The gold standard is a system under which currencies are tied to certain amounts of gold. In the U.S., the gold standard was adopted in 1900 and ended by President Richard Nixon on August 15, 1971. The current system used by nearly all countries is fiat money, which is used as a medium of exchange and has no intrinsic worth.
It may surprise some that prior to becoming chairman of the U.S. Federal Reserve board, Alan Greenspan was a proponent of the gold standard. The 1967 book by Ayn Rand, entitled Capitalism, the Unknown Ideal, included an essay by Mr. Greenspan. Gold and Economic Freedom makes a strong argument for the gold standard and in opposition to a central bank concept.
That Mr. Greenspan penned this essay decades before he became the chair of the most prominent central bank in the world is quite ironic. Even more surprising are Mr. Greenspan’s thoughts regarding economic regulations in general. He is reported to have once advised a Senate committee that economic regulations should have fixed life spans. Senator Paul Sarbanes asked if he felt a similar provision should be included in the Federal Reserve’s authorization, to which he replied in the affirmative.
Senator Sarbanes went on to ask whether Mr. Greenspan was recommending a return to the gold standard. Mr. Greenspan stated that he has been recommending that for years. He acknowledged the fact that he would most likely cast the sole Federal Open Market Committee vote in favor of this move.
Some believe that returning to gold as an acceptable medium of exchange will lead to a worldwide division of labor and broader international trade. A fully consistent gold standard has never been implemented, but before World War I, banking systems were more free than controlled. These folks feel that without a gold standard, confiscation of wealth through inflation will continue.