Cornell University Professor George Warren persuaded FDR, against the advice of all of his experts, to rectify the pent-up deflationary pressures caused by the gold-exchange standard.
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Yet it is the reason government spending has blown past budgetary constraints, revenue downturns, and public outrage since the last check on Federal Reserve dollar-printing ended in 1971 with the demise of the Bretton Woods gold exchange standard.
Since all major currencies could be exchanged for gold or other currencies pegged to a currency that follows the gold standard, exchange rates would remain stable without anyone doing anything.
This promise can be verified every minute of the day by observing the current rate of exchange between the dollar and gold, and, under a classical gold standard, by exchanging currency at a national bank for gold coins of a fixed weight and purity.
Milton Friedman and others reminded us decades ago that such internal adjustments necessary to reverse an external deficit were ultimately the same under a gold standard, flexible exchange rates, or some hybrid exchange rate regime.
So you could even put the switch down to the slow death of that natural deflation built into the Gold Standard (or rather its step-nephew, the Gold Exchange system), starting at the very same time as US stockholders kissed goodbye to earning a premium each year above Treasury yields.
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Unlike days of old, Washington doesn't need piles of gold, nor does the government need to promise to exchange gold at a fixed rate for dollars, as it did under the traditional gold standard.
If a country adopted a gold standard system today, the result would be violent swings in exchange rates with other, floating currencies.
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The gold standard had many flaws, but the chief virtue of fixing the exchange rate and constraining the supply of credit was to stop politicians succumbing to the inevitable pressure to respond to crises by debauching the currency, resulting in long-term harm to the livelihoods and living standards of their citizens.
In truth, a gold exchange standard would be as simple as Treasury announcing a plan to peg the dollar to a set gold price, after which the market price of gold would regulate the supply of money.
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