Ron Paul - The Case For Gold: A Minority Report of the U.S. Gold Commission

THE CASE FOR GOLD

A Minority Report of the U.S. Gold Commission Second Edition

Rep. Ron Paul and Lewis Lehrman

THE LUDWIG VON MISES INSTITUTE
AUBURN, ALABAMA
2007

Library of Congress Cataloging in Publication Data

Paul, Ron, 1935

The case for gold.

ISBN 0-932790-31-3

S ECOND E DITION

Originally published in the Congressional Record, Government Printing Office, Washington, D.C., 1982. Republished by the Cato Institute, 1982, with a second printing in 1983.

CONTENTS

Acknowledgements

The authors would like to thank Christopher Weber, Murray Rothbard, and John Robbins for their assistance in researching, drafting, and editing this report.

FOREWORD

More and more people are asking if a gold standard will end the financial crisis in which we find ourselves. The question is not so much if it will help or if we will resort to gold, but when. All great inflations end with the acceptance of real moneygoldand the rejection of political moneypaper. The stage is now set; monetary order is of the utmost importance. Conditions are deteriorating, and the solutions proposed to date have only made things worse. Although the solution is readily available to us, powerful forces whose interests are served by continuation of the present system cling tenaciously to a monetary system that no longer has any foundation. The time at which there will be no other choice but to reject the current system entirely is fast approaching. Although that moment is unknown to us, the course that we continue to pursue will undoubtedly hurtle us into a monetary abyss that will mandate a major reform.

That moment may come very soonit nearly arrived in the 1979 dollar crisisbut I hope it will not arrive for several years. That way a greater understanding among more people will prompt a wiser choice in establishing the new order. The minority views of the Gold Commission deal precisely with this task. In planning for a constructive monetary reform the errors of the past and the myths that have evolved around money must be fully understood and explained. In this report we have made an effort to analyze the American experience with gold and to refute the cliches used to condemn the use of gold as money. No one program is indispensable in outlining the transition from paper to gold. Every day conditions are different. Today we need a program different from the one necessary three years ago, and in three years the conditions again will change. We certainly do not have the same problem faced by the Germans in 1923, but in 1986 we may. Nevertheless, outlines of different methods of achieving a convertible currency can be made; we have done so in these views.

Briefly, we offer two methods, one through the legalization of competing currencies, the other a government-directed gold standard of the classical variety. Only future events and attitudes will determine the best method. We do know that current monetary policy cannot continue indefinitely, and we are obligated to prepare for better times. This report establishes the foundation on which a sound monetary system can be built.

The date the Gold Commission officially voted and rejected the gold standarda foregone conclusion from the very beginningthe Wasnington Post headline read, Commission Votes Against Revival of Gold Standard. A reporter called to ask my reaction, assuming I would be greatly disappointed. But my response was the opposite. Im delighted, I said, the news is that the gold standard was considered and the (temporary) rejection deserves a top front page headline by the Washington Post. The fact that for the first time in over 100 years a government body was seriously discussing the issue of gold as money is a major achievement. It may even be argued that this was the most significant discussion since the Constitutional Convention when the Founding Fathers condemned the Continental and tried to protect us from the ravages of another political currency. Even the 25 volumes published by the National Monetary Commission in 1912 largely avoided the issue of money and concentrated only on banking procedures. Yes, the news on the gold standard was noteworthy, but not quite for the reason suspected by the Washington Post.

Making a significant change in policy takes time and effort. Rejecting the paper standard will not occur overnight. The destruction of the dollar, once as good as gold, literally took 58 years (19131971). Paper did not defeat gold in one battle. Gold will achieve success in a shorter period. Already the initial steps have been taken. Legalization of gold ownership in 1974 (thanks to Philip Crane, Jesse Helms, and others) and of gold clause contracts in 1977 have certainly been positive developments. The gold coin as recommended by the Gold Commission is another major step in creating a climate for general acceptance of a gold standard. A U.S. gold coin minted by the U.S. Treasury for the first time in 50 years is a significant event and heralds a new era in U.S. monetary history.

The debate in the news media that accompanied the establishment of the Gold Commission made millions of Americans aware of the issue. This public attention will, in the long run, be quite beneficial and is absolutely necessary before gold is generally accepted as money once again.

This report makes the point that we need not return to a gold standardwhich had many shortcomingsbut we can learn from the mistakes of the past, improve upon past systems, and go forward to a modern gold standard. By contrast, all the effort and planning imaginable cannot make paper money work. There is no way paper can be improved as money. Whenever governments are granted power to purchase their own debt, they never fail to do so, eventually destroying the value of the currency. Political money always fails because free people eventually reject it. For short periods individual countries can tell their citizens to use paper, but only at the sacrifice of personal and economic liberty.

Governments can fool people for a while with paper money, but its inevitable that trust in the moneysomething absolutely required for it to serve as a medium of exchange and to allow economic calculationwill be lost. Governments have power to declare paper to be legal tender, but they do not have power to make that money trustworthy. As governments more and more insist on paper alone serving as money, less and less trust is placed in it. Its hardly a surprise that the decade of the 1970s, a decade of paper money, has brought us the decade of the 1980sa destroyed bond and mortgage market, persistent and devastatingly high interest rates, and a faltering economy.

If the nature of money is understood and one observes how the destruction of money occurred during the past 50 years, and especially during the past 10, its easy to see why interest rates are high. Most people today see the economic problems we face as the result of high interest rates and a shortage of money, yet the high interest rates are merely symptoms of an untrustworthy currency. When one deals with currency that has no predictable value and in the long run is steadily depreciating, a shortage will always occur. The shortage, however, is in purchasing power and trust, and not in nominal dollars. Ironically, the more dollars created to satisfy this shortage, the greater is the loss of purchasing power and trust.

This report was written to demonstrate as clearly as possible the choices available to us: political (paper) money or commodity (real) money. It is imperative that we make it clear to the American people the alternatives they have, and that they make the correct choice. Making the wrong choice will jeopardize our political freedom and destroy the possibility of restoring a truly productive economy. Making the correct choicelimited government, free market, private property, and sound moneyensures liberty and prosperity.