Econ 370: Concept Of Money

1576 Words7 Pages
Zachary Hansen
951412072
4/23/17
Econ 370 Midterm Essay 1 There is nothing as influential and powerful as the concept of money. As a medium for exchange, money is value given or received in exchange for anything of value. Because money stands in place for value, why is it that gold has been the scale for evaluating money throughout history? Ted Cruz, in a Republican Presidential Debate, answered a question regarding monetary policy. He thinks “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” (Cruz 2015). Cruz aligns “sound money” to gold because gold stabilizes pricing and reduces inflation percentages over the long run. The problem with
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Because countries on gold standard had a common backing of currency, it was easy to exchange currencies without worrying about expensive transaction costs. The common currency backing was convenient for traders, but it also limited governments ability to raise inflation rates. Niall Ferguson writes in the Ascent of Money, “the long run stability of prices acted as an anchor for inflation expectations” (Ferguson 59). Because governments could control prices based on the amount of gold stored in inventory, the risk of inflation was low because the amount of gold stored was stable. This means prices do not fluctuate as much on a gold standard compared to fiat money. This stability is why there may still be sound reasoning for implementing a gold-backed…show more content…
A gold standard, when monitored conservatively, is beneficial to society when there are regulations regarding the amount of metal in circulation. A government cannot print more money than its value in gold. Thebalance.com claims that a gold standard “Provides a self-regulating and stabilizing effect on the economy… that discourages inflation” (Amadeo, 2017). A government that limits the amount of gold in its inventory will continue to maintain consistent prices and limit inflation. That is important because if prices rise from the influx of gold, the value of money will drop and people will not be able to afford the new prices. A gold standard does provide consistent prices if the government monitors the supply of

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