unequivocally opposed to any change. Since the U.S. is the world's largest gold holder, no adjustment can be made without U.S. initiative. Yet speculation about a change continues to be an irrepressible topic of conversation among financiers and statesmen around the world.
Talk about a change takes two forms. One is that the U.S. should junk its present managed-money system (in which gold is used only as a currency reserve and to settle international accounts) and return to the fully convertible gold standard, abandoned in 1933, under which dollars could be exchanged for gold coins. The other—usually joined with the first—is that the U.S. should double or triple the present gold price of $35 an ounce, thus devaluing the dollar and in effect automatically increasing the monetary value of the official gold holdings of the free world's nations.
Among the chief advocates of a return to the full gold standard for both the U.S. and European nations are French Economic Adviser Jacques Rueff, the architect of France's successful financial-austerity program, and Philip Cortney, president of Coty, Inc. and chairman of the U.S. Council of the International Chamber of Commerce.
They, like the rest of a small but dedicated group of economists, believe that the gold standard is the only answer to the world's present monetary problems, such as inflation and a concentration of capital. They believe that a return to the rigid fiscal discipline of the gold standard would act as a brake on inflation by preventing governments from overspending, head off world recessions by doing away with the excesses that lead to them. A full gold standard, as they see it, would also put a damper on sudden expansions of credit not backed by gold, help stabilize prices, and step up the flow of capital—and thus international trade—by making all currencies freely convertible into gold.
A return to the gold standard would probably have to be accompanied by a price hike in gold to provide more adequate backing for the vast expansion of money and credit in the last few decades. Some economists who do not advocate a return to the gold standard nonetheless want a price hike. They argue that the U.S. has artificially kept gold at a fixed price since 1934, while the prices of the world's goods and services have more than doubled, and that not enough gold has been produced to keep up with the world's economic strides. The freeing of gold, they feel, is a logical economic adjustment that would 1) step up production of gold, 2) increase the free world's purchasing power in dollars by some $20 billion (if the price were doubled), 3) bring most of the $10 billion to $12 billion in gold hoarded by wary Europeans back into productive use.
Read more: http://www.time.com/time/magazine/article/0,9171,864070-1,00.html#ixzz12jOdf4Y3
Comment: So that's what went wrong! If a gold standard is "psychologically vital to fiscal confidence," and "useful as a long-term guarantee that countries can meet their bills" then its absence eliminated the guarantee that countries pay their debts, leading to fiscal imbalances and a loss of fiscal confidence. If indeed economists have "long ceased to regard it as the sole test of a currency's stability" and economic health and fiscal controls matter as much or more, then conversely, if a nation's economy is unhealthy and fiscal controls have failed, as is the case for the US today, a return to the gold standard may in fact be mandated by the international debt and currency markets.
The TIME Magazine article above was published in what year? Vote in the poll on the top right of this posting.
EDIT Oct. 19, 2010: The answer to the question of when this was originally published in TIME is 1959.
See: The Fourth Currency