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A gold standard is a backed currency in which the standard economics unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from the late 1920s to 1932 as well as from 1944 until 1971 when the United States unilaterally terminated convertibility of the US dollar to gold, effectively ending the Bretton Woods system. Many states nonetheless hold substantial .
Historically, the silver standard and bimetallism have been more common than the gold standard. The shift to an international monetary system based on a gold standard reflected accident, network externalities, and path dependence. Great Britain accidentally adopted a de facto gold standard in 1717 when Isaac Newton, then-master of the Royal Mint, set the exchange rate of silver to gold too low, thus causing silver coins to go out of circulation. As Great Britain became the world's leading financial and commercial power in the 19th century, other states increasingly adopted Britain's monetary system.
The gold standard was largely abandoned during the Great Depression before being reinstated in a limited form as part of the post-World War II Bretton Woods system. The gold standard was abandoned due to its propensity for volatility, as well as the constraints it imposed on governments: by retaining a fixed exchange rate, governments were hamstrung in engaging in expansionary policies to, for example, reduce unemployment during economic .
According to a 2012 survey of 39 economists, the vast majority (92 percent) agreed that a return to the gold standard would not improve price-stability and employment outcomes, and two-thirds of economic historians surveyed in the mid-1990s rejected the idea that the gold standard "was effective in stabilizing prices and moderating business-cycle fluctuations during the nineteenth century." The consensus view among economists is that the gold standard helped prolong and deepen the Great Depression. Historically, Banking crisis were more common during periods under the gold standard, while Currency crisis were less common. According to economist Michael D. Bordo, the gold standard has three benefits that made its use popular during certain historical periods: "its record as a stable nominal anchor; its automaticity; and its role as a credible commitment mechanism." The gold standard is supported by many followers of the Austrian School, free-market libertarians, and some supply-siders.
From the more widespread acceptance of paper money in the 19th century emerged the gold bullion standard, a system where gold coins do not circulate, but authorities like agree to exchange circulating currency for gold bullion at a fixed price. First emerging in the late 18th century to regulate exchange between London and Edinburgh, Keynes (1913) noted how such a standard became the predominant means of implementing the gold standard internationally in the 1870s.
Restricting the free circulation of gold under the Classical Gold Standard period from the 1870s to 1914 was also needed in countries which decided to implement the gold standard while guaranteeing the exchangeability of huge amounts of legacy silver coins into gold at the fixed rate (rather than valuing publicly held silver at its depreciated value). The term limping standard is often used in countries maintaining significant amounts of silver coin at par with gold, thus an additional element of uncertainty with the currency's value versus gold. The most common silver coins kept at limping standard parity included French franc, Vereinsthaler, , , and U.S. .
Lastly, countries may implement a gold exchange standard, where the government guarantees a fixed exchange rate, not to a specified amount of gold, but rather to the currency of another country that is under a gold standard. This became the predominant international standard under the Bretton Woods Agreement from 1945 to 1971 by the fixing of world currencies to the U.S. dollar, the only currency after World War II to be on the gold bullion standard.
However, economic systems using gold as the sole currency and unit of account never emerged before the 18th century. For millennia it was silver, not gold, which was the real basis of the domestic economies: the foundation for most money-of-account systems, for payment of wages and salaries, and for most local retail trade. Gold functioning as currency and unit of account for daily transactions was not possible due to various hindrances which were only solved by tools that emerged in the 19th century, among them:
The earliest European currency standards were therefore based on the silver standard, from the denarius of the Roman Empire to the penny (denier) introduced by Charlemagne throughout Western Europe, to the Spanish dollar and the German Reichsthaler and Conventionsthaler which survived well into the 19th century. Gold functioned as a medium for international trade and high-value transactions, but it generally fluctuated in price versus everyday silver money.
A bimetallism emerged under a silver standard in the process of giving popular gold coins like a fixed value in terms of silver. In light of fluctuating gold–silver ratios in other countries, bimetallic standards were rather unstable and de facto transformed into a parallel bimetallic standard (where gold circulates at a floating exchange rate to silver) or reverted to a mono-metallic standard. France was the most important country which maintained a bimetallic standard during most of the 19th century.
The problem of clipped, underweight silver pennies and shillings was a persistent, unresolved issue from the late 17th century to the early 19th century. In 1717 the value of the gold guinea (of 7.6885 g fine gold) was fixed at 21 shillings, resulting in a gold–silver ratio of 15.2, higher than prevailing ratios in Continental Europe. Great Britain was therefore de jure under a bimetallic standard with gold serving as the cheaper and more reliable currency compared to clipped silver (full-weight silver coins did not circulate and went to Europe where 21 shillings fetched over a guinea in gold). Several factors helped extend the British gold standard into the 19th century, namely:
A proclamation from Queen Anne in 1704 introduced the British West Indies to the gold standard; however, it did not result in the wide use of gold currency and the gold standard, given Britain's mercantilism of hoarding gold and silver from its colonies for use at home. Prices were quoted de jure in gold pounds sterling but were rarely paid in gold; the colonists' de facto daily medium of exchange and unit of account was predominantly the Spanish dollar.
Following the Napoleonic Wars, Britain legally moved from the bimetallic to the gold standard in the 19th century in several steps, namely:
From the second half of the 19th century Britain then introduced its gold standard to Australia, New Zealand, and the British West Indies in the form of circulating gold sovereigns as well as banknotes that were convertible at par into sovereigns or Bank of England banknotes. Canada introduced its own gold dollar in 1867 at par with the U.S. gold dollar and with a fixed exchange rate to the gold sovereign.
The nearly coincidental California gold rush of 1849 and the Australian gold rushes of 1851 significantly increased world gold supplies and the minting of gold francs and dollars as the gold–silver ratio went below 15.5, pushing France and the United States into the gold standard with Great Britain during the 1850s. The benefits of the gold standard were first felt by this larger bloc of countries, with Britain and France being the world's leading financial and industrial powers of the 19th century while the United States was an emerging power.
By the time the gold–silver ratio reverted to 15.5 in the 1860s, this bloc of gold-utilizing countries grew further and provided momentum to an international gold standard before the end of the 19th century:
The following countries switched from silver or bimetallic currencies to gold in the following years (Britain is included for completeness):
Britain's original gold specie standard with gold in circulation was not feasible anymore with the rest of Continental Europe also switching to gold. The problem of scarce gold and legacy silver coins was only resolved by national taking over the replacement of silver with national bank notes and token coins, centralizing the nation's supply of scarce gold, providing for reserve assets to guarantee convertibility of legacy silver coins, and allowing the conversion of banknotes into gold bullion or other gold-standard currencies solely for external purchases. This system is known as either a gold bullion standard whenever gold bars are offered, or a gold exchange standard whenever other gold-convertible currencies are offered.
John Maynard Keynes referred to both standards above as simply the gold exchange standard in his 1913 book Indian Currency and Finance. He described this as the predominant form of the international gold standard before the First World War, that a gold standard was generally impossible to implement before the 19th century due to the absence of recently developed tools (like central banking institutions, banknotes, and token currencies), and that a gold exchange standard was even superior to Britain's gold specie standard with gold in circulation. As discussed by Keynes:
The classical gold standard of the late 19th century was therefore not merely a superficial switch from circulating silver to circulating gold. The bulk of silver currency was actually replaced by banknotes and token currency whose gold value was guaranteed by gold bullion and other reserve assets held inside central banks. In turn, the gold exchange standard was just one step away from modern fiat currency with banknotes issued by central banks, and whose value is secured by the bank's reserve assets, but whose exchange value is determined by the central bank's monetary policy objectives on its purchasing power in lieu of a fixed equivalence to gold.
Various international monetary conferences were called up until 1892, with various countries actually pledging to maintain the limping standard of freely circulating legacy silver coins in order to prevent the further deterioration of the gold–silver ratio which reached 20 in the 1880s. After 1890 however, silver's price decline could not be prevented further and the gold–silver ratio rose sharply above 30.
In 1893 the Indian rupee of 10.69 g fine silver was fixed at 16 British pence (or £1 = 15 rupees; gold–silver ratio 21.9), with legacy silver rupees remaining legal tender. In 1906 the Straits dollar of 24.26 g silver was fixed at 28 pence (or £1 = 8 dollars; ratio 28.4).
Nearly similar gold standards were implemented in Japan in 1897, in the Philippines in 1903, and in Mexico in 1905 when the previous Japanese yen or Mexican peso of 24.26 g silver was redefined to approximately 0.75 g gold or half a U.S. dollar (ratio 32.3). Japan gained the needed gold reserves after the Sino-Japanese War of 1894–1895. For Japan, moving to gold was considered vital for gaining access to Western capital markets.
Keynes premised the "rules of the game" on best practices of central banks to implement the pre-1914 international gold standard, namely:
Central banks were also expected to maintain the gold standard on the ideal assumption of international trade operating under the price–specie flow mechanism proposed by economist David Hume wherein:
In practice, however, specie flows during the classical gold standard era failed to exhibit the self-corrective behavior described above. Gold finding its way back from surplus to deficit countries to exploit price differences was a painfully slow process, and central banks found it far more effective to raise or lower domestic price levels by lowering or raising domestic interest rates. High price level countries may raise interest rates to lower domestic demand and prices, but it may also trigger gold inflows from investors – contradicting the premise that gold will flow out of countries with high price levels. Developed economies deciding to buy or sell domestic assets to international investors also turned out to be more effective in influencing gold flows than the self-correcting mechanism predicted by Hume.
Another set of violations to the "rules of the game" involved central banks not intervening in a timely manner even as exchange rates went outside the "gold points" (in the example above, cases existed of the pound climbing above 25.42 francs or falling below 25.02 francs). Central banks were found to pursue other objectives other than fixed exchange rates to gold (like e.g., lower domestic prices, or stopping huge gold outflows), though such behavior is limited by public credibility on their adherence to the gold standard. Keynes described such violations occurring before 1913 by French banks limiting gold payouts to 200 francs per head and charging a 1% premium, and by the German Reichsbank partially suspending free payment in gold, though "covertly and with shame".
Some countries had limited success in implementing the gold standard even while disregarding such "rules of the game" in its pursuit of other monetary policy objectives. Inside the Latin Monetary Union, the Italian lira and the Spanish peseta traded outside typical gold-standard levels of 25.02–25.42F/£ for extended periods of time: Vol. I: Italy, p. 347; Vol. II: Spain p. 223.
American-issued dollars and cents remained less common in circulation than Spanish dollars and Spanish real for the next six decades until foreign currency was demonetized in 1857. $10 gold eagles were exported to Europe where it could fetch over ten Spanish dollars due to their higher gold ratio of 15.5. American silver dollars also compared favorably with Spanish dollars and were easily used for overseas purchases. In 1806 President Jefferson suspended the minting of exportable gold coins and silver dollars in order to divert the United States Mint's limited resources into fractional coins which stayed in circulation.
Gold discoveries in California in 1848 and later in Australia lowered the gold price relative to silver; this drove silver money from circulation because it was worth more in the market than as money. Passage of the Independent Treasury Act of 1848 placed the U.S. on a strict hard-money standard. Doing business with the American government required gold or silver coins.
Government accounts were legally separated from the banking system. However, the mint ratio (the fixed exchange rate between gold and silver at the mint) continued to overvalue gold. In 1853, silver coins 50 cents and below were reduced in silver content and cannot be requested for minting by the general public (only the U.S. government can request for it). In 1857 the legal tender status of Spanish dollars and other foreign coinage was repealed. In 1857 the final crisis of the free banking era began as American banks suspended payment in silver, with ripples through the developing international financial system.
After the Civil War, Congress wanted to re-establish the metallic standard at pre-war rates. The market price of gold in greenbacks was above the pre-war fixed price ($20.67 per ounce of gold) requiring deflation to achieve the pre-war price. This was accomplished by growing the stock of money less rapidly than real output. By 1879 the market price of the greenback matched the mint price of gold, and according to Barry Eichengreen, the United States was effectively on the gold standard that year.
The Coinage Act of 1873 (also known as the Crime of ‘73) suspended the minting of the standard silver dollar (of 412.5 grains, 90% fine), the only fully legal tender coin that individuals could convert silver bullion into in unlimited (or Free silver) quantities, and right at the onset of the silver rush from the Comstock Lode in the 1870s. Political agitation over the inability of silver miners to monetize their produce resulted in the Bland–Allison Act of 1878 and Sherman Silver Purchase Act of 1890 which made compulsory the minting of significant quantities of the silver Morgan dollar.
With the resumption of convertibility on June 30, 1879, the government again paid its debts in gold, accepted greenbacks for customs and redeemed greenbacks on demand in gold. While greenbacks made suitable substitutes for gold coins, American implementation of the gold standard was hobbled by the continued over-issuance of silver dollars and silver certificates emanating from political pressures. Lack of public confidence in the ubiquitous silver currency resulted in a run on U.S. gold reserves during the Panic of 1893.
During the latter part of the nineteenth century the use of silver and a return to the bimetallic standard were recurrent political issues, raised especially by William Jennings Bryan, the People's Party and the Free Silver movement. In 1900 the gold dollar was declared the standard unit of account and a gold reserve for government issued paper notes was established. Greenbacks, silver certificates, and silver dollars continued to be legal tender, all redeemable in gold.
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By the end of 1913, the classical gold standard was at its peak, but World War I caused many countries to suspend or abandon it. According to Lawrence Officer the main cause of the gold standard's failure to resume its previous position after World War I was "the Bank of England's precarious liquidity position and the gold-exchange standard". A Currency crisis caused Britain to impose exchange controls that fatally weakened the standard; convertibility was not legally suspended, but gold prices no longer played the role that they did before. In financing the war and abandoning gold, many of the belligerents suffered drastic . Price levels doubled in the U.S. and Britain, tripled in France and quadrupled in Italy. Exchange rates changed less, even though European inflation rates were more severe than America's. This meant that the costs of American goods decreased relative to those in Europe. Between August 1914 and spring of 1915, the dollar value of U.S. exports tripled, and its trade surplus exceeded $1 billion for the first time.
Ultimately, the system could not deal quickly enough with the large deficits and surpluses; this was previously attributed to downward wage rigidity brought about by the advent of trade union but is now considered as an inherent fault of the system that arose under the pressures of war and rapid technological change. In any case, prices had not reached equilibrium by the time of the Great Depression, which served to kill off the system completely.
For example, Germany had gone off the gold standard in 1914 and could not effectively return to it because war reparations had cost it much of its gold reserves. During the occupation of the Ruhr the German central bank (Reichsbank) issued enormous sums of non-convertible marks to support workers who were on strike against the French occupation and to buy foreign currency for reparations; this led to the German hyperinflation of the early 1920s and the decimation of the German middle class.
The U.S. did not suspend the gold standard during the war. The newly created Federal Reserve intervened in currency markets and sold bonds to "sterilize" some of the gold imports that would have otherwise increased the stock of money. By 1927 many countries had returned to the gold standard. As a result of World War I the United States, which had been a net debtor country, had become a net creditor by 1919.Drummond, Ian M. (1987). The Gold Standard and the International Monetary System 1900–1939. Macmillan Education.
The British both introduced the gold bullion standard and simultaneously repealed the gold specie standard. The new standard ended the circulation of gold specie coins. Instead, the law compelled the authorities to sell gold bullion on demand at a fixed price, but "only in the form of bars containing approximately four hundred troy ounce 12 kg of fine gold". John Maynard Keynes, citing deflationary dangers, argued against resumption of the gold standard. By fixing the price at a level which restored the pre-war exchange rate of US$4.86 per pound sterling, as Chancellor of the Exchequer, is argued to have made an error that led to depression, unemployment and the 1926 general strike. The decision was described by Andrew Turnbull as a "historic mistake".
The pound left the gold standard in 1931 and a number of currencies of countries that historically had performed a large amount of their trade in sterling were pegged to sterling instead of to gold. The Bank of England took the decision to leave the gold standard abruptly and unilaterally.
On September 19, 1931, speculative attacks on the pound led the Bank of England to abandon the gold standard, ostensibly "temporarily". However, the ostensibly temporary departure from the gold standard had unexpectedly positive effects on the economy, leading to greater acceptance of departing from the gold standard. Loans from American and French central banks of £50 million were insufficient and exhausted in a matter of weeks, due to large gold outflows across the Atlantic. The British benefited from this departure. They could now use monetary policy to stimulate the economy. Australia and New Zealand had already left the standard and Canada quickly followed suit.
The interwar partially backed gold standard was inherently unstable because of the conflict between the expansion of liabilities to foreign central banks and the resulting deterioration in the Bank of England's reserve ratio. France was then attempting to make Paris a world class financial center, and it received large gold flows as well.: "there was ongoing tension with France, that resented the sterling-dominated gold- exchange standard and desired to cash in its sterling holding for gold to aid its objective of achieving first-class financial status for Paris."
Upon taking office in March 1933, U.S. President Franklin D. Roosevelt departed from the gold standard.
By the end of 1932, the gold standard had been abandoned as a global monetary system. Czechoslovakia, Belgium, France, the Netherlands and Switzerland abandoned the gold standard in the mid-1930s. According to Barry Eichengreen, there were three primary reasons for the collapse of the gold standard:
Higher interest rates intensified the deflationary pressure on the dollar and reduced investment in U.S. banks. Commercial banks converted Federal Reserve Notes to gold in 1931, reducing its gold reserves and forcing a corresponding reduction in the amount of currency in circulation. This speculation attack created a panic in the U.S. banking system. Fearing imminent devaluation many depositors withdrew funds from U.S. banks. As bank runs grew, a reverse multiplier effect caused a contraction in the money supply. Additionally the New York Fed had loaned over in gold (over 240 tons) to European Central Banks. This transfer contracted the U.S. money supply. The foreign loans became questionable once United Kingdom, Germany, Austria and other European countries went off the gold standard in 1931 and weakened confidence in the dollar.
The forced contraction of the money supply resulted in deflation. Even as nominal interest rates dropped, deflation-adjusted real interest rates remained high, rewarding those who held onto money instead of spending it, further slowing the economy. Recovery in the United States was slower than in Britain, in part due to Congressional reluctance to abandon the gold standard and float the U.S. currency as Britain had done.Feinstein, Temin, and Toniolo. The European Economy between Wars.
In the early 1930s, the Federal Reserve defended the dollar by raising interest rates, trying to increase the demand for dollars. This helped attract international investors who bought foreign assets with gold.
Congress passed the Gold Reserve Act on 30 January 1934; the measure nationalized all gold by ordering Federal Reserve banks to turn over their supply to the U.S. Treasury. In return, the banks received gold certificates to be used as reserves against deposits and Federal Reserve notes. The act also authorized the president to devalue the gold dollar. Under this authority, the president, on 31 January 1934, changed the value of the dollar from to the troy ounce to to the troy ounce, a devaluation of over 40%.
Other causal factors, or factors in the prolongation of the Great Depression include trade wars and the reduction in international trade caused by barriers such as Smoot–Hawley Tariff in the U.S. and the Imperial Preference policies of Great Britain, the failure of central banks to act responsibly,M. Friedman: "the severity of each of the major contractions – 1920–21, 1929–33 and 1937–38 is directly attributable to acts of commission and omission by the Reserve authorities". government policies designed to prevent wages from falling, such as the Davis–Bacon Act of 1931, during the deflationary period resulting in production costs dropping slower than sales prices, thereby injuring business profits and increases in taxes to reduce budget deficits and to support new programs such as Social Security. The U.S. top marginal income tax rate went from 25% to 63% in 1932 and to 79% in 1936, while the bottom rate increased over tenfold, from .375% in 1929 to 4% in 1932. The concurrent massive drought resulted in the U.S. Dust Bowl.
The Austrian School argued that the Great Depression was the result of a credit bust. Alan Greenspan wrote that the bank failures of the 1930s were sparked by Great Britain dropping the gold standard in 1931. This act "tore asunder" any remaining confidence in the banking system.Alan Greenspan (1966). Gold and Economic Freedom. "Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures." Financial historian Niall Ferguson wrote that what made the Great Depression truly 'great' was the European banking crisis of 1931. According to Federal Reserve Chairman Marriner Eccles, the root cause was the concentration of wealth resulting in a stagnating or decreasing standard of living for the poor and middle class. These classes went into debt, producing the credit explosion of the 1920s. Eventually, the debt load grew too heavy, resulting in the massive defaults and financial panics of the 1930s.Robert B. Reich (2010). Aftershock. Chapter 1: Eccles's Insight.
After the Second World War, a system similar to a gold standard and sometimes described as a "gold exchange standard" was established by the Bretton Woods Agreements. Under this system, many countries fixed their exchange rates relative to the U.S. dollar and central banks could exchange dollar holdings into gold at the official exchange rate of per ounce; this option was not available to firms or individuals. All currencies pegged to the dollar thereby had a fixed value in terms of gold. Since private parties could not exchange gold at the official rate, market prices fluctuated. Large jumps in the market price 1960 lead to the creation of the London Gold Pool.
Starting in the 1959–1969 administration of President Charles de Gaulle and continuing until 1970, France reduced its dollar reserves, exchanging them for gold at the official exchange rate, reducing U.S. economic influence. This, along with the fiscal strain of federal expenditures for the Vietnam War and persistent balance of payments deficits, led U.S. President Richard Nixon to end international convertibility of the U.S. dollar to gold on August 15, 1971 (the "Nixon Shock").
This was meant to be a temporary measure, with the gold price of the dollar and the official rate of exchanges remaining constant. Revaluing currencies was the main purpose of this plan. No official revaluation or redemption occurred. The dollar subsequently floated. In December 1971, the "Smithsonian Agreement" was reached. In this agreement, the dollar was devalued from per troy ounce of gold to . Other countries' currencies appreciated. However, gold convertibility did not resume. In October 1973, the price was raised to . Once again, the devaluation was insufficient. Within two weeks of the second devaluation the dollar was left to float. The par value was made official in September 1973, long after it had been abandoned in practice. In October 1976, the government officially changed the definition of the dollar; references to gold were removed from statutes. From this point, the international monetary system was made of pure fiat money. However, gold has persisted as a significant reserve asset since the collapse of the classical gold standard.
World production for 2011 was circa 2,700 . Since the 1950s, annual gold output growth has approximately kept pace with world population growth (i.e. a doubling in this period) although it has lagged behind world economic growth (an approximately eightfold increase since the 1950s, and fourfold since 1980.
Gold was a preferred form of money due to its rarity, durability, divisibility, fungibility and ease of identification, often in conjunction with silver. Silver was typically the main circulating medium, with gold as the monetary reserve. Commodity money was anonymous, as identifying marks can be removed. Commodity money retains its value despite what may happen to the monetary authority. After the fall of South Vietnam, many refugees carried their wealth to the West in gold after the national currency became worthless.
Under commodity standards currency itself has no intrinsic value but is accepted by traders because it can be redeemed any time for the equivalent specie. A U.S. silver certificate, for example, could be redeemed for an actual piece of silver.
Representative money and the gold standard protect citizens from hyperinflation and other abuses of monetary policy, as were seen in some countries during the Great Depression. Commodity money conversely led to deflation.
Countries that left the gold standard earlier than other countries recovered from the Great Depression sooner. For example, Great Britain and the Scandinavian countries, which left the gold standard in 1931, recovered much earlier than France and Belgium, which remained on gold much longer. Countries such as China, which had a silver standard, almost entirely avoided the depression (due to the fact it was then barely integrated into the global economy). The connection between leaving the gold standard and the severity and duration of the depression was consistent for dozens of countries, including developing countries. This may explain why the experience and length of the depression differed between national economies.Bernanke, Ben (March 2, 2004), "Remarks by Governor Ben S. Bernanke: Money, Gold and the Great Depression", At the H. Parker Willis Lecture in Economic Policy, Washington and Lee University, Lexington, Virginia.
In an international gold-standard system (which is necessarily based on an internal gold standard in the countries concerned),The New Palgrave Dictionary of Economics, 2nd edition (2008), Vol.3, S.695 gold or a currency that is convertible into gold at a fixed price is used to make international payments. Under such a system, when exchange rates rise above or fall below the fixed mint rate by more than the cost of shipping gold, inflows or outflows occur until rates return to the official level. International gold standards often limit which entities have the right to redeem currency for gold.
Former U.S. Federal Reserve Chairman Alan Greenspan acknowledged he was one of "a small minority" within the central bank that had some positive view on the gold standard. In a 1966 essay he contributed to a book by Ayn Rand, titled Gold and Economic Freedom, Greenspan argued the case for returning to a 'pure' gold standard; in that essay he described supporters of fiat currencies as "welfare statists" intending to use monetary policy to finance deficit spending. More recently he claimed that by focusing on targeting inflation "central bankers have behaved as though we were on the gold standard", rendering a return to the standard unnecessary. Similarly, economists like Robert Barro argued that whilst some form of "monetary constitution" is essential for stable, depoliticized monetary policy, the form this constitution takes – for example, a gold standard, some other commodity-based standard, or a fiat currency with fixed rules for determining the quantity of money – is considerably less important.
The gold standard is supported by many followers of the Austrian School of economics, free-market libertarians, and some supply-siders.
In 2011 the Utah legislature passed a bill to accept federally issued gold and silver coins as legal tender to pay taxes. As federally issued currency, the coins were already legal tender for taxes, although the market price of their metal content currently exceeds their monetary value. As of 2011 similar legislation was under consideration in other U.S. states. The bill was initiated by newly elected Republican Party associated with the Tea Party movement and was driven by anxiety over the policies of President Barack Obama.
In 2013, the Arizona Legislature passed SB 1439, which would have made gold and silver coin a legal tender in payment of debt, but the bill was vetoed by the Governor.
In 2015, some Republican candidates for the 2016 presidential election advocated for a gold standard, based on concern that the Federal Reserve's attempts to increase economic growth may create inflation. Economic historians did not agree with the candidates' assertions that the gold standard would benefit the U.S. economy.
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