit: Gage Skidmore)
Donald Trump (photo credit: Gage Skidmore)

Earlier this week in The Huffington Post, columnist Ben Walsh unleashed a fierce attack on the economic policies of Donald Trump, writing that Trump’s proposals “would cause a recession and maybe worse.”

Among the policies that Walsh singled out for critique was Trump’s support for the gold standard:

There’s also the gold standard, to which Trump gives a thumbs up.

The gold standard might sound good — who, especially Donald Trump, doesn’t love gold and standards?  — but it’s one of the worst economic ideas ever. This is a harebrained policy that no other country uses and not a single surveyed economist thinks is a good idea. (The Trump campaign did not respond to a request for comment for this article.)

Under the gold standard, a dollar is worth a certain amount of gold. And since gold is a commodity whose price swings wildly, a central bank like the Federal Reserve would have to raise and cut interest rates based not on how well the economy is doing, but on what’s going on in the gold market.

It’s a good way to run a modern economy into the ground. In other words, it fits in nicely with Trump’s other economic plans.

There are several problems with Walsh’s analysis here, misconceptions which have been capably addressed in the past by The Pulse 2016 contributor Ralph Benko (responding, coincidentally, to another HuffPo column):

1.  The Booth School survey of 40 academic economists who unanimously abjured the gold standard included very few monetary economists. Academic fads shift. Once upon a time, academic economists were thoroughly committed to the gold standard.  Now they are in opposition.  This survey was a tale told by an idiot (not, one hastens to point out, Mr. [Zach] Carter) full of sound and fury, signifying nothing.

2.  The price of gold, as a demonetized commodity, assuredly is volatile.  This has no relevance to the gold standard, under which the definition of the dollar is meticulously defined by (and convertible to) a designated weight of gold. Under the gold standard there is no such volatility. Period.

3.  Gold has a very stable stock-to-flow ratio, and has kept that stability for centuries, probably millennia.  If Mr. Carter will check the empirical record, the prospect of a new gold find’s materially affecting the supply, and thus price, of gold is nil.  There is no find in the historical record that would approach a fast 10 percent fluctuation. Even during the period of the “great inflation” when New World gold flooded Old Europe, the impact was trivial compared to the fluctuation of currencies under fiduciary management of the post-1971 era.

4.  Every country went off the gold standard as a consequence of the First World War. The so-called gold-exchange standard, the “interwar gold standard,” established in Genoa in 1922 was, asThe Economist recently termed it, a “mess,” in which the gold standard’s rules were not followed. Thus the great going-off in the 1930s, entirely appropriate, did not in any way represent a repudiation of the gold standard.  The gold-exchange standard was, as termed by economist Jacques Rueff, a “grotesque caricature” of the gold standard. To have departed from it was perfectly correct and, yes, correlated with recovery from the Great Depression, in fact an artifact of the defective “gold-exchange standard, though not of the classical gold standard itself.


So much for Walsh’s arguments that the gold standard is a bad idea because “no other country uses it,” “not a single surveyed economist” (in one survey) supports it, and the Federal Reserve would be saddled with following gold’s “wild” price swings.

The fact is the status quo policies of the Federal Reserve have given us, well, the status quo of low economic growth, with no improvement in sight. Fed Chair Janet Yellen implicitly admitted as much during her press conference last week, remarking that the Fed believes current economic factors “are not going to be rapidly disappearing but will be part of the new normal” [emphasis added].

Yet should policymakers simply stand down and accept this “new normal”? After all, as pointed out by columnist Charles Kadlec, a study from the Bank of England shows past monetary regimes (i.e. the gold standard and its variants) have produced vastly better economic results:

Ever since President Richard Nixon in 1971 killed the Bretton Woods international monetary system by breaking the link between the dollar and gold, the U.S. economy has experienced slower growth, higher average inflation, higher unemployment rates, more bank failures and a series of financial crises that, in total, have reduced our income by about a third.

Now, a Bank of England study with the ambitious title, “Reform of the International Monetary and Financial System,” shows that the entire world economy has suffered a similar fate.

The paper’s authors, Oliver Bush, Katie Farrant and Michelle Wright break new ground by documenting the extraordinary short fall of the world economy under the now 40-year old mix of floating, pegged and fixed exchange rates.

When compared to the Bretton Woods system, in which countries defined their currencies by a fixed rate of exchange to the dollar, and the U.S. in turn defined the dollar as 1/35th of an ounce of gold:

  • Economic growth is a full percentage point slower, with an average annual increase in real per-capita GDP of only 1.8%
  • World inflation of 4.8% a year is 1.5 percentage point higher;
  • Downturns for the median countries have more than tripled to 13% of the total period;
  • The number of banking crises per year has soared to 2.6 per year, compared to only one every ten years under Bretton Woods;

Moreover, abandoning the gold standard in favor of free floating currencies was supposed to eliminate currency crises and lead to an automatic adjustment in trade imbalances.  Instead:

  • The number of currency crises has increased to 3.7 per year from 1.7 per year;
  • Current account deficits have nearly tripled to 2.2% of world GDP from only 0.8% of GDP under Bretton Woods.

These results demonstrate beyond a reasonable doubt that the experiment with floating paper currencies has been a disaster for the people of the world.  Had the trends under Bretton Woods continued, the average person’s real income would be nearly 50% higher, the increase in prices would be nearly 50% lower, trade imbalances would be nearly one-third smaller and the world economy over the past four decades would have suffered through 4 instead of 104 banking crises.

So, is Donald Trump really all that crazy to suggest a return to the gold standard? You be the judge.

Paul Dupont is the managing editor for

Paul Dupont

Paul Dupont is editor of

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