What makes money trustworthy?
"It has to be fixed in value," says Steve Forbes in his new documentary, "In Money We Trust?" Forbes notes that money has to be reliable, like a clock. We have "sixty minutes in an hour; sixty seconds in a minute. Imagine if that floated each day; that would make life chaotic." Stossel presents an abbreviated version of the documentary, which notes that throughout history, people needed a way to assign a fixed value to money. They tried all sorts of things, including backing money with crops, silver, and salt. "Salt" is where our word "SALary" comes from. Eventually most people settled on gold. That was used up through the mid-1900s to back currency. The stability it brought to markets helped enable massive economic growth. But a gold standard didn't always ensure stability. The Roman Emperor Nero was one of the early creators of inflation.
"They would call in all the coins, melt them down, reissue them -- of course, with his picture on them," according to Jack Weatherford, author of "The History of Money". The re-issued coins, critically, also contained less gold than the old ones.
Governments throughout history have often resorted to inflation when they couldn't raise enough taxes. World War One was the first big event that shook up the consensus around gold. "To print money to pay for the conflict, Europe and the U.S. went off gold," the documentary's narrator notes. "And after losing the war, Germany suffered the infamous Weimar hyperinflation." In the U.S. during the Great Depression, President Franklin Roosevelt even confiscated private holdings of gold in order to devalue the dollar.
"All kinds of constitutional freedoms, and this moral commitment to maintain the value of the money, were swept out," says Judy Shelton, director of the Sound Money Project at the Atlas Network. Shelton is under consideration to be President Trump's next Federal Reserve pick. Today, the Federal Reserve controls the supply of dollars. People use them because they trust that others will value them, and government says it stands behind them. But dollars are not backed by gold, or anything else. That worries people like Steve Forbes. A dollar buys 80% less than it did when Nixon took the country off gold in 1971. That's largely because the Federal Reserve intentionally creates 2% inflation every year -- they set it at 2% rather zero because it provides a buffer against deflation, which they fear will cause recessions.
Forbes' documentary backs a return to the gold standard. "The only way to restore trust is for the United States to return to the system that worked for most of its history," the narrator says. "Gold has proven to be the preferred monetary standard," says Brian Domitrovic, a history professor at Sam Houston State University. Milton Friedman opposed the gold standard. Today, most economists oppose it.
Stossel says Forbes' documentary sums up the history nicely and "will give you background to help you decide what you think". You can see the full documentary on some PBS stations, or stream it at: InMoneyWeTrust.org.
