Welcome to Stuff you should know, a production of iHeartRadio.
Hey, and welcome to the podcast. I'm Josh and there's Chuck and it's just us here today to explain something that every person in the world should know about, the gold stand. I have an intro. I have an intro hold on oh goud, Chuck. Yes, have you ever gone to a bank and traded a dollar in for actual gold?
No, I've never even seen gold in person. That wasn't like, you know, on whatever, a ring or something.
Sure, and that is a huge use for gold.
I've never seen nuggets or bars ingots.
I haven't either. I have never even seen a gold coin. Now that I think.
About it, I don't think I have either.
But there was a point in time where you could see gold anytime you wanted, if you went to your bank and you took a certain amount of dollars or pounds or francs or pesos, because countries all over the
world were on what's known as the gold standard. And just a quick broad stroke explanation I guess is that on a gold standard, every single one of your dollars or pesos or francs or Deutsche marks are redeemable for gold, which means that you have to have an equal amount of gold in your country in safes and vaults to cover every single dollar or paso or Deutsche mark or
frank out there. You can't just keep printing money. You can only print as much money as can cover the amount of gold that you have.
Yeah, which is you know, it's sort of a public safeguard to say, hey, your dollar, your pay paper money, or your coins are worth something because it's worth this much of this other thing that we've also agreed is worth money exactly.
And so for you, if you're walking around in a country that's on the gold standard, you can go trade your dollars in for gold, your paper currency in for gold. Right. It also gives you a lot of stability and understanding that when you wake up in the morning, what you bought for one dollar yesterday, you're going to be able
to buy for one dollar today. Prices don't fluctuate very much on the gold standard, and then on more of a macro level, if you're a country and you're importing tons of stuff, that means your currency is going out. You're using your currency to buy these imports, and when a bunch of your currency is out there, you need it back home, so you have to use some of
that gold to buy your currency back. So the upshot of all of this is the gold Standard is very different from the type of currency that we have today, and I feel like we should maybe explain a little more eventually about how they're different.
Yeah, for sure. I mean we've been back and forth between the gold Standard and the other, which we call fiat currency, which is a Latin term, and that you know, fiat currency basically is what we're working with now because the gold Standard is basically dead. But that's where you can, you know, where you have more you know, monetary policy guiding the markets and stuff like that, rather than like, no, it's like it's tied to gold like kind of end
of story. Yeah, there are people that love and you know, we're going to talk about sort of the benefits and the arguments for and against. But people that are into the gold Standard as an idea, they're kind of out of luck, but they're still around. They're called gold bugs. They've been called that since Edgar alland Post's story that's where it came from, about the search for buried treasure. But you know, it's still a fight in some circles from people who are like way into the gold standard.
Yeah, and there's I mean, they have a lot of good points. But the problem is is that that train has left the station in it and it's coming back, not coming back. So why gold? Right? There's alsort. You could pay your currency to wheat, right, and you could take your dollar bill and go into the bank and they'll give you like a bushel of wheat in return. Right, why gold in particular?
Well, yeah, I said that, you know, that's something that they all agreed was worth something, And that's kind of the deal. Like something's only worth something if everyone agrees that it's worth something, right, But you can't, you know, you've got to pick something that makes sense. And gold has always made a lot of sense for a lot of reasons. It is, it's scarce, but not like rare rare. It's rare enough to be precious, but not so rare
that like you know, it's impossible to find. So you've got to have enough of it, but not too much of the thing. It's also you can divide it up into small things, you can melt it down, you can make it into stuff, making it into coins, you know, is certainly valuable. It's valuable, it's resistant to being corroded and like rusted, it's durable. So all that stuff makes it just sort of a valuable thing to trade.
Yeah, and you said it's durable. Like most of the gold that's ever been mined in the history of humanity is still around because you can change it from one form to another, say like from a necklace into a gold coin. But there's still that same amount of gold
on earth. And I guess as of twenty twenty five, I think the World Gold Council says that two hundred and nineteen thousand, eight hundred and ninety tons of gold have been mined throughout history, and about two thirds of those have been mined since nineteen fifty alone.
Right, And most of that is still around, Like you said, it's still out there, which kind of proves that gold was a pretty good pick that and silver, I mean, silver was we'll talk about the fact that gold and silver kind of went back and forth over the years. There's just a lot more silver, so silver has just been worthless, right.
But it's still worthwhile. And in fact, if we're going to start to go back a little bit in history, the very first, I guess currency that the United States came up with, and the history for Great Britain tracks very similarly. But in the US they said, we're going to use gold and silver for coinage, and they had to set an amount how much silver do you need to buy you know, one unit of gold because they are related to one another, you're using both for currency.
So they said, you know what, fifteen pieces of silver grains I think is equal to one grain of gold.
Yeah, so like a fifteen to one ratio. But they realized right away that like if they're going to start setting this like thesetios in these sort of units as being you know, kind of blocked in, it's just going to create a lot of trouble over time, like especially when the amount of gold and silver increases in deep well, I guess not so much decrease, but you know, like when there's a gold rush or when like they find a new vein of silver somewhere that changes the amount
of gold and silver in the world. But they still had locked into that fifteen to one ratio. It's not like they kept changing it over and over. So I think kind of right away people were like, oh wait a minute, this is all a little bit artificial in a way.
Yeah, And that's something that goldbugs have trouble with is that, you know, it doesn't really matter how you know, honest a gold standard keeps the government, it's still all artificial. There's still manipulation that can happen. And yeah, when a bunch of gold comes on the market, gold becomes less valuable. If a bunch of silver comes on the market, relative
to gold, silver becomes less valuable. And one of the problems with using a commodity to back your currency is that sometimes the value of the commodity can rise beyond the face value of the currency. So if you have a ten dollars gold piece and the price of gold actually puts that one ounce at twenty dollars, you're not going to go spend that ten bucks. You're going to melt that thing down or sell it to somebody for
twenty dollars. Yeah, So that's a there's problems here with money that actually means something in the world.
Yeah, for sure. And that happened. And when that happened kind of the first time, I guess for the United States, people started doing that. They started melting gold coins or keeping them in hoarding gold coins and they started trading and using silver as currency. So all of a sudden we were like, wait a minute. We thought we were on a gold sale or we're heading toward a gold standard, and now we're kind of on a de facto silver standard because that's what people are using.
Yeah, so the government was like, well, let's just make the sixteen to one, and it brought everything a little bit more into parody. Then there was the Minor forty nine or gold rush in California, and then there was also another gold rush in Australia about the same time. So the market price for gold went down again because the supply increased, which basically made the US government throw their hands up in the air and say, we give up. We're going to go watch football.
Yeah, they're kind of football, I guess. Over across the pond. Isaac Newton finished out his long, storied career as the Master of the Mint.
Mm hm.
He did a lot of other stuff obviously before that, but he worked as the Master of the Mint at the end of his life until his death, and he was all about gold. Was like he encouraged overvaluing it and said we should really just set gold as the gold standard for England and they adopted that in what like eighteen nineteen.
Yeah, so I think they were the first country on an actual gold standard, and then it kind of spread around Europe from there because they're like, this is actually pretty good, pretty good idea because you don't need necessarily a central bank, you don't have to have somebody figuring out what lever to pole or whatever. The gold actually kind of naturally flows from one place to another to basically keep this homeostasis, this balance throughout the world among
all the countries that are on the gold standard, right. Yeah, So the thing is is humans are humans. You can mess up anything that is, even something that naturally flows from one place to another. We can basically put our foot in it and screw it up. And that was the case usually, as we'll see throughout history, that's usually the case when war comes along, and that happened in
the United States with the Civil War. And we've talked many times about this about how before the Civil War there was like eight thousand different types of currency in use in the United States, like your general store intel might have its own currency that you could use. And as the Civil War came along, that all changed very quickly.
Yeah, that was I remember we took that feels like very many years ago. We were talking about that in a few episodes. It was kind of the hot topic for us for a while.
It was so hot.
We were talking about all those different currencies, like one town might have a currency and then two miles down the road, the next town might have their own currency, which you know within that town as long as everyone again, if everyone agrees what something is worth, it's working out, okay. But that's a mess if you're trying to be a country, which we despite the Civil War, we were trying to
be a country. And so the Civil War starts and the federal government was like hey, like you know, Josh Clark will say one day, wars are expensive, and so they issued war bonds. I think about half a five hundred billion dollars in war bonds. War bonds are what you buy to basically, you know, or you sell as a government and people buy to kind of finance the world and saying, a loan you money to go fight
this war. Because that bond is ensured, I know for a fact that eventually I'm going to get repaid with interest for lending you that money to fight this war. Right, So it's like it's super safe on the investor side, but it's just a long term payout.
Yeah. The thing is is when they issued those as far as I know, they weren't backed with gold, and then they weren't even further. They just started issuing straight up paper currency that had it wasn't pegged to gold or silver backed up by any of it. It was the first fiat currency in the United States, and like you said, is just basically the government saying this has value. Because we say it has value. You can use this to buy stuff, you can use this to pay your taxes.
It is currency even though it's not backed by anything. And the reason they did that is because it was so expensive. They literally had to print money say it was it had worth and instead of using it to pay their debts, to basically fight this war. And so the market the United States, well the United States just became flooded with all this paper currency. So the paper currency plus all the goldback currency just became less and
less valuable. And I think the inflation that came about after the Civil War, because inflation happens when the value of your currency is weak because there's too much of it like out there. Yeah, it was like twenty five percent during the Civil War. And just for a reference, in twenty twenty two, at the peak of the most recent inflation in June, it was at nine percent and that was pretty uncomfortable. I can't imagine twenty five percent.
No, we were in a pretty bad way. And this was also a time when the country started dabbling in national debt and saying like, hey, like, as a country, we can go into deep debt. Yeah, and like, let's see if anybody really cares it. Went this is these are pretty staggering numbers. The national debt in eighteen sixty was sixty five million. Six years later it was two
point seven six billion dollars. And this is when gold standard or what are they called gold bugs started saying, hey, I think you've just proved our point, Like you printed all this money the Fiat currency, and we're in real trouble now.
Yeah, And so Lincoln says, hold on, hold on, and he rolls up his sleeves a little bit and gets to work, spits in his hand, rubs them together, picks up an ax for no reason, just to kind of look tough.
Yeah.
Sure, there works, and he says, we're going to take all of those, all of the bills out there, all the dollars on the market, and just take them back and start destroying them. Yeah, and by doing that, we're going to actually lower the supply of dollars, which increases their value. Right, And so problem solved. That's going to fight inflation because the dollar is stronger again because there's less dollars on there. And on just a basic economic
basis of supply and demand, it makes sense. But what the government didn't realize all the way back in the eighteen sixties is that it takes a little more finesse than that to not just screw up the economy like a pendulum from one problem to the opposite problem.
Yeah, Like, can you imagine being a citizen in the United States back then, in those early days when they're just trying to figure this stuff out, and you know, I bet a lot of people didn't have a real understanding of this, But if you did, could you imagine just seeing your country be like, hey, let's print a bunch of paper and say it's really valuable, right, and then when they got in trouble, be like, hey, let's burn all that stuff that we printed and said was valuable.
Yeah, Like they would just come up behind, like congressmen would come up behind people counting their money and just yank it out of their hands and run off and you couldn't do anything about it.
Yeah, paper football, So that was a real hot item at the time.
So, okay, a bunch of bills, a bunch of money just gets taken back, burned, destroyed, taken off of the market. It's just not there anymore, and the value of the dollar strengthens. The problem is because the dollar is more is worth more than it was before, and seems like it's just going to keep going up in value. People are like, well, I'm going to hang on to my dollar because it's going to increase in value, so I'll
be able to buy more later. The problem is in the current term that means that people aren't out buying stuff.
And if you're making say pre industrial televisions, which were just boxes that you know, like somebody with a puppet could get in and make a little show, but they call them TVs back then, if you're making those and people are not spending money on the pre industrial televisions, your profits are going to start to go down, you have less reason to produce more and more of those, which means you need less workers, which means you start laying people off, which means those workers have less wages
to spend money on. And the whole thing becomes this self feeding cycle that just gets worse and worse and worse. And we call them recessions, and when they're really bad, we call them depressions. And that happened from the government soaking up all of those bills after the Civil War, and it caused what's called the Long Depression from eighteen seventy three to eighteen seventy nine.
Yeah, and some say it almost went to like nineteen hundred, like eighteen ninety seven before we were fully out of that. And it was a real, like I think it was a real wake up call early on to the United States of like, hey, you can't There's got to be a better way than just printing a bunch of money when you think you need it, like kind of artificially manipulating the value of the dollar like that is only going to lead to trouble. So, boy, that's a great
first act, I think I think so too. Back in form after vacation yeah.
Yeah, I feel pretty good.
Okay, you're feeling good.
Yeah, and you're doing great. You're looking sharp.
Man, I appreciate it. So let's take a break. We'll come back and we'll talk about the Golden Age. We love our golden ages. The golden age of the gold standard right after.
This, so the United States just basically just stepping in it and then stepping out of it and stepping in another pile of it. Yeah, in the eighteen seventies, this is.
Not talking about gold either, right, No, no.
No, I couldn't come up with something that wasn't just absolutely gross. So yeah, I'll keep moving on. But this was the time when the world was globalizing for kind of the first time, and so other countries are taking note of this and they're like, yeah, this gold standard might be a good thing. And like you said, it kicked off a golden age from eighteen seventy one to basically through war about to World War One. It was a golden age for gold. There's no other way to
put it. I didn't want to say that, but there's no other way to put it.
Yeah, It's like what forty something years where everyone was sort of agreeing that the gold standard was the place to be because there was debate like after the mess, you know, post Civil War, of like what we're even allowed to do as a country, and like can the government even print money? Like that? The Supreme Court came along in eighteen seventy one. They said, yes, they can print money. Maybe they need to, you know, we need to rethink our process, but the government printing money is okay.
Yeah, it's kind of it's legal. Yeah. Yeah, So that I was settled, but that still didn't mean like that the government should do that. There was still this question should we keep going this way as supported by the Greenback Party, who were like, yes, this actually makes a lot of sense. Or there are other groups like the silver movement, the gold bugs were out there who were like, no,
we need a commodity backed currency, right. Apparently the Wizard of Oz and I'm sure we've mentioned this before, but it was supposed to be an allegory for this debate over whether to go with the Greenbacks and World City, go with the gold standard, the yellow brick road, or to go with the Ruby standard. Which were the slippers.
Right or the were wheat like you suggested that would be the scarecrow exactly.
Yeah, So all of those scarecrow rubies, gold, the greenbacks, all of those were part of this national bait. And finally it was settled in nineteen hundred when William McKinley was made president. He said, it's gold. We're just going with gold. And even more than that, you cannot print a dollar beyond the amount of gold. We have to back it up.
Yeah, that was that was key to that whole declaration. He was a pro gold candidate, pro gold standard, and like you said, in nineteen hundred twenty one, he was like, we got to have some real teeth behind this. I can't just say it as president and make it so. So they passed the Gold Standard Act of nineteen hundred, and that had some language in there that said exactly that is, hey, that circulation, it's got to be tied to gold. We can't print one dollar more than we
have in equal amounts of gold. And that was it. You know, that was the classic gold standard period. It meant that nations were trading with one another on equal ground and it was dependent on sending like physical gold one another. If you were producing more and exporting more, then you had a lot of gold, you know, stockpiled in your country. If you had a trade deficit, you had a lot less gold, and it was everyone kind of knew what that meant, and it worked for a long time.
It did work. I mean, there were dozens of nations all on the gold standard at the same time, so you knew how much you were going to get paid for your shipmen of pre industrial televisions overseas, right, because there were bonkers for them in Portugal. But the reason why you knew is because there was such stability among your currency and international currency pegged to gold, that when you ship that shipment out, by the time it arrived
it was the same price. Yes, with fiat currency, the price of stuff can fluctuate so much over a day or a week that when you sent a shipment out, if you hadn't already settled the contract, which you proba probably did, but by the time it arrived, you might be making way less than you were going to when you shipped it out. That's not really what happened during the classic Golden age of the gold standard. It was all much more stable than that.
That's right. But like you said, we pegged the end of that to basically World War One, because, as you mentioned earlier, wars are really expensive. They're going to spike your national debt if you get involved in one. And in Europe and World War One, they were like, this war's really really expensive, and our supply of gold is being constrained, so we have to we have to leave it. So the international gold standard dissolved basically mostly worldwide except
for the US and UK. We stayed on that gold standard. And because of that, for a while, the British pound and the US dollar were basically the global reserve currencies because you know, they had gold to back them, so they were the gold standard, the dollar in the pound.
Yeah, because it's not I mean, it's not figurative when you're saying like you had to use your gold to buy back your currency if you were in a trade deficit, right, you actually had to ship gold to the country you were buying your dollars or your pounds back from.
Yeah.
So with the US and the UK having currencies pegged to gold and then be being the global reserve currency, you could just ship currency overseas, which is so much easier than shipping gold, right, So that was each lighter,
it is super light. So the US and England both ended up with like the vast majority of the world's gold, because you know, you could take a dollar, you could take a pound to the US of the UK and say give me some gold for this, and those those notes, those the paper dollars were good as gold essentially, which is I'm pretty sure where that came from.
Yeah, I mean that's funny. The gold standard and good as gold, like a lot of these terms like literally come from these weird monetary policies.
Yeah, yeah, William McKinley.
Yeah, old gold back. So things were going along okay after that, and then the nineteen twenty nine stock market crash came and banks started failing all over the world and everyone you know those you know, when stuff like this happens, there's it seems like it used to happen more, but there can be a real panic, and people start converting their dollars and their pounds to gold because they were like, we know, gold is worth something I don't want to have like this this paper currency on hand.
That's like clearly losing value very quickly.
Right, if I weigh a day, I might get less gold than I will if I cash my bank account into today. And remember earlier, I said, like, how this is all. It all kind of self regulates, it all moves naturally from one place to another. But still humans can screw things up just because we're human. This is how we screwed it up. There were a banking can after banking panics, where people just made runs on banks and said give me all my money and the bank would be like, we don't have it. They would shell
out all their money and end up closing. And there were like ten thousand bank closures in the early nineteen thirties in the United States alone between nineteen thirty and nineteen thirty two because people would run in and like just take all their money out, and so banks were failing. This was before the FDIIC. So if you had a bunch of money and the bank like closed forever before
you could cash it in, you were broke. Like that money was worthless, right, And that caused even more people to make runs on banks, which created this huge, terrible ripple effect. And so the UK and the US were both faced with this challenge like what do you do. Do you stay on the gold standard or do you go off the gold standard? And the UK was.
Up first, Yeah, they abandoned the gold standard in nineteen thirty one. Apparently there's a story that their central banker named Monte Hugh Norman at the time, suffered a nervous breakdown because he was you know, it's kind of up to him to make that final call. And can you imagine the pressure to be in charge of like a kind of a worldwide economy, almost right, and how important these decisions are.
So ask your question, no, no, I cannot imagine that kind of.
Pressure it either. So the pounds value, of course, immediately drops even further than it already was. So people that were had lost faith in the paper money were saying, like, see there, like good thing. We traded in our pounds for gold and America and of course everywhere around the world is seeing this happen, so everyone else is losing confidence. And this is when you know, further runs on banks happened.
And we had a president, a lame duck named Herbert Hoover, who was leaving office in nineteen thirty three and told incoming FDR he was like, hey, you know, we're in real trouble here. The reason we have gold is because can't trust governments. And FDR was like you know what, I think I've got this. So he went in office and he said, I'm going to I'm going to fix this crisis for good.
One of Yeah, one of the first things he did was, I think the day after he was inaugurated, he declared a four day banking holiday, so all the banks closed right for four days so there couldn't be any runs
on banks. And I was watching this. There's this dude who's a YouTuber named the Casual Historian, and he bills himself as a Conservatorian, which I take to be in a combination of a conservative and a vegetarian right probably, But he was explaining that this actually didn't do much in real terms, like the banks that were about to
fail before the banking holiday still failed afterwards. But as far as the public was concerned, it was a huge signal for essentially the first time that the government was going to step in. Because there's one thing that you cannot argue against with the gold standard is because you're constrained, you cannot print more money than you have gold to back it. There is nothing you can do in an
economic crisis except sit there and watch it happen. You can't do anything there's no leverage for you to pull the pull the country out of it. The only way that you can pull your country out of a recession or a depression is by printing more money and actually devaluing the money that people are hoarding. So it's you're basically saying, you got all this money that you're stashed
away because it's so valuable. Well, guess what, It's not so valuable anymore, so you might as well get out there and spend it.
Yeah, for sure. And you know, we were in big trouble obviously in the nineteen thirties, you know, you mentioned earlier sort of that cycle that happens when companies are producing less and fewer customers and not hiring people or firing people. And in nineteen thirty three, the unemployment of the United States was twenty five percent.
That's so crazy.
I know, it's staggering. And I think worldwide, almost one in three people were out of work in nineteen thirty two, So it wasn't just the United States like that many people being out at work at once, And that's the thing that I always you know, thankfully it hasn't happened yet, but with the AI conversations and people. I've had conversations with people in my sphere.
Are you sure? They were people and not box.
They think it's such a great thing. And I was like, you know, I'm not even arguing the merits of arts or not and things like that, But I said, I just worry about what would happen if like twenty percent of the workforce was laid off in the span of like a year or so because of AI. It's like, that's what I worry about. And we haven't seen that yet, thankfully, but I guess we'll see.
Yeah, you, me and I were talking about the same thing, and she brought up a really great question, which is like one of the things that a lot of the AI proponents say is like, eventually you were going to create this utopia where like no one has to work and everybody's right. And her question is like, if that's your goal, why don't we take some of that wealth and just start now before I act? Right, do we have to wait for AI to do that? We can
do it now? I thought, yes, rather clever. I stood up and clapped right.
She's like, that's weird. Here, we're in our living room. She left the room, all right, So things are bad. They had that banking holiday. Congress passes what's called the Emergency Banking Act at the time, which basically, like you said,
allowed them to, in an emergency issue, just start printing money. Basically, that's not back to the gold standard, but we had that gold standard because the gold Standard Act of nineteen hundred, so they had to create this Banking Act, I guess to work around that.
Right, Yeah, They basically said, Okay, this is just emergency measures, and we're just printing this money to give to banks to keep them from going under. So the government is signaling all over the place, we're stepping in. We're going to make sure that this that like, we're going to do something about this for the first time. I think that was my point before I got off on the
tangent for a little while a minute ago. But the government is signaling all over the place that they're going to back up banks so you don't have to run and get all of your money out and just keep making this whole thing worse. So that was like a first step. But the problem is is there was still
plenty of gold out there that people were hoarding. They were like, yeah, that's great, thanks a lot, but I'm not taking this goal back to the bank right now because I don't have any confidence in the banking system. So the government figured out how to deal with this. They said, well, you know what, we will put you in jail for ten years and find you the modern
equivalent of two hundred and fifty thousand dollars. If you don't give us your gold, we'll give you the equal amount of paper dollars back, but you can't legally own gold anymore.
Yeah, and that was it. That was I mean, I think it was about a month after they sort of restored that public confidence with the Emergency Banking Act, like FDR was moving very quickly and said all right, we're suspending the gold standard officially. And then the next year was that Gold Reserve Act of nineteen thirty four that you were talking about, where they were like, yeah, you can't. I mean, you can keep your rings and if you
got like collectible coins and stuff, we're not coming after those. Yeah, but you can't have bars of gold and a safe in your house anymore.
Yeah. And Jimmy the Greek was like, whow right close. So yeah, so now you had to have you had to use paper currency, so this was the shift in the United States, and this had already happened in other countries, like you said, especially in Europe after World War One, and the gold standard was dead. And one of the things that demonstrated the death of the gold standard was economists generally today say that the US being able to print money and basically kickstar inflation to pull us out
of the deflationary spiral aka the depression. That's basically ninety percent of the reason that the US got out of the Great Depression. It was leaving the gold standard being able to print money. Because if you can just print money and take money off the market and put more money on the market when you need it, you can adjust the economy enough to get it out of crises one way or the other. And that that's actually the better way of doing it. And so the gold standard never came back again.
That's right. And so that could be the end of our show, but that would be weird because we haven't had our second ad break yet. So we're gonna do that, and we're going to come back and just say see you later and read a listener mail, right, because the gold standard's gone forever, gone forever, all right, we'll be right back. Okay, we're back here for Act three, which means this time for listener mail. Because a gold standard is dead.
This is where the golden gun goes off.
That's right, because no, the gold standard is not dead.
It actually had another sort of brief not even stint, like it kind of had a maybe not a Golden Age, but maybe a heyday when the Bretton Woods Agreement came around, which was a U in a United Nations agreement that came around in nineteen forty four in Brettonwood's New Hampshire that had a whole brand new system that was really kind of like that original gold standard, with forty four country signed on along with the US that said, all right, the US dollar now is pegged to gold at thirty
five dollars an ounce, and everybody else that's signing on is tying their currency to our dollar.
Right, so there's a fixed rate, like there's fifteen pesos for one dollar and one dollar equals this much gold. So it's essentially the world going back on a gold standard. They just figured out a good way around it to make it much easier, right. Yeah, and again, just like the first time, if everybody's playing by the rules. Then this keeps you from monkeying with interest rates to make your exports more attractive. It prevents trade wars, it does
all sorts of calm, peaceful stuff. But the problem is there's just and this is the same problem today. There just wasn't enough gold in the world to cover the increasing expense of modern life.
Yeah, for sure. And they had put things in place because you know, they were a little smarter than time around. They were like, all right, we'll create the International Monetary Fund, We'll create the World Bank. So that means that there's their official worldwide bodies kind of coordinating this monetary policy between all the countries to make sure that no one's
doing hinky stuff. And it took a long time. This wasn't like, you know, they reached this agreement in nineteen forty four and by nineteen forty five it was all set in stone. I think it didn't actually take effective fourteen years later in nineteen fifty eight. By the nineteen sixties, like shortly thereafter, the US was was spending like a like a drunk ten year old military spending was in foreign aid. We're all just like ramping up spending on imports,
foreign investment. There are a lot of dollars from the United States and worldwide circulation. And even though we held a lot of the world's gold reserves, like seventy five percent at the time, like you said, we still didn't have enough gold to cover all that kind of money.
No, and this is the I mean, this is what keeps governments honest. There is a possibility of a worst case scenario where all of the people holding those dollars can all come back at once and say, hey, we want this, we want our goal. We're turning in our currency, give us our gold. And you know it's bad enough when you're talking about citizens making runs on banks. If you're talking about entire foreign governments bringing all of their cash reserves to you and saying we want gold, you
got a really big problem. And finally, in nineteen seventy one, Nixon admitted, like, we don't have enough gold to cover the currency out there. Sorry, guys, you can't turn that in for gold anymore. Sorry, and just kind of backed out of the room.
Yeah, he backed out of the room. And it was it was a big deal because this isn't the kind of thing that we could we had pegged our dollar to like worldwide value, so we couldn't just say that by ourselves. In nineteen seventy three, the Monetary Fund they
went off the gold standard. They basically kind of came along for the ride, yeah, and said, all right, everybody should kind of go to this fiat currency system, and like that was the true real end of the gold standard, and like there's this that ship is so far out of the harbor now, there's no way they could go back.
To it now. And it eventually kind of became a fringe right wing position for some reason. They just kind of adopted it. But that doesn't mean all of the right wing agrees with it. In fact, Milton Friedman, who's a right wing conservative economist hero, he was even like, that's a terrible idea to go back on it. He wrote a paper, and I think nineteen ninety or co wrote one that basically demonstrated just how bad of an
idea it would be. But there's still plenty of people who are like, no, gold is where I want to put my faith in. One of the reasons why it's still around is because people believe that if there's a social collapse right afterward, people will still accept gold. They won't accept dollars or pounds or euros, but they'll take gold in return. So that's one reason a lot of
people still have faith in goals and investment. There's other people who are like, gold's always going to become more and more valuable because there's a finite amount of it, right, And that actually is the same thing for bitcoin. There's a finite amount of bitcoins, which means that over time
it's going to become more and more valuable. It's going to buy more and more stuff, which makes it a deflationary currency, which actually makes it dangerous because that means people are more likely to buy in HORD bitcoins or buy in HORD gold because eventually it's going to become more valuable, and that's how you go into a recession.
Yeah. I've never I'm just you know, me and economics and money. I'm just a big dummy with all that. So cryptocurrency is something that even though we've podcasted on it, I just it's not like I'm saying like I don't try cryptocurrency. I just I don't understand it and I have no interest in understanding it.
Yeah. Yeah, although it does seem to have gained a lot of legitimacy, especially Yeah coin sure, but I mean it's a wild ride, like it was at like sixteen thousand earlier this year, early like last year, and now it's at like sixty one, and sixty one is down from ninety something a month or two ago. Like maybe it's a long term thing, but that's not something you want to I mean, you would have to be so insane to trade that stuff on a daily basis.
I don't have the stomach for I'm just that's not who I am either. You know, I want to I want to sit around and you and I want to sit around listen to elevator music, not track the currency cryptocurrency.
No, but for some people that is quite thrilling.
Oh I bet it is. Have fun with that if that's your thing for Larry David. Right, So, like we said, I think an act one that you know, there are still people that argue for the gold standard and people that aregue against it, even though that ship is sailed, and there are you know, some pretty good arguments each way. If you're for the gold Standard, you know you can say, like hey, that's going to definitely put a lid on this crazy government spending that we have had going on,
and it'll stabilize the money supply. We've seen it do that literally, so you know, that's a pretty decent like they got a lot of data to back those claims up for sure.
Yeah, one of them is it's just basically throwing shade at how out of control government spending gets when the government is allowed to literally just print money when it wants to. One of those things that you'll see a lot is that the purchasing power of the dollar has declined by more than eighty five percent since the US left the gold standard in nineteen seventy one. And the reason why is because the government just keeps printing money
anytime it likes, which causes inflation. Well, that's purposeful, like a fiat currency is an inflationary currency as opposed to a deflationary currency like gold. They want inflation to happen because inflation you can keep on top of. It's deflation that's really hard to come out of. So yeah, it's not really a problem if you can buy less with a dollar than you did before because you're adjusting for inflation. It's not a problem as long as your wages are
keeping up with it. The problem is is wages haven't kept up with it, and so people are being paid the same amount as before and are able to buy less because they have less money. Even though the cost of living has increased their wages are wages haven't gone up commensurate to it.
Yeah, for sure. And if you want to talk about like you know, we're talking about printing money and a spike in the cash supply, here's a pretty staggering statistic. The supply of money in nineteen seventy, this is what they call the M two money supply, which is all the cash, all the money and checking accounts, all the travelers checks, was about six hundred billion dollars in nineteen seventy,
the year before I was born. In August of last year, it was twenty two trillion dollars, which is an increase of three thousand, five hundred and sixty six percent over whatever fifty four years, and twenty percent of that was created in twenty twenty.
Yeah, just that year.
Yeah.
Yeah, So there's this, I mean, there's clear evidence that like the government will just print money as much as it can whenever it wants to. Part of the problem is is that also increases the national debt because for money out there, if you can print money, make new money, you can spend that new money if you're the organization that is creating the money. So the national debt increased tremendously too over that same time period from nineteen seventy to twenty twenty five.
Yeah, it could increase nine thousand percent. It was three hund undred ninety eight billion back then and now it is over thirty six trillion dollars, and it's a number that is just hard to even comprehend. That seemingly nobody, well not nobody, but the right people aren't concerned enough.
About So gold bugs are like, see, if you let the government print money, they're going to print money and they're going to spend more money. The gold standard keeps them from being able to do that.
And of story, that's right. But there are anti goldbugs. There are people who prefer fiat currency and the ability for the government to step in and throw levers and control monetary policy through debate and decision making. And that's one of the big arguments. It's like, hey, we need to be able to make these decisions sort of on the fly and move quickly to save ourselves in times of doubt and in times of economic stress, and they can also combat a lot of those a lot of
that data too. They can also say, well, yeah, but you really should look at these numbers instead.
Yeah. So goldbugs always say that that there's stability in gold currency, right, But the problem is is that if you look at the gold markets, they fluctuate tremendously, so that's actually kind of out the window. Another one, this one I couldn't find an answer to that. I can't wrap my head around those. And the total value of all the gold in the world is thirty six trillion dollars, which is eye popping, but.
That's the debt. But yeah, exactly ironically.
But if you took the entire global economy and valued that, that's more like one hundred and twenty six trillion dollars. So if the world went on a gold standard again, how would you shrink one hundred and twenty six trillion dollars into thirty six trillion? That right there, that's what we've been saying. The ship has left the harbor, that train has left the station. It's just there's again, there's not enough gold to cover the value of everything in the world.
Yeah, for sure. Another big sort of argument that people against the gold standard point too, is like, hey, look at our stock market. People aren't putting their money in their mattress anymore and making runs on banks. They're shifting that money. They're cash dollars into the stock market, and
those dollars have grown and grown and grown. I mean, there are always dips in the stock markets, and even you know, there have been some very bad days in a row with the stock market, and you know, the crash of two thousand and eight and the dot com bubble and all that stuff always affects the stock market, but it's proven to be a pretty stable thing over time.
It has. And in fact, if you there's this comparison I found I can't remember where I found it, but if you took five thousand dollars in nineteen seventy one to celebrate the birth of Chuck, Yeah, and you said, I'm going to go buy five thousand dollars worth of gold, It's going to be a great present for Chuck. I'm also going to bring a little I'm a little frank incense. It is going to get biblical in the year. The gold actually would have increased about seventy five hundred percent.
And this is gold prices are so all over the place. This is probably already out of date. But I think in the end of twenty twenty five, you would have had three hundred and seventy nine thousand, five hundred dollars worth of gold from that five thousand dollars worth of gold you bought in nineteen seventy one. So that makes it seem like, okay, great, gold's a good investment. What happens if you invested it in the stock.
Market, Well, if you had had that same five grand after my birth and put it in the S and P five hundred, you would have made two hundred and seventy one thousand, five hundred dollars. So the gold standard wins in that case. But that is if you were just taking those dividends, if you're taking the money that you're making from the stocks and saying like, all right, that's that's my income or whatever. If you had kept reinvesting all that from the five grand, it would be
one point one eight five million plus what five hundred bucks. Yeah, So that's a return of almost twenty four thousand percent rather than seventy five hundred percent.
Right, And even if you're like, okay, we'll wait a minute, adjusting for inflation, how much is that? So I looked it up. I went on our beloved west Egg, and something that costs five thousand dollars in nineteen seventy one would cost you forty thousand dollars today. So even after you bought that five thousand dollars thing, you'd still have one point one million and change left over. So it would be much better to invest it in the market.
As volatile as it is, as unpredictable as it is, as as easy as it is to lose your shirt over the course of time, the ability to unleash the stock market that having a fiat currency and being able to print money creates is a it's a better return on investment.
Yeah, I'm surprised I got through this one.
You did great.
Well, you did great.
You did great.
Who wrote the original article here? Who is this?
That was Olivia Joint She did great.
Yeah, she did great too. And you did a lot of great supplemental research. Everyone's doing great, everybody.
It was just great up in here. We should also say we probably got a lot of stuff frong. We probably walked past a lot of stuff. This is such a detailed nuance discussion that people who are like monetary policy walks this is one of their favorite things to do, is to point out all of these nitpicky little things based on mind boggling economics that are really hard to describe. We just glanced over the surface of this, but I think, yeah, probably we got more right than you'd think.
Yeah, it's tough to tackle something like this because there are people that know a gazillion times and more about this kind of thing than we do.
Yep, and Chuck just said tackle, so he unlocked listener mail.
I'm going to call this this was from our crowd's episode, and this is a classroom hack, a question hack from a I think a teacher. Hey, guys, love the episode about Yeah, I'm a middle school teacher and crowds are my standard environment. Your comments about being afraid to ask a question in class really spoke to me because a big part of my job is navigating the power of
language with crowds in my students. There's a simple teacher hack that is most effective and easiest, the easiest change I've ever made to my communication with students and Aaron from New Brunswick, Canada. I will go ahead and say that, like anyone speaking in front of a crowd where you like source questions, I think this is a pretty good way to go. And here it is. Instead of saying does anyone have any questions? What I say instead is what questions do you have? There must be questions. It
really works a completely different response from the students. Guys. The assumption that questions are expected always prompts at least one kid to get the courage, which opens up the gates for everyone else who is too apprehensive. Thanks for being my first podcast in twenty twelve and for continuing to bring joy and relaxation to a tire but satisfied teacher. Peace and love and again that is from Aaron with an E from New Brunswick, Canada.
Thanks Aaron, Peace and love back to you too, and thanks for teaching.
It's a good hack.
It's a great hack. Questions who's got them? I know there's some? Don't lie right, and then just get more aggressive right huh huh, give me a question?
Yeah that works.
If you want to be like Aaron and send us a great email and say peace and love that's awesome. You can send it off again via email to the email address stuff podcast at iHeartRadio dot com.
Stuff you Should Know is a production of iHeartRadio. For more podcasts my heart Radio, visit the iHeartRadio app, Apple Podcasts, or wherever you listen to your favorite shows.