Gold, Peace, and Prosperity: The Birth of a New Currency
By Ron Paul
The Ludwig von Mises Institute 2007
Gold, Peace, and Prosperity is the title of Ron Paul’s essay for a “modern” gold standard. According to Paul, such a standard would end the relentless boom-bust cycle, and maintain the value of King Dollar. However, King Dollar would have to be founded on a monetary standard that eschews government tampering.
Paul begins his treatise by pointing out that “Congress alone is responsible for inflation, and Congress alone can stop it.” Which means that the old scapegoats – OPEC, greedy CEOs, labor unions – are not the real cause of inflation. To support his contention, Paul relates a story told by Marco Polo in his travels through China. As Paul states, “Abuse of paper money led to the expulsion of the Mongol dynasty from China.”
The same thing happened when the Continental Congress began issuing paper money during the Revolutionary War. Initially, one Continental paper dollar was worth one gold dollar. After a while, it took 1000 Continental dollars to equal one gold dollar. In other words, it literally took a wheelbarrow full of money to buy a loaf of bread.
Paul provides a short history “of our monetary decline.” During the 19th Century, the U.S. operated on a gold standard. The economy was strong and healthy during that time. Then in 1913, the Federal Reserve Act established the central banking system. That was the beginning of the end.
Paul asserts the Federal Reserve Act made America’s entry into World War I possible. It was accomplished by inflation. And the end result of inflation was the 1921 depression. Further inflationary tactics “caused and perpetuated the Great Depression of the 1930s.”
In 1934, the Gold Reserve Act “outlawed private ownership of gold, prohibited the use of ‘gold clause’ contracts, and abolished the gold coin standard.” In effect, the U.S. went on the gold bullion standard. Paul points out that, contrary to Paul Samuelson’s declaration that “the Federal Reserve System was formed in the face of strong banker opposition,” the exact opposite was in fact true. The biggest banks in the country were all for the new system because it promoted “inflation that benefits bankers and big corporations.”
Bretton Woods – in 1944 – supposedly established a new gold exchange standard. In Paul’s opinion, Bretton Woods was “nothing more than an international Federal Reserve System.” And of course, it didn’t do anything but cause more inflation. Then on August 15, 1971, President Nixon “closed the ‘gold window.’” This was the beginning of “managed fiat currency.”
Paul states that since 1971, the price of gold has increased “more than twentyfold.” The trade deficit has increased by 1146%, and the Consumer Price Index has increased 79%. Due to these imbalances, he concludes that the dollar is dead.
Rather than pronouncing the Last Rites over the dollar, followed by a mournful funeral and weeping and wailing, Paul views the death of the dollar as an opportunity. “The time is ripe for the institution of a trustworthy monetary system.” And it’s not all that difficult. The way to stop inflation is to “stop inflating the money supply.” Paul then cites the three main reasons politicians, bankers, etc., desire inflation: greed, power, and a way to pay the government’s bills without raising taxes sky-high.
Paul then proceeds to examine the roles of big business, banks and unions as the culprits responsible for inflation. He concludes that each is partially to blame, but only because fiat currency encourages active participation. If the Federal Reserve System were canceled, then “legitimate profits” would be the order of the day. Which, according to Paul, is the way it should be.
Much of the guilt for the present interventionist monetary policy must be laid at the feet of the economists, says Paul. They “endorse the process,” whether for power and prestige or because they actually believe “it is in everyone’s interest.” Whatever their motivation, “the results are horrendous.” For in the end, inflation destroys freedom.
The answer – the only alternative – to inflation is a moral society, along with honest money. Which means money based on gold and silver. Paul advocates “free market money.” Such a system would allow “consumers to decide about their money the way they decide about everything else.” This would mean the repeal of legal tender laws that “force people to accept the government’s money.” Instead, a gold coin standard would be set in place, and banking would be “an open, competitive business like any other.”
And as Paul points out, there is historical precedent for free market money. In 1879, Congress passed a law making greenbacks redeemable “in gold on a one-to-one basis.” It could easily be done in today’s world.
Paul concludes his treatise by reminding the reader that “government’s only legitimate reason for existence is to protect innocent life and property from aggression, foreign or domestic.” Therefore, when government deliberately causes inflation and destroys freedom, it commits an “immoral act.” Essentially, inflation is nothing more than “legalized counterfeiting.”
In Ron Paul’s opinion, failure to act – to change the system as it now stands – will result in chaos, war and the possible rise of a dictatorship. A gold coin standard – and nothing else – “is compatible with the humanitarian goals of peace and prosperity.”
Gold, Peace, and Prosperity is a wonderful book, full of wonderful truths. It deserves to be read and considered. Paul’s persuasive arguments should dent the armor of even the most ardent Keynesians. Still, power and control – the twin motivators for inflation – are powerful opponents. It will be interesting to see what happens.
On the Read-O-Meter, which ranges from 1 star (pathetic) to 5 stars (extraordinary), Gold, Peace, and Prosperity generates 5 stars.