To hear Steve Forbes tell it, growth would be stronger, gasoline prices cheaper and credit more available if the U.S. returned to a gold standard. "Since we went off the gold standard in 1971, average growth rates in this country are lower than they were before," says Forbes, chairman of Forbes Media and co-author of the new book, Money: How the Destruction of the Dollar Threatens the Global Economy--and What We Can Do About It. "And if we had those growth rates of pre-1971 our economy would be about 50% larger than it is now."
The U.S. abandoned the gold standard in 1971 following a run on the dollar that President Nixon ascribed to "international money speculators." It was part of a larger economic package that also included a 90-day freeze on prices and wages because of rising inflation and an extra 10% tariff on some imports to protect U.S. industries. And it ended the Bretton Woods system, which began after World War II and pegged major foreign currencies to the dollar, which, in turn was tied to gold at a rate of $35 per ounce.
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Restoring the gold standard would mean a stable dollar, says Forbes, who has tried twice to be the Republican candidate for president. "When you don't have that fixed value, then you have sluggish growth."
But is the lack of a gold standard the reason U.S. growth isn't what it used to be? What about globalization and new technology, which have radically changed the U.S. economy and other economies around the world?
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Many economists, including Former Fed Chairman Ben Bernanke, say returning to a gold standard is not the elixir that Forbes prescribes. They say there's not enough gold to back all the dollars in the world, and a return to the gold standard would limit the ability of central banks like the Fed to respond to economic booms and busts, like the financial crisis and recession of 2007 and 2008. The Fed, for example, would not have been able to aggressively ease policy, in order to revive the economy.
That's fine with Forbes, who says reining in the ability of central bank action "would be a good thing."
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