Some people oppose a gold standard, others embrace it. Some invest in gold because they believe in a return of the gold standard and an upward revaluation, some call gold a ‘barbarous relic’ and ask why we should mine gold when we could use paper money. No matter what side you’re on, many resort to myths about the gold standard to defend their position.

What are the most common myths? Today we’ll discuss ten myths about the gold standard.

“Countries without a gold standard avoided the Great Depression,” so the argument goes, “while countries with a gold standard did not recover until they abandoned it”. The gold standard caused the Great Depression. Central banks had their hands tied to the rigid and limited supply of gold and were unable to print enough money. As former Fed chair Ben Bernanke puts it: “Tying the supply of money to the supply of a precious metal limits a government’s ability to address economic problems.”

These critics fail to take into account the inflation of — among other currencies — the British pound to finance World War I. After WWI, Winston Churchill decided to fix the gold parity to the parity that had existed before that time: a gold fixing that was put into place in 1717 by Isaac Newton. Now, the culprit is not the gold standard, but Churchill’s mistake to fix the gold parity to the pre-war parity of £4.86 to a dollar (in gold), apparently oblivious to the war-time inflation. An unnecessary and damaging deflation ensued. Yet, this deflation was not an inherent flaw of the gold standard, but a result of Churchill’s insistence to return to the pre-war gold parity.

Moreover, any student of (economic) history must seriously question the idea that monetary policy was the reason that the recession of ’29 is now known as the Great Depression with a capital D. We should not be surprised that entrepreneurs are not willing to invest money, when U.S. fiscal policy merely gives headaches to entrepreneurs: when governments are going to persecute, regulate, sanction business owners, before proceeding to squeeze them out like little lemons, taxing over half of their earnings through corporate, estate, dividend and other kinds of taxes.

This is a common myth that critics not only direct toward gold, but to any other money alternative, even paper money and cryptocurrencies. The reasoning goes as follows: if the quantity of money only increases 2% annually and economic activity (for instance, GDP growth) grows 4%, there will be a shortage of money and the value of money will go up, i.e., prices will fall. Economic activity is severely inhibited due to this lack of money and the subsequent price deflation (or increased purchasing power) creates havoc.

Instead, the supply of a medium of exchange should increase alongside any increase in economic activity. There should be steady inflation, i.e., an increase of the money supply and the general price level, to not depress the economy. If the supply of money cannot grow alongside economic activity, price deflation will ensue and the economy will enter into recession.

I’ve written extensively about the deflation myth, but at this point some things are worth emphasizing: (1) historically we have had long, prosperous periods in which prices were falling, (2) profits are made by a differential between costs and revenues and such differentials arise both under a monetary standard in which prices fall and one in which prices rise, and (3) there is no scientific way to measure deflation: some prices will rise despite a fall in other prices due to productivity gains.

We would actually be blessed by a steadily falling price level, and that is exactly what a gold standard promises us: no more inflation despite historic productivity increases and growing global trade, a lot less bubbles induced by reckless monetary policy and a more effective unit of account for financial calculations by entrepreneurs.

The small country of the Netherlands — where GoldRepublic resides — was one of the last countries to abandon the gold standard. “Theft,” said Dutch Prime Minister Hendrik Colijn at the time about the abandonment of the gold standard. “People’s savings will be devalued.”

While being faced with increasing domestic pressure and mounting unemployment, especially because surrounding countries dropped the gold standard without much hesitance, he delayed giving up the gold standard as long as possible. Finally, he caved in and the Netherlands abandoned the gold standard as one of the last countries in the world.

There is some empirical evidence that points to the fact that the countries that were last in abandoning the gold standard, were also among the last to recover. However, that mere fact is not enough to conclude that countries that a gold standard is a bad idea.

We can observe that countries that were last to abandon the gold standard, such as the Netherlands, were generally countries with vibrant economies, foreign trade surpluses and high gold reserves. Let’s not forget that the 1930s were not only characterized by a widespread abandonment of the gold standard, but also by a terrifying rise in protectionism. Of course, the countries with vibrant exports are the ones that would suffer most from trade barriers.

It should therefore not surprise us that countries that were initially unwilling to renounce the “safety” of gold’s stable purchasing power, were also the ones with the most to lose from foreign trade barriers. In effect, these countries might have suffered from a drop in international trade, not only from adhering to the gold standard.

Natural resources are scattered over the world. Some countries are blessed (or cursed) by vast reserves of natural resources, while others lack direct access to natural resources and need to obtain them by cross-border trade. As for gold, some countries have gold reserves, whereas others don’t. These countries include Russia, China and South Africa, so some would argue that we would be “yielding power” to countries that shouldn’t have it (I disagree, by the way).

At its current pace, the (above ground) supply of gold grows by about 2% per year, because the supply of gold consists of all the gold ever mined. The newly mined gold has a negligible effect on the total supply of gold. As a result, there is not really a way for any country to use its mining production to heavily influence the supply of gold and disarrange a gold standard.

However, critics would counter that the foremost objection to a gold standard is that it would enrich such countries. But does it really matter? Countries — or people in countries — always produce something to enrich themselves, simply by providing the world with what it demands. Countries that produce other commodities than gold enrich themselves by providing the world with resources that are demanded domestically and in other countries. One country can choose to stop trading with another, but in most cases there are at least some countries willing to trade, even if others have stopped trading altogether.

The next argument against the gold standard is that “there isn’t enough gold.” But what is important is not whether there is enough gold, but at what rate dollar bills could be exchanged for gold: almost any quantity of gold will do. In other words, if prices are allowed to adjust, there will be no ‘money shortage.’

Of course, not (literally) any quantity of gold would do: if there would only be one kilogram of gold in the world, it would certainly be impracticable to use as money. But any reasonable amount can adjust in price to balance supply and demand, and gold was selected in the past by markets because its quantity suffices.

It is actually one of many reasons for people to buy gold, speculating on such an upward revaluation of gold as a monetary metal. Jim Rickards, author of The Death of Money, estimates that the gold price would have to rise to $7,000 if gold and the dollar would be pegged.

The price mechanism is a wonderful thing: if there ‘isn’t enough gold’, gold prices would have to increase until it reaches a point at which there ‘is enough gold.’ It doesn’t get simpler as that.

Yes, the gold price in terms of fiat money (euro’s, dollars, etc.) can be volatile. Gold prices came down last year and closed almost one third lower. In addition, the gold price went up with almost 30% in 2006, 2007, 2009 and 2010. Opponents of the gold standard deduce from this price volatility that “gold is too volatile to be money.” Money cannot be that volatile, because it will wreck our ability to rely on more or less stable prices. If gold would be money, merchants would have to adjust their prices continuously and consumers would have no clue what their money would buy at a certain point in time.

This, however, is a faulty deduction from an observation during a period (between 1971 and today) in which gold lost its use as a commonly accepted medium of exchange. Yet the history of the gold standard is characterized by general price stability and a healthy deflation (lower prices due to increasing productivity and trade).

If gold was to be revalued as money, its ‘price’, or parity, would be far more stable than it currently is, because any monetary demand for gold would stabilize its demand patterns. Demand for a commonly accepted medium of exchange is a rather reliable component or source of demand. People hold cash balances and transact on quite a steady basis, as long as they trust in the value of the medium of exchange in question. This stabilizing effect of a revaluation of gold as money would apply to both a gold-dollar peg, as well as a ‘truer’ gold standard.

Actually, this is not a myth, but a true statement. Governments and central banks cannot increase the supply of gold. This myth therefore refers to the assumption that it would be bad to leave a government without any means to manipulate the supply of money.

Under a gold standard, there would be no ‘monetary policy’. But instead of being an argument against the gold standard, we should embrace it exactly because of that reason. As Ludwig von Mises wrote in its treatise, Human Action, “This is not a defect of the gold standard; it is its main excellence.”

A gold standard removes the determination of money’s purchasing power from the political stage. The value of money is no longer determined by the whims of government officials. It avoids the trap of governments financing their budget deficits by means of the metaphoric printing press. With gold as money, the determination of the value or market price of money is as independent from government manipulation as it possibly can be. And that is a great thing, not a bad thing.

Similar to myth six, myth seven is about how a central bank can no longer fulfil its role as ‘lender of last resort’. Yet, that myth presupposes that having a lender of last resort is desirable.

If some banks recklessly expand their liabilities in a way that later threaten their very existence, they should be wiped out and disappear. That is how capitalism works, and must work, and it should not be treated different than any other sector of the economy. Imprudence has to be punished by the market.

Any bank that fails, still has assets sitting on its balance sheet that can be sold off.  Normally, only its equity and most of its junior claims would take a hit, or at least the biggest hit. Of course, without a lender of last resort, banks would be forced far earlier to reverse course and reckless balance sheet expansion when the market is on top of things, without relying on any government guarantees.

It is true. It is difficult to keep many countries aligned with a gold standard, but with a more or less dominant reserve currency, not much support is needed. If the U.S. decides tomorrow to return to a gold standard, the rest of the world has little reason not to follow suit.

Friedrich Hayek argued fiercely against what he called monetary nationalism. When countries have floating exchange rates, money can have real effects on economic activity that weren’t caused by a change in consumer demand: the market gets distorted.

Nevertheless, even if it were not the US to reintroduce a gold peg, the European Union (the monetary union) shows that it is possible to have enough international cooperation to introduce one currency among several fiscal territories. The benefits would outweigh the costs, as the European case clearly shows. Although unlikely, countries such as China and Russia could easily decide to introduce a gold standard together.

The argument that the ones who now own gold would benefit at the expense of the rest, is not really an argument against a gold standard. There is a ‘first-mover advantage’ in any asset that is later used as money. Cryptocurrencies are the best example; the first ones to own a successful cryptocurrency can have massive gains

These first movers — whether in gold, cryptocurrencies or even international fiat money — benefit because they were shrewder than the rest. They were earlier and more alert to the opportunity, and gain a reward as a consequence. There is nothing bad about that. We even witness this phenomenon in today’s markets, with investors speculating on foreign exchange markets, choosing some fiat currencies over others.

So, yes, current gold investors would benefit from a gold standard. But incurring the opportunity cost until the gold standard is reinstated, is their sacrifice to profit from their entrepreneurial foresight.

Aside from the obvious fact that gold is actually useful in many ways (it is an efficient and reliable conductor for one), even when investment demand currently outstrips industrial demand by a wide margin, there are better ways to counter the myth that “gold is useless” and therefore should be “disregarded as a money alternative.”

The fact of the matter is that money, the commonly accepted medium of exchange, actually has enough value being money in itself. Our today’s fiat money backed by nothing but a promise of a central bank is even worth less for any other purpose; it has practically no use other than serve as money, and there is nothing wrong with that (unless the currency is hyperinflated and people start burning it for heat). Yet arguing against a medium of exchange backed by gold by referring to its “uselessness,” is rather ironic. It would certainly not justify a choice for a paper currency or a cryptocurrency instead of gold.

A gold standard curtails the option for governments to finance public spending through printing money. As such, fiscal policy is ‘fair’: if and when governments spend, they have to raise the money by either taxation or by borrowing it fair and square internationally. It is the very reason to defend a gold standard, not dismiss it, and most myths we’ve discussed are based in some way or another to more fundamental economic thought. Nevertheless, I’ll leave the question whether we need to return to a gold standard for another moment.