In 1971, Richard Nixon took the US off the gold standard on the basis of the popular belief at the time that greater central bank discretion over a nation’s money supply would be a catalyst for the stabilization and amelioration of economic growth. However, because the government would be unable to expand the money supply beyond what it has in gold under a gold standard, it effectively reduces inflation and makes governments less able to implement large, unbalanced budgets and accumulate debt. After the US went off the gold standard in the 70s, it experienced stagflation—a combination of economic stagnation and a rise in prices—and in the past 19 years it has had remarkably slow growth. Coincidentally, in the 1970s and 2000s, gold prices were extremely volatile, while in the 1980s and 1990s, gold remained far more stable at $350 per ounce. Ergo, it becomes clear that when central banks target the price of gold, or in other words, set a certain price target for the price of gold in order to attain stability, societal prosperity inevitably follows. For instance, when the price of gold would above the price level, this would serve as an effective indication that excess inflationary pressures will be experienced in the future, at which point the central bank will be compelled to reduce the price of gold by implementing tight monetary policy. In Canada, the gold standard was abandoned in 1929 and since then, the Canadian dollar has either been pegged to the US dollar as was the case between 1962 and 1970 or has been subject to a freely floating exchange rate. Indeed, between 1960 and 1970, although there was a period of dramatic inflationary growth in the late 1960s in the United States in large part due to the Vietnam war, GDP growth in Canada averaged 5.2% and inflation rose dramatically through the 1970s and 1980s, periods not defined by war and ones in which the Canadian dollar was not pegged to a currency on gold. Even the inflation of the late 1960s was moderate compared with that of the 70s and 80s. High inflation rates render societies as a whole, retirees and savers in particular, poorer as their dollars lose purchasing power. Furthermore, high inflation rates benefit the government as this makes the debts owed to their debtors of lesser value, ergo, it encourages them to have large budget deficits and accumulate debt in funding largely inefficient government programs and stimulus packages which misallocate funds and destroy wealth. Historically, high inflation rates have even incited revolutions due to the prevalence of an acute degree of societal instability as a function of the societal impoverishment that has been procured.
1946-1982 