Whenever I propose a return to the gold standard it is inevitable that someone will suggest that it is antiquated, or that it will cause economic problems, even, laughably, that the gold standard causes boom-bust cycles. So, let me make here a very simple case for returning to a gold based money. I won't go into my argument for restoring an absolutely free banking system, devoid of any government regulation or intervention, nor will I even argue for eliminating the Federal Reserve, though I think that is needed as well. All I will argue here is the need to restore a gold standard in order to restore some degree of sanity to the economy.

First, let me dismiss the argument that the gold standard caused the boom-bust cycle. The cycle, despite claims tot he contrary, is not an innate part of the free market, it is purely a monetary phenomenon. It is caused when the quantity of bank notes and deposits expands too far beyond the underlying money supply, leading to either bank runs, when money is still convertible, or a crisis of confidence, when it is not.  Under a fully free banking system it is highly unlikely there will be a general expansion of credit at all banks simultaneously, or that any one bank would be big enough to cause this on its own. Even if there were a large bank, the other banks would largely offset its imprudence by their own actions, making the boom-bust cycle unlikely under free banking. Only when the state intervenes can we have this phenomenon.

Then again, there is an even more simple argument. We had perhaps four large slumps between 1865 and 1914. From 1914 until FDR made the domestic holding of monetary gold illegal in 1934 we had a nominal gold standard, but with centralized expansion of the money supply, and relatively easy access to bank holidays to prevent runs, effectively removing us from the gold standard, with the resultant world wide depression. And following FDR's removal of the US from the gold standard? That was the birth of the regular boom-bust cycle of about a decade per peak. And it only accelerated with Nixon's closing of the "gold window" ending even foreign redemption of dollars for gold. In the thirty six years since Nixon closed the gold window, we have had more, and more severe recessions than we had in the period from 1800 to 1900 (during which time we rarely had anything approaching a free banking system, just freer than we now have), which suggests that the boom-bust cycle is hardly a creation of the gold standard.

So, the gold standard does not cause the problems attributed to it, but is there any benefit?

Yes, and no. If you are a government official, or are addicted to big government spending, or believe profoundly in Keynesian economics, then the gold standard is problematic. It will make it much harder to continue spending, as it will impose limits on the amount of debt the federal reserve can "monetize", using the debt to create new money. On the other hand, if you dislike inflation, value a stable currency, or desire economic growth, then the gold standard has much to suggest it.

The gold standard, even with the Federal Reserve or other government banking regulations, will perform the very valuable function of putting a check on the growth of the money supply. By allowing citizens to redeem currency for gold it will require the issuers of currency to maintain some sort of rational relationship between the amount of currency and deposits and the total amount of gold on hand. It won't stop all inflation, won't stop a less severe form of the boom-bust cycle, but so long as the government does not take recourse to "bank holidays", it will mean that inflation will be held in check to some degree, which is much better than what we have today.

And to address one other complaint, the idea that the constant money supply, or relatively constant money supply, will result in "deflationary" falling prices, the counter argument is obvious. There is no reason to think falling prices will cause economic problems. During large periods of the late 19th century we saw both falling prices and economic growth. How so? Well, prices fell, but real wages stayed the same. This meant that, while on paper incomes were fixed, the real purchasing power rose. It is only a most idiotic Keynesianism that makes us think that growth requires increases in nominal incomes. If the purchasing power of money increases, it si conceivable we could have economic growth with incomes falling in nominal terms*.

And that, in a nutshell, is the argument for gold. It will provide a check on inflation and provide some tangible value to currency (which is currently nothing but paper printed by  the state). Of course, it could be any commodity, though the ideal commodity will be both divisible and will retain proportional value despite division**. Gold is simply the best choice at the moment as it is durable, is not consumed in most uses, is divisible, has a high value to volume, and, most importantly, already exists in significant quantities allowing us to most easily convert to a gold standard rather than say a standard based on platinum or silver.

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* If in a decade an ounce of gold went from buying one automobile to buying four comparable automobiles, someone whose income went from one ounce per month to three quarters of an ounce would still see a 50% increase in real purchasing power, even though he suffered a nominal 25% loss. Those who decry falling price or even falling wages are confusing nominal sums with the purchasing power of those sums. If we combine falling prices and falling wages, it is quite possible to have economic growth with falling wages.

** For example, gems are a bad choice as, even if we could split a one carat diamond into two half carat diamonds with no loss, the two half carat diamonds are not worth precisely half of what a one carat diamond is, and they also cannot be joined back together into a single one carat gem.