what would have happened if the us had stayed on the gold standard
HalfDime
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If the United States had remained on the gold standard after 1971, the economic landscape would be fundamentally different in several key ways:
Reduced Monetary Flexibility-
The government and Federal Reserve would have been unable to print money freely or use monetary policy to respond to economic crises, such as recessions or financial panics. This inflexibility would have made it much harder to inject stimulus into the economy or bail out failing institutions during downturns.
During crises like the 2008 financial collapse or the COVID-19 pandemic, the government would not have been able to provide large-scale economic relief, likely resulting in deeper and longer recessions.
Price and Economic Volatility-
Contrary to popular belief, historical data shows that the gold standard did not guarantee price stability. In fact, periods under the gold standard saw some of the most dramatic episodes of both inflation and deflation, as gold supply shocks (such as new gold discoveries) or hoarding could cause wild swings in prices.
Unemployment rates were historically higher and price volatility was much greater under the gold standard. For example, the coefficient of variation for prices was 13 times higher during gold standard periods.
Constraints on Government Spending and Debt-
The gold standard would have strictly limited the government's ability to run large deficits or finance major projects, including military spending and social programs, since every dollar in circulation would need to be backed by a corresponding amount of gold.
The US would not have been able to accumulate the massive trade deficits and national debt seen in recent decades, as it could not simply print more money to pay for imports or debt service.
Potential for Deflation and Prolonged Downturns-
Economic downturns would likely have been more severe and prolonged. The inability to expand the money supply in response to falling demand would have led to deflation, higher unemployment, and slower recoveries, as seen during the Great Depression.
If the fixed price of gold was set too low, it would have triggered long-run deflation; if set too high, it could have led to inflation—either scenario undermining the supposed stability of the system.
Slower Income Growth and Higher Unemployment-
Historical comparisons show that real median income growth and employment were stronger in the decades before the US left the gold standard. From 1950 to 1968, median income for men grew 2.7% per year, compared to just 0.2% per year after 1971. Unemployment averaged 5% before 1971, versus 6.1% after. However, these figures are debated and may also reflect broader economic and social changes.
Global and Practical Challenges-
The US would have needed to acquire and store ever-larger quantities of gold to support economic growth, an increasingly impractical and costly endeavor as the economy expanded.
The cost of maintaining a gold-based currency system would be substantial, with estimates suggesting it could consume a significant portion of GDP.
Had the US remained on the gold standard, the economy would have been less flexible, more prone to severe downturns, and unable to respond as vigorously to crises. While some argue it would have curbed inflation and government overspending, most mainstream economists believe the drawbacks—especially in terms of economic rigidity and volatility—would outweigh the benefits.
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Was removing the U.S. from the gold standard the greatest economic mistake ever made? The price of gold barely doubled for nearly 200 years, and since 1971 it has gone up over 8000%. (Since 1971 the price of gold has increased dramatically, rising from about $35–$41 per ounce to over $3,340 per ounce in 2025, reflecting a gain of more than 8,000%.)
Comments
Even when there was a gold standard prior to April 1933, it didn't restrain money "creation" because the gold standard was massively cheated upon during the mid to late 1920s.
Credit expansions (such as the "Roaring Twenties") inevitably lead to: credit contraction; inflation; and/or default.
A strict adherence to a gold standard prevents excessive credit expansion.
Economic activity expanded considerably during the period of the late 1870s to about 1913. The gold standard was generally adhered to during this time, government debt was minimal, and there was no central bank (only the US Treasury).
I think there is a flawed understanding of how the Gold EXCHANGE Standard (not "Gold Standard") worked from 1945-71.
For starters, no financial firms were "bailed out" though flexibility allows for mopping up operations.
Second, downturns would have been more severe and unemployment much higher (much as Europe today) because of the inability of the currency and domestic monetary policy to ease exogenous shocks. That burden would fall solely on wage and price adjustments.
Third, the U.S. would have had to run gold deficits as the supply of dollars was increased to meet domestic AND global demand. We'd still run trade deficits and capital account surpluses.
Asking for a repeat of economic performance from 1870-1913 when the U.S. was largely an agrarian society (50% of Americans lived on farms) is foolhardy.
A gold standard or gold exchange standard can not function in a modern society. Pre-WW I, it could work because countries and central banks did not have to worry about outside forces like organized labor, rising unemployment, democratic institutions, etc.
A large portion of the rise in gold's price was because it was artificially held back from 1945-73.
I'm curious if some of you who believe in the gold standard have read the articles and books and papers on it by Milton Friedman, Ben Bernanke, Barry Eichengreen, etc.
I recommend a copy of GOLDEN FETTERS if you can find it.
I love READING and studying the literature about the gold standard. I'm glad it led to the production of numismatic coins like Double Eagles. But it's simply not practical to have ANY inflexible monetary policy determining a country's fate as the long-term costs can be worse than inflation or even hyperinflation.
Of course....the adjustment burden fell on wages/prices/labor rather than dispersed throught the whole chain of production, the currency, or inflation rates.
Since prices/wages are sticky to the downside, this mean loss of economic output and greater depths of economic downturns.
under the new gold standard will I be able to buy a triple latte with a reloadable debit card?
to most of america that is very important
If we declare gold is $20.67 will everything be good again? Ya know, like it was in the good old days of 1870-1913? Ya know, the time period that is so extolled by one.
Knowledge is the enemy of fear
And the winner is . . .
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You can "declare" anything you want. But that doesn't mean anyone will adhere to it.
There was limited debt prior to the establishment of the central bank (Federal Reserve).
But since then, debt levels have exploded while economic growth has been no better than 1870-1913.
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works for me, i'd love 21 cent gasoline and ninteen cent big macs.
Capital investment depends on confidence. - Martin Armstrong
Well, for an adult to continue to grow as fast as a teenager, that's pretty darn good. Now just imagine if we double the railroads across the country, build another New York City, Chicago, Boston, Philadelphia, Atlanta, San Francisco and Los Angeles. Man, this place be rockin!!! Steel factories everywhere!!! Glorious!!
Why is it so hard for folk to realize this country and its needs as not what they were in 1895? The economies are not the same and should not be compared.
Knowledge is the enemy of fear
And your house would be worth $4000.
Knowledge is the enemy of fear
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All that infrastructure you write about, that was built from 1870 to 1913, was completed without resulting in a lot of debt.
Much less "steel" has been needed since then. And yet, debt levels have exploded. The question that should be asked is: why did that happen ?
The answer is that we have been "scammed" by banking interests.
You are a "banker" of sorts, right ?
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There was a lot of debt. Why did Jp Morgan have to bail out the Govt in 1893?
What was the GDP in 1893 and what is it today? Why did the GDP explode?
Knowledge is the enemy of fear
and I could buy a new bigger one for $4500. It's all relevant.
Capital investment depends on confidence. - Martin Armstrong
Exactly. Everything costs more and we all more more and have more. It's all relevant. Thanks.
Knowledge is the enemy of fear
Not really, most all of us have only one house, and one car for each income earner in the house. The "more" comes from a household with two workers unlike a single income earner back in the day. Our "more" is also a result of government checks, competition, globalization, innovation. credit cards, auto loans and creative mortgages. In reality, many have "more" than they can afford. Their government has demonstrated to them this is possible. But with all bad credit, especially private debt, the chickens eventually come home to roost.
Capital investment depends on confidence. - Martin Armstrong
Just as it's always been. Work hard. Play smart. Win.
Knowledge is the enemy of fear
But now we can pay later.
Capital investment depends on confidence. - Martin Armstrong
50% of the country was agrarian farmers during that time. GDP growth surged as immigration surged.
Real GDP Growth = Population Growth + Productivity Growth
Debt has gone up because demands for entitlements and other services/goods have soared.
GDP was approximately $15 billion in 1893 based on BEA reports. There was a shortage of gold as Europeans called in South American loans and investments -- classic banking Panic.
The economic multiplier was much higher back then because of the Industrial Revolution. Productivity was surging 3-5% a year as more Americans left farming for the big cities and manufacturing work. Women had more children and immigration was high -- so Real GDP soared from productivity and labor/capital efficiency.
That's what I'm sayin brother! BOOMIN!™ RGDS!
The whole worlds off its rocker, buy Gold™.
BOOMIN!™
to answer the OP's question we would not have been able to put our nation in such great debt. The ability to print money at will to pay the bills removes any restraint to limit one's spending. Having the dollar backed by gold provided that restraint. If the dollar had remained pegged to gold, gold price would now have a whole lot of zeros at the end of it.
Capital investment depends on confidence. - Martin Armstrong
Or...it would have functioned like it did for decades with the price level unchanged and the gold price unchanged.
We would also have a much SMALLER GDP.
Your problem is you think ALL DEBT is bad. It is not. Only EXCESSIVE and wasteful and non-productive debt is bad.
And stable prices are a bad thing? LOL
GDP provides a snapshot of the total value of goods and services produced within a country during a specific period, typically a year. You want higher GDP? Create more production at home and decrease your need to import. Tariffs are a good start once the resulting US production cranks up and the imports wind down. In the old days tariff results were quick; US industry and production was already in place to benefit. Today, we have lost a lot of our production capability (shipped it overseas) and we must first rebuild in order to see the long term benefit of tariffs. The short term, although painful, benefit is that it gives us incentive to produce and buy American products. How can that not be good for American GDP?
It is not. Any debt that produces more income than the money borrowed to produce it (usually wise business debt) is good debt. Is a $34T national debt good debt or bad debt, especially when one considers the required interest payments to keep it afloat?
There was a time when loans were needed by consumers just for homes. . . then cars. . . then flat screen TVs. . . then college tuition. . . now food and medical care. People such as yourself likely wonder why there are so many homeless. Americans have become imprisoned by lenders. Do you work for a bank? LOL
Debt is a tax on future earnings. When that debt does not increase earnings or protect future earnings it is not good debt.
Borrowers of out sovereign debt are not buying it because they believe we can increase tax revenue to fund it, they buy it because they foolishly believe we can forever create new money to pay them interest. And their double whammy is they fail to realize that the interest they earn is worth less and less because we have to create more money (dollar devaluation) to pay them.
I don't know your chosen career, but a lot of your arguments lean toward what I would expect from a banker or even an economist who never held a job that produced something besides debt.
Capital investment depends on confidence. - Martin Armstrong
"Printing money at will" did not cause our huge and uncontrollable national debt, "backing" the money with interest-bearing bonds did. We would be much better off today with unbacked money than with debt-backed money.
See www.fixourmoney.com .
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Do we not have to "create" money to back these new bonds? And don't we have to make them interest bearing so the fools will continue to buy them?
Capital investment depends on confidence. - Martin Armstrong
Only if we spent as we did. Since we would have had "constraints", the economy would be much smaller and asset prices including gold would probably have a zero removed.
Knowledge is the enemy of fear
Here is a very good WSJ Op Ed page article excerpting from a speech by Kevin Warsh, who was on the Fed during the 2007/2008 financial crisis. Though he supports the existence of the Fed, he makes a strong case that severe Mission Creep has put us in the bind that we currently face.
https://www.wsj.com/opinion/the-high-cost-of-the-feds-mission-creep-role-responsibility-monetary-policy-economy-20a352f8?mod=article_inline
Remind me, what is the problem with a smaller economy where there is near zero inflation and much less debt? Some of the highest ranked GDP nations have some of the worst economies.
Capital investment depends on confidence. - Martin Armstrong
I suspect our current "bind" and all post-2008 "binds" is the result of the FED's failure in 2009 to accept some very harsh medicine, let some big banks fail, and then deal with the fallout. The cost to make whole those who lost in any failed banks (the FDIC promise, LOL) would likely have been much less than the cost of Quantative Easing (a.k.a. money printing).
The bind that we currently face is the result of kicking the can down the road even after pumping trillion$ into the economy that in its own way made the economy worse. Eventually the road will end, and the medicine will be almost impossible to swallow and the currency will have been diluted to the point that no one wants it. Game over. We've seen it before in other economies and for you nay-sayers, "yes, it can happen here."
Capital investment depends on confidence. - Martin Armstrong
No problem as long as my gasoline and my food also have a zero removed.
Remind me, what is the problem with a smaller economy where there is near zero inflation and much less debt?
How exactly does one measure the size of an economy? The "experts" will say "GDP." GDP is simply a snapshot of the total value of goods and services produced within a country during a specific period. Why does that value have to be high if it fully supports the population at a lower value? There are some very comfortable countries to live in that have relatively low GDP. When it comes to GDP, exactly why does size matter?
Capital investment depends on confidence. - Martin Armstrong
What new bonds? Unbacked money does not require issuing bonds in the first place. Excessive money printing still causes inflation in the cost of goods and services, but it does not create additional debt (or interest on that debt) to be paid by future generations.
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You stated earlier that "Printing money at will" did not cause our huge and uncontrollable national debt, "backing" the money with interest-bearing bonds did.
So are not some bonds created when it's time to turn on the printing press, for the sole purpose of providing the FED a source to place/back the newly created money?
Capital investment depends on confidence. - Martin Armstrong