Gold? Why not bitcoins or conch shells?

A return to a gold standard makes perfect sense if your contempt for government runs so extreme that it trumps any consideration of consequences. As a practical matter, though, the idea of reinstating the gold standard lies somewhere between silly and perverse.

Yet passionate Republican stalwarts – including David A. Stockman, budget director under President Ronald Reagan, former presidential candidate Steve Forbes and former Representative Ron Paul of Texas – call for junking our dollar standard in favor of returning to a gold standard. The Republican Party’s national platform last year called for a commission to study a conversion to gold.

There’s also a new, fun money in town: a virtual currency known as bitcoins. Or consider conch shells: Societies from Africa to the South Pacific used seashells as money until well into the 19th century – though they wouldn’t fit well in modern pants pockets.

The common feature of using gold, bitcoins or seashells as money is that market forces – not government – would determine the amount in circulation. In the modern economy, the supply of money – the number of dollar bills chasing after goods and services – affects inflation and recession. If money pours into an economy, sellers will see higher demand for their goods. Expect them to raise prices and production in varying proportions.

Under our current dollar standard, our central bank, the Federal Reserve, controls how much money sloshes through the economy. Under a gold standard, the central bank loses control.