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.
15 thoughts on “Gold, Peace, and Prosperity: The Birth of a New Currency”
Here in Canada this kind of logic makes perfect sense. We have the largest and finest goldmines with silver credits anywhere. We should adopt this first, to show the way how other nations should go. Our banks are relatively sound, compared to all others due to good public policy. Since Canada is # 1 in this department, let’s do the same in the money = gold/silver department too.
Ron Paul is the best person for president since he so dutifully understands the constitution, it’s boundaries, limits, rules, and won’t violate but rather uphold it’s principles, as one expects from a constitutionally minded, patriotic, American and Commander in Chief.
I love it! Back to a gold Standard, Eliminate the FED, Back to a conservative House and Senate, Back to the Constitution and BACK to God! Back to being the ally we have always been to Israel. Oh and OUT of the UN!! That would put us back on the track to living in AMERICA!
I have been a follower of Doctor Paul for decades. He is completely trust worthy, outstandingly knowledgeable and highly ethical. He alone is a voice in the wilderness. I sugggest that you become a supporter. We truely need to get back on the golf and silver standard. Our government should immediately begin to buy large amounts of gold and siver. Americans should also begin to buy gold and silver. Within five years gold will reach $5,000 an ounce. Silver will break the $100 an ounce. God bless and thank you for reading this.
I have more questions than answers. Here goes:
Circulating gold coins wear out, causing
some coins to contain less gold than newer ones.
This will cause people to pull the new ones with
the most gold , out of circulation.
If the mint replaced worn out coins with newer
full weight ones, that would cause people to artifically
‘wear’ coins, pocketing the gold. So I think that
paper backed gold is much preferrable to circulating
gold. “bad money drives out good money” (Gresham’s law)
I also wonder if it doesn’t make more sense to denominate
in ounces, rather than dollars. Then the dollars per oz
variability disappears. The bad thing I see, is this:
What if the total amount of gold certificates in
circulation decreases below the total contracted future
payments, ie, there is not enough money in circulation to
pay contracted debts? Is that possible or likely?
This would be deflation and things that had to be bought
today would drop in price, rewarding savers, no?
The amount of gold in the world is constantly increasing
but so is the population. How does that affect things?
Great article and I will be buying this book. Thank you.
OK Ron. Where was this realization 12 years ago when I posted and wrote the GOP about doing this to save us from what has happened? I was criticized by the “leaders of the GOP” or was it the little minds that ghost write for them using their unlearned opinions to dis conservatives in the party?
“What if the total amount of gold certificates in
circulation decreases below the total contracted future
payments, ie, there is not enough money in circulation to
pay contracted debts? Is that possible or likely?”
No, this had not happened before WWI because of the real bills system of credit.
This was answered by Professor Antal E. Fekete in article “Real Bills: “Waggon-Way in the Air” at http://www.professorfekete.com/articles.asp
LT Brown…Dr. Paul has been saying EXACTLY the same thing since the 1970’s, let along 12. Where have you been? Nobody in power listens to Ron, that is why were in this mess…
This is a great idea, but the elites that run this country will fight tooth and nail to prevent it from happening. They will use fearmongering, propaganda, and if necessary force. I fear that our country will plunge into civil war sooner or later, and that most of the people fighting will have no idea what they are really fighting over. The powerful will use racial and ethnic tensions to their advantage.
Dr. Frank, you need to understand a rule if you want to quote it. Gresham’s Law applies only where one circulating medium is overvalued by the threat of legal sanction or privilege. For example, the US government tried at various times in the 19th century to equate the value of gold and silver coins denominated in dollars. They did this by specifying that the value of gold in proportion to silver was 15 or 15 ½ or some such nonsense based on current experience. But there are domestic and international markets in these metals and they set the relative values, not Washington. After refixes of the relative values in1834 and 1837 overvaluing gold, silver fled America so that those involved in commerce were complaining bitterly of the lack of small silver coins. This was a reverse of the previous situation in which the lack of gold coinage attracted noisy attention. The only common element was of course governmental price-fixing.
Your example would hold only if a government insisted on the acceptance of clipped and well-worn coins at face value. But even Washington never tried that, in fact the mint has always had the responsibility of re-minting the metal in worn and damaged coinage.
Recalling my reading of Episodes in Monetary History by Milton Friedman, he argues very strongly for bimetallism. Friedman makes the point that the supply of two metals is inherently more stable the the supply of either one. And because silver tends to be worth less than gold, they are well suited to different transaction sizes. In that book, he points to the Coinage Act of 1873, which demonetized silver and likely contributed to Mao’s rise to power in China. Friedman also makes the excellent point that historically, silver was used more broadly than gold prior to the late 19th century. I read this article only to validate that it does in fact argue for bimetallism – but I fear that many libertarians and conservatives might miss this important distinction in their reactionary fervor against a fiat currency.
A gold based currency need not necessarily be all in gold or silver coins. It is likely that most people would continue to make electronic transactions which transfer gold from their bank account to the seller’s bank account. Also, paper notes could be used to redeem for gold at the bank of issue. There are other measures to prevent these problems with gold and silver currency. These include putting notches on the edges of the coins to prevent people scraping gold off the side. Also, people can just weigh the coins before accepting them.
Finally, the Fed (and other central banks) are inflating so much that small scale fraud (tampering with coins) pales in comparison. I’d rather lose a few percent on a few gold coins occasionally, rather than lose a few percent of my total bank account each year..
Most tend to explain Gresham’s Law in the way you’re describing (bad money drives out good), but the critical point is that it is artificially overvalued money that drives out good. In a truly free market we would not be required to accept at face value a coin that has been worn down. If I owned a store and was handed a visibly worn gold coin I would simply weigh the coin and value it by its weight.
It is only when a government mandates that coins be accepted at face value that Gresham’s Law applies.
Having said that though, I don’t disagree that some type of representative currency would be preferable to carrying around a pocket full of gold and silver.
Regarding your other thoughts, I’d recommend you read What Has Government Done to Our Money by Murry Rothbard. It’s an excellent book and is 100% pro free-market.
” Your critics sharpen you”
After 30 years still nobody listen to Dr. Paul: what need to happen before they listen?
Going back to gold standard is not easy. There aren’t enough gold and silver (GS) to replaced all the properties mortgaged and other assets pledged with banks as collateral. Therefore all the salaries and wages in the world cannot be paid in gs.
Shortages in gold will cause mining workers to demand more wages as workload increase. the intrinsic values of both metals will increase.
If i bought my house for 200 ounces of gold, I have the freedom to ask for 400 ounces in a housing shortage period. Is that inflation? If yes it curtailed freedom. Is the buyer free to buy at 4oo ounces? The shortages causers and the hoarders create inflation, not money but human.
Ancestor of voice in the wilderness also said: THE BOOROWER IS A SERVANT OF THE LENDER. DEBTS CURTAILED FREEDOM. The more the borrowers the more powerful the lenders become.
Comments are closed.