The same thing that makes gold (and other precious metals) attractive hedges in times of great economic uncertainty is the same thing that makes them poor mediums for currency. A lot of people who champion the gold standard have very little understanding of the serious problems that result from having such a narrow base of currency and grossly overestimate the benefits of such a currency in stopping spendthrift governments from engaging in economic self-destruction. In currency, as in so many other aspects of life, historical perspective is a great antidote to folly.

There is a belief among some (most of them bogus disciples of people like Grover Cleveland) that a gold standard is intrinsically a good thing. Some people, apparently, want the comfort of knowing that their money has intrinsic value (like gold or silver) rather than it merely having a flexible value that depends on confidence. However, while one can be like my father was and try to hoard gold coins, what makes gold precious (though its value tends to fluctuate wildly as well, a point worthwhile to discuss) is precisely what makes it a bad choice for a medium of currency, and that is its rarity. This world has 6 billion people, and the amount of gold in this world is not enough for everyone to possess a genuine gold-based currency, much less to provide growth. Now, if you’re an elitist who wants the poor to starve or be driven off the market and limit market participation to wealthy elites, this is not a problem, but if you are seeking the patronage of those of less means, having a currency that allows for modest and consistent growth is far preferable to one whose supply is intended to remain rigid, not allowing for growth.

Even though inflation in paper (or paperless) economies is extremely simple, it is not as if gold or silver-backed currencies have any great historical record in that regard. Traditionally, gold-backed currencies have known horrific rates of inflation, when new sources of gold or silver are discovered (or when the hoards of empires are looted by conquerors). In that case, the preservation of the “intrinsic” worth of gold and silver encourages hoarding by the wealthy and powerful (to keep the price of precious metals high) and discourages mining (so that no new sources of currency metals are found), which is precisely against the interest of the population at large for cheap goods and services. Far from being a sign of a robust economy, using precious metals as the base of currency encourages actions contrary to the public good.

And it’s not as if precious metal-backed currencies are immune to the sort of monetization games our nations play with our currencies in the present time. It has always been a classic technique of spendthrift nations to tamper with their currency, to shave off precious metals little by little to increase the amount of coinage, or to debase currency little by little, not only by counterfeiters but by governments (like the Roman Empire) themselves. The people of the Roman Empire found out in the 3rd Century AD that there was no “intrinsic” value of their currency when government “shaving” led their inflation rate to soar. Every currency ends up as fiat money one way or another–because there is always an incentive to game the system in one’s favor.

And this is the fundamental problem. Governments (and their citizens) often have more debts than they can pay–the result of which is invariably to debase the currency to cheat the lenders. This behavior will be done regardless of what currency that nation uses and what precious metal (or nothing) backs that currency. Likewise, then currency becomes a store of value and not merely a medium of exchange (as is the case with precious metals), there is an active incentive to hoard, driving up prices and pricing out the ordinary person (which is an active goal of such elitist proposals), forcing ordinary people to a barter economy because currency is scarce. When debt or looting or whatever other reason prompt a reversal, metals then flood the market, leading to the boom and bust cycles that precious metal currencies are (wrongly) touted as “solving.”

The fact of the matter is that there is no currency solution to the economic follies of mankind. Just like no system of government is immune from the corruption and folly of man, no system of economics is immune either. We have to live with the consequences of our actions, whether individually or collectively, and there is no system of organizing either our societies or our economies to escape from the folly of our behavior. We would be a lot better served if we got our behavior under control rather than catching goldbug fever and seeking some kind of coerced solution to our intrinsic problems of scarcity and suffering as free moral agents without a great deal of sense. So, keep the gold and silver in your safe deposit box or in your jewelry, and keep it away from my currency.