Congressman Ron Paul - Gold, Peace, and Prosperity

Gold, Peace, and Prosperity

The Birth of a New Currency

by CONGRESSMAN RON PAUL of TEXAS

THE FOUNDATION FOR
RATIONAL ECONOMICS AND EDUCATION, INC.
LAKE JACKSON, TEXAS

Copyright 1981 by the Foundation for Rational Economics and Education, Inc.,
Post Office Box 1776, Lake Jackson, Texas 77566.

Permission to quote from, or to reproduce liberal portions of, this publication is granted, provided due acknowledgement is made.

Printed in the United States of America.

Photographs courtesy of the Chase Manhattan Archives.

Second printing.

To Carol, whose love and support
are more precious than gold.

In this short pamphlet, Congressman Ron Paul has written one of the most enlightening explanations of inflation that I have ever read. It is both a history and an analysis. That history goes back further than our Revolutionary War, but as a continuous narrative it begins, as it should, in 1913 and 1914.

In the first of those years the United States passed the Federal Reserve Act, which in addition to providing only a fractional gold cover for Federal Reserve notes and deposits, made it possible for the commercial banks to borrow from the newly created Federal Reserve Banks. They could thus increase their own loans, and therefore the money supply they could bring into being. This made inflation possible; but this fact was not generally recognized as long as gold convertibility of the outstanding paper currency was maintained.

What happened in 1914 was more obvious and more dramatic. World War I broke out; and the belligerents instantly suspended gold conversion of their currencies. Each nation did that for self protection. Each belligerent knew that other countries would be unlikely to accept its paper currency at par, or would in any case immediately turn it in for gold. So each belligerent kept its gold supply as a final reserve, to be paid out only when other countries would accept no other means of payment.

After World War I, the belligerents eventually returned to a gold standard; but meanwhile they had enormously expanded their paper currency and raised their price levels, and so were to suffer the drastic commodity price collapse of 1920 to 1921, and the crisis of 1929 to 1933.

But I do not wash to trench here on Dr. Pauls excellent account. When he comes to analysis, he shows that inflation is always the result of an increase in the money supply, either encouraged or initiated by government action. He not only points out that this money supply increase must be halted if we are to escape even greater economic devastation, but he makes clear why we are altogether unlikely to halt the increase until we return once more to a real gold standard.

One of the great merits of Congressman Pauls account is that it avoids all technicalities, and enables the reader to recognize step by step what has happened to us and how we can return to monetary and economic sanity.

Henry Hazlitt

Ron Paul is a most unusual politicianin many ways. In the first place, he really knows what hes talking about. He is not only for the gold standard. He knows why he is for it, and he is familiar with the most advanced and complex economic insights on the true nature of inflation, on how inflation works, and how inflationary credit expansion brings about booms and busts. And yet Ron has the remarkable ability to take these complex and vital insights and to present them in clear, lucid, hard-hitting terms to the non-economist reader. His economics is as sound as a bell.

But, even more important, Ron Paul is an unusual politician because he doesnt simply pay lip service to moral principles. He believes in moral principles in his mind and heart, and he fights for them passionately and effectively. High on his set of moral principles is the vital importance of individual freedom, of the individuals natural right to be free of assault and aggression, and of his right to keep the property that he has earned on the free market, and not have it stolen from him by confiscatory taxes and government regulations.

Ron Paul, in short, is that rare American, and still rarer politician, who deeply understands and battles for the principles of liberty that were fought for and established by the Founding Fathers of this country. He understands that sound economics, moral principles, and individual freedom all go together, like a seamless web. They cannot be separated, and they stand or fall together.

Ron Paul understands that all three parts of this system of liberty have been under grave attack for decades, and that the main problem is the federal government itself. The government has systematically eroded and invaded property rights, has piled on ever higher taxes, ever more onerous regulations, and, most sinister because most hidden, has eroded the value of the dollar and of all of our savings through inflation. Ron Paul is an unusual politician because he is not content to shrug his shoulders, to go with the flow, as Californians say, or to go along in order to get along. He is a man of honor as well as a man of principle, and so he has, ever since he got into politics, been doing something about it. He has fought, sometimes single-handedly, for our liberties and for our savings.

Inflation, as Ron Paul points out, is caused by the governments continual creation of new money, by what amounts to its system of legalized counterfeiting. But, if that is so, why not simply urge the government to stop the creation of money? Why not point out to our rulers the bad consequences of their actions? But Ron Paul realizes that this kind of education, or even pressure, is not going to work by itself. For we are dealing not simply with ignorant or misled people; we are dealing with a pernicious system.

Let us put it this way: give any man or group power, and it will tend to use that power. If the power is inherently abusive, then that power will be abused. Our present system gives to the federal government and its Federal Reserve System the unlimited power to counterfeit. The problem is that if the Fed has the power to counterfeit, it will inevitably use that power. Why? Because the power to counterfeit is too tempting. The power to create money means that it is far more tempting to print it than to work for it. It means that the counterfeiter can pay his debts, spend more money, give more money to his friends and associates. In the case of government, the power to counterfeit means that governments debts can be paid without levying taxes, that government spending can increase, and that political allies can be purchased and maintained.

The power to counterfeit is the power to abuse. It is not enough to urge the government to use it more moderately. The power must be taken away. Counterfeiting is fraud, and no one should have the right to counterfeit, least of all government, whose record of counterfeiting throughout history is black indeed. Money and banking must be separated from the State, just as Church and State are separated in the American tradition, just as the economy and the State should be separated.

Vital to this necessary reform is the return to a money which is a useful product produced by the free market itself. In every society, people on the market voluntarily arrive at one or two commodities which are the most useful to use as a money. For thousands of years, gold has been selected by countless societies as that money. The only alternative to a market commodity- money is what we unfortunately have now: paper tickets issued by the government and called money. Since the paper tickets dollars, francs, pounds sterling, or what have youare issued by the government, the government can issue any amount it arbitrarily chooses. Counterfeiting is built into the system, and hence so is inflation and eventual destruction of the currency.