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Published on Jul 9, 2012
Economist Daniel Altman on gold's economic stability and why we shouldn't return to the gold standard.
Daniel Altman is an economist and writer. Born in Connecticut, he studied economics at Harvard long enough to receive a doctorate. Rather than stay in the ivory tower, he became the London-based economics correspondent of The Economist. He next joined The New York Times as one of the youngest-ever members of its editorial board and later wrote economic commentary for the business section. He soon returned to London to become an economic advisor in the British government, dealing with crime, immigration, and illicit drugs. His next position was as the global economics columnist of the International Herald Tribune, with stints in Buenos Aires, Damascus, and Hong Kong.
In 2008, he left journalism to write "Outrageous Fortunes: The Twelve Surprising Trends That Will Reshape the Global Economy" and become a practitioner in the field of international development. With four friends from graduate school, he founded North Yard Economics, a not-for-profit consulting firm serving governments and non-governmental organizations in developing countries. Upon his return to New York, he began teaching economics at New York University's Stern School of Business and became director of thought leadership at Dalberg Global Development Advisors, a strategic consulting firm exclusively focused on raising living standards in developing countries and addressing global challenges. He lives in New York City.
Transcript-- Daniel Altman: Everybody's talking about gold these days. And I wish I had some to show you, but I don't own any, so sorry. The thing about gold is it is a very important part of our financial system when we're looking at the expectation of inflation because even though inflation can mean that the value of currencies goes down, gold is supposed to hold its value. And that's because people will always accept gold in trade for other things, so we hope. Gold has intrinsic value, gold is nice to look at and it's useful in a lot of commercial products. But it's also accepted and has been symbolically for hundreds of years as a medium of exchange, as a unit of account, and as a store of value.
There could have been another focal point. Perhaps it could have been quartz. Quartz would have been seen as a great store of value. But traditionally quartz doesn't have that role even though, like gold, there's probably a limited supply of quartz crystals in the world. Gold is where it's at. And everybody sort of accepts gold; that's what makes it valuable.
The problem is, if we were to base our monetary system on gold, as some people like Ron Paul had proposed, we would have a fixed amount of gold equal to one dollar and every time we wanted to issue more currency, we would have to make sure that we had that much more gold in our treasury. What happens then though? Think about what would happen if somebody discovered a huge amount of new gold that we didn't know about in the world. All the sudden, the supply of gold would be much higher and that would probably mean that the price of gold would go down in world markets. But that would have a profound effect on our own currency too because each of our dollars would now be worth less, through no fault of our own.
So we would have a devalued currency simply as a result of this discovery of gold. That's not something that we want to mess around with because it means that other people and other events can control our monetary policy, which is one of our most basic tools for affecting our economy and our economic cycle. So if you want to use gold as part of our monetary system, you have to think very hard about the fluctuations that we'd be exposing ourselves to.