Not since 1971 has the dollar been tied to gold or other tangible asset.
Now Republican Party leaders have put creation of a “gold commission” in the party’s official platform.
This puts the idea of linking money to gold or other hard assets in the mainstream of discussion for the first time in 30 years. A 1981 gold commission recommended no change in currency policy.
Leading the charge for a gold-backed dollar during those more than 30 intervening years has been Rep. Ron Paul (R-TX), who this year unsuccessfully challenged Mitt Romney for the Republican nomination for president. Paul has said he entered Congress in the 1970s largely because he was so upset at the dollar becoming a purely “fiat” currency, meaning a currency backed by nothing tangible.
A $100 bill today has less purchasing power than a $20 bill in the early 1970s.
“The American people have suffered for decades from the declining purchasing power of the dollar,” said Paul, chairman of the House Domestic Monetary Policy and Technology Subcommittee. His subcommittee in August held a hearing to examine sound money and parallel currencies.
‘Enrich and Impoverish’
“The Federal Reserve has abused its position as the monopolist issuer of currency to enrich Wall Street and impoverish Main Street,” said Paul. “The Fed can effectively create money out of thin air with impunity, while creators of gold and silver currencies face jail time. This is a travesty.”
Republican President Richard Nixon unilaterally ended the last vestige of U.S. currency backed by gold in 1971 with his surprise announcement that he was ordering the government to “close the gold window.” This ended the Bretton Woods agreement the United States and other countries entered into near the end of the Second World War. Bretton Woods pegged countries’ currencies to gold and set fixed exchange rates. Nixon closed the gold window because the U.S. had been pumping dollars into the economy to pay for the Vietnam War, growing social programs, and trade imbalances, and some foreign governments began demanding gold rather than devalued dollars.
Jeffrey Bell, a former adviser to President Ronald Reagan and policy director of the American Principles Project, helped shape the gold commission plank.
‘Money That Holds Its Value’
“Given the total mismanagement of monetary policy by the Federal Reserve,” said Bell, “it’s time to look at money that holds its value, that has independent value, not just something that is printed or generated by the key of a computer.”
The traditional gold standard ended in 1914 as governments around the world printed money to fund the First World War. Since then, says Bell, the dollar has lost more than 95 percent of its value whereas gold buys approximately the same basket of goods it did 100 years ago.
After the First World War ended governments adopted a modified gold standard “but they didn’t do it right,” Bell said. Even that weaker gold standard, though, kept governments somewhat in check.
“You have to borrow real money for real reasons under a gold standard,” Bell said. “You can’t just borrow the money first and then print the money that pays off the bondholders afterward.”
This is why many people in government, and supporters of big welfare states and militaries, oppose a gold standard, said Bell.
“The real objection that government elites have is that they want to be in charge. They want to put those Ph.D.s they’ve got to use by telling the American people how many paper dollars they need to transact business. They make the decisions rather than let it be subject to market forces,” he said.
Others oppose a gold standard for different reasons.
‘Let Market Determine’
“Really, the answer, and what I’d like to see happen, is to let the market determine what it wants to use as money,” said Robert Gray, executive director of the American Open Currency Standard (AOCS), which promotes the use of barter coins that businesses and individuals voluntarily choose to accept as payment. Gray testified at the August hearing of Paul’s subcommittee.
“If government is going to get involved in pegging gold to currency, we probably would see a wild increase in gold prices. . . I think it’s kind of a far-fetched idea to have gold-backed currency,” Gray said.
He advocates keeping government out of the matter and allowing competing currencies. In his testimony he pointed to the Great Depression era, when “thousands of community currencies were created, circulated and traded in places where the scarcity of dollars was interfering with the human desire to live, and the market’s desire to trade.”
Charles Goyette, author of The Dollar Meltdown, likewise favors competing currencies.
“Repeal of the legal-tender laws does not require anybody to do something they might find objectionable,” he said. “If economists from Princeton like Ben Bernanke and Paul Krugman, and other Keynesians believe, as did Lord Keynes, that gold is ‘a barbarous relic,’ they are free to continue using dollars, the Special Drawing Rights of the International Monetary Fund, or any other freshly printed currency they prefer.
“But they might find other people unwilling to accept more fiat money. Thousands of years of experience says that given a choice, people prefer gold to pieces of printed paper.”