This would actually fix the value of the currency. In essence one dollar would be worth 1/100th of an ounce of gold, (Moffat, 2007). This method of solidifying currency gave the impression of an unsinkable note. Also with the gold standard fixed value, inflation was kept in check because printing additional currency needs additional gold as back up. Without the gold the currency is worthless.
Many economists believe the gold standard contributed greatly to the great depression of the 1930s. Because gold was at fixed rates it did not allow the government to be flexible when the recession occurred, so no hard currency was released,
Commitment to the gold standard prevented Federal Reserve action to expand the
money supply in 1930 and 1931--and forced President Hoover into destructive
attempts at budget-balancing in order to avoid a gold standard-generated run on the
Dollar, (Delong, 1996, p. 1).
Due to the realization how the gold standard contributed and tied the hands of the government, the gold standard was abandon during the great depression, however recovery took years, and maybe World War II actually pulled the United States out of the depression. As of today there are no countries that use the gold standard, yet there are some advocates that believe the gold standard will achieve true monetary stability without runaway printing, Paper money goes hand-in-hand with the welfare state, the welfare state, the Mexican bailout, and Social Security. It turns the government into a vast counterfeiting operations (Rockwell, 1996, p. 1). He continues,
The end of gold resulted in the longest and biggest inflation in U.S. history. The
miserable days of 1976 - 1981 may be as forgotten as shag carpet, but we still
suffer the consequences. Those days massively diminished the capital stock, wiped
out savings and pensions, and drove women into the workforce, eventu View More »