The collapse today in the value of the dollar to a record low in terms of gold prompts us to turn to a just-issued report from Federal Reserve Bank of Philadelphia. It has come out with a study touting gold — the classical measure of monetary value — as a vehicle to achieve stable prices. Incremental though it may be, this news is progress, especially when the Fed is having a hard time, under a fiat money regime, bringing inflation down to its 2 percent target.

The key finding of the Fed’s paper is that a gold standard “ensures long-term price stability.” That’s hardly news to those who have long stressed that a gold standard — defining the dollar as a fixed weight of gold — has historically been the best means to hold prices steady. This from a regional bank that is part of the Federal Reserve that was headed by Ben Bernanke, who infamously said, “if you look at actual history the gold standard didn’t work well.”

Mr. Bernanke’s disdain for the gold standard reflects the conventional wisdom in the academic and financial worlds since America abandoned the last vestige of the gold standard in 1971. That’s when President Nixon closed the “gold window” whereby, per the terms of Bretton Woods, America had agreed to redeem dollars presented to it by foreign governments at a 35th of an ounce of the monetary metal. That ushered in the age of the fiat dollar.

Since then, the dollar’s value has plummeted to less than — in its record today — a 2,200th of an ounce of gold. The recent inflation spiral, meanwhile, is proving especially resistant to the Federal Reserve’s effort to bring price increases down to 2 percent a year using its modern monetary toolbox. Yet annual inflation of 2 percent is a level that would never have been tolerated under the historic gold standard.

Kudos, then, to a Philadelphia Fed researcher, Daniel Sanches, and the University of Pennsylvania’s  Jesús Fernández-Villaverde for casting a scholarly eye on the workings of the gold standard. Especially because, as they note, the subject hasn’t gained much attention in academia. “There have been few attempts to model a commodity money system in a modern dynamic general equilibrium framework,” the authors observe. 

In layman’s terms, this means hardly anyone is taking the time, as they are, “to examine the behavior of money, prices, and output under the gold standard.” Their study of a generic “Home country” defines gold as a “durable good,” that “does not depreciate, has zero storage costs, and can be held in any divisible quantity.” Under a gold standard, they conclude “the price level in the Home country consistently converges to its long-run equilibrium value.”

Under gold, the authors add, “inflation and deflation are merely temporary phenomena.” The Fed working paper corresponds with America’s historical experience with the gold standard. Economist Michael Bordo — whose work is cited in the scholars’ study — has observed how in the heyday of America’s gold standard, between 1879 and 1913, inflation here was held down to an average of but 0.1 percent a year, a performance that puts today’s Fed to shame.

The central bank, after all, has boosted interest rates to levels not seen in 15 years in an effort to vanquish the post-2020 inflation. Yet it is finding price pressures persistent. After higher than expected Consumer Price Index readings the last two months, economists polled by the Wall Street Journal expect Friday’s Personal Consumption Expenditure Index to register at 2.5 percent over last year, up from February and well above the Fed’s 2 percent target. 

It’s worth noting that the working study vindicating gold as a means to keep prices stable came out of Philadelphia. That’s where Washington signed the Coinage Act of 1792, which established silver and gold as America’s money. The Philadelphia Fed study concedes that its findings constitute “preliminary research that is being circulated for discussion purposes.” When it comes to a role for gold in America’s monetary system, there is much to discuss.