Counterview: End The Fed? The Gold Standard? Paper Money Has No Value?

There are some who call for an end to the Federal Reserve system and a return to the gold standard, where the U.S. dollar is backed by physical gold. But why is the value of gold different than that of paper money? After all, paper money is physical as well. It’s tangible. You can hold it. You can covet it.

Gold’s value is not intrinsic even if people say it is. It is human beings who assign a value to gold, but it is also human beings who assign a value to paper currency. I realize people will likely always place value in things like gold and silver, but the value human beings assign to these natural resources has no real meaning outside our mental construct. Without the human element, gold is no more valuable than anything else in the natural world.

And arguably, if we made any sense of this at all from within our mental construct, things like water and air would have much higher value than something like gold. So that means the value we place on gold is a human invention. And in that sense, gold is no different than paper money for the purpose of currency. That human beings can trade in gold, exchange it for something else, is still a human invention, not all that much different to paper money. When you think of it like that, it seems without purpose to advocate a switch back to the gold standard. And it seems what humans covet, what they desire, is arbitrary.

But as I said, people will likely always covet gold, and that means gold will always have a value. So I think the biggest argument in favor of the gold standard, which I’m not saying I support, is that it exists outside another human invention — borders. Since gold is not the currency of any one country, it’s value is not tied to the success or failure of any one country. Viewed from that perspective, there is a case to be made for the gold standard. But on the other hand, if we tie the currency of a nation to a natural resource, it means some nations benefit if they have a larger supply of that natural resource.

I realize I’m engaging in a philosopical musing here. While I’m not taking a position in this piece, I do think it’s good to ask these questions about why things are the way they are, and why people do the things they do, or in this case, value the things they do. I’m simply offering a counterview to the normal discourse when we talk about natural resources human beings desire.

Gold standard

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