For America Today, A Gold Standard Is Unworkable

"The gold standard is not a thing which you can restore by an act of legislation." -Friedrich Hayek (1977)

Throughout recorded time God has punished mankind (deservedly so, one must admit) with frogs, floods, and country music, but He has never punished us with inflation, which for humanity is a purely self-inflicted scourge. Inflation is man-made, foisted upon the working masses not by heaven but by the political class. History is replete with instances of their coin clippings, passing off of counterfeit money, and, in the modern world, the scam of paper money.

With the constant, unending rise in prices since the imposition of the Federal Reserve system in 1913 - a rise which has accelerated since the final break of the U.S. dollar's tenuous link to gold via Nixon's 1971 decree - there has lately arisen calls to shackle the monetary authorities with "golden handcuffs" once more in order to end the constant inflations. The recent move by the Utah state legislator, recognizing gold as a legal tender, is one such call. They may as well legislate the weather.

Now before any "gold bug" mails me that dead rat you've been saving for a special occasion, please hear me out. I would never argue that a gold standard would fail to end the constant debasement of our currency, especially considering gold's unmatched record of delivering a stable price level (or as close to stable as possible); only a lunatic would argue that. Even so fanatical an enemy of gold as Lord John Maynard Keynes freely admitted the "remarkable feature" of England's time under a gold standard was "the relative stability of the price level".

I also concur that a gold standard offers myriad benefits, first and foremost its "important limitations on the freedom of action of monetary managers; imposed by the obligation to keep notes fully convertible into gold". The removal of a "flexible currency", so called, would prevent such abominations as TARP, deficit spending, and the Federal Reserve handing out trillions of dollars to insolvent, foolish bankers. Truth be told, I too am a "gold bug" and believe that a gold standard's drawbacks (which being a system created by man it naturally has) are far exceeded by its benefits.

Yet, an old proverb tells us "the people distrust what they do not understand", and the American people, both the man on the street and those "educated" in our institutions of higher learning, have been bamboozled for so long, so consistently into a knee-jerk hostility towards a gold standard that they would react with horror should it be reinstated. Particularly once the cleansing effects of the resultant deflation took hold, rather than ride it out the voters - particularly those who depend on government largess and hence deficit spending - would raise a hue and cry for a return to paper money.

The voting booth would quickly crush any attempt to bring back what the masses do not understand, and the American people have little understanding of what money is. In addition, and despite another old proverb that tells us "we have gold, because we cannot trust governments", your average American, especially her elite, harbors an extreme trust of government. It can solve all problems in their view, it can even tame "climate change" if only given a chance, and something as fundamental as the provision of money cannot, and should not, be left to anything as independent of political manipulation like adhering to a gold standard requires.

Democratic America is simply not prepared for a gold standard, which is (most damning) undemocratic, too, in the eyes of its opponents. A laudable (to them) outcome of FDR's arbitrary decree that took America off gold in 1933 was highlighted by his close advisor (and Brain Trust insider) Rexford Tugwell who enthused "it is one of the achievements of this administration that all monies are now equal...it is made certain that, so far as currencies are concerned, we shall all suffer alike". Paper money is a great leveler, democratic and hence utterly American.

It is entirely accurate to say that in America, and most certainly in her political and monetary elite, a stable price level is not wanted; thus we see the active calls for a continuously debased currency. After all, it helps pay back all that debt hanging over our collective head. Inflation is an easy, painless (to the debtor) means to defraud your creditor by not paying back on equal terms what was borrowed. Inflation is, at base, intrinsically fraudulent. Actively pursuing such a policy says much about the U.S. as a nation. We are a vastly different people than our forefathers who lived under a gold standard.

The radical, progressive economist Ludwig Von Mises once noted "the principle of sound money that guided 19th century monetary doctrines and policies was a product of classical political economy. It was an essential part of the liberal program." America is no longer liberal, in the European sense of the term. We long ago embraced socialism and an "activist" government, a form of organization bitterly hostile to any restraints on power's ability to manipulate what it will - especially money.

The gold standard in America did not collapse due to the Great Depression; it collapsed due to the refusal on the part of our political authorities to maintain an honest currency. A gold standard, like any other monetary system, has within it a fatal flaw - it is open to all the folly and weakness inherit to human nature. In order for a gold standard to grant its benefits, a country's political and financial elite must adhere to both the spirit and letter of its demand for full and prompt convertibility of paper claims into money. They must, in a word, be honest.

And there lay America's Achilles' heel, our prime national defect that argues against any reestablishment of a gold standard. Look about you today and dare to contradict me - America as we know her simply lacks the requisite honor to make a gold standard workable.

Even if somehow legislated back into existence, a gold standard in America would collapse almost before the ink on that legislation was dry.