In today’s day and age of central banking, most politically interested citizens don’t know much about the gold standard. Bernie Sanders supporters probably have never even heard of it.
However, both Republican presidential candidates, Ted Cruz and Donald Trump, said they would favor a return to the gold standard.
A quick refresher: During the era of the classic gold standard in the 19th century, the price of gold was fixed to $20.67 per ounce and customers could exchange their gold certificates for physical gold at that price at any bank. This mechanism restricted banks’ and the government’s ability to print too much paper money and credit, because smart people would rush to get gold from banks if they thought something was amiss.
So what could a gold standard contribute to our modern economy according to Trump and Cruz?
Trump only mentioned the topic once in a television interview with Pittsburgh Action News:
“In some ways I like the gold standard and there is something very nice about the gold standard… We used to have a very solid country because it was based on a gold standard and we do not have that anymore…It would be very very hard to do at this point and one of the problems is we do not have the gold—other places have the gold.”
So Trump thinks a gold standard contributed to the United States’ economic rise but the country doesn’t have enough gold to actually put it in practice. Why Trump thinks the United States doesn’t have the gold is hard to fathom because the United States still has the world’s largest official gold reserves, although China is catching up fast.
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Cruz pointed to the advantages of a gold standard on several occasions, although he also did not elaborate on how to implement it today.
“Money is … a unit of measurement. So, the reason why we see these rapid oscillations in commodities markets, it’s because of unstable currencies. And it’s why I think we should look at going toward rules-based money supply, ideally tied to gold, so you have stability,” he told supporters in New Hampshire.
And during the Republican presidential debate in October of 2015: “I think the Fed should get out of the business of trying to juice our economy, and simply be focused on sound money and monetary stability, ideally tied to gold.”
His assessment echoes what James Grant, an author on economic history and expert on the topic had to say about gold: “It is a measuring stick and it ought to be an objective and steady measuring stick, not manipulated by anyone. It seems to me in the history of money that the gold standard has worked best among many imperfect alternatives.”
Cruz is backed by Robert Mercer, a hedge fund manager who is intellectually close to Grant and would welcome a return to the gold standard. According to a report by Bloomberg, Mercer gave $11 million to become Cruz’s largest individual donor.
As for Trump, we know he is funding his own campaign apart from small individual donations from people who probably don’t care much about the gold standard. But Trump does care an awful lot about gold: If he didn’t, he would not own a gold-plated private helicopter and have golden seat-belt buckles in his Boeing 757 private jet. He already is on his own personal gold standard.