Liberty Forged

the State has no money of its own, so it has no power of its own. ` Nock

The Political and Economic Agenda for a Real Gold Standard

Posted by Jesse on January 17, 2008

by Ron Paul

This paper was originally delivered at the Mises Institute’s 1985 conference on the gold standard. It later appeared as the final chapter in The Gold Standard: Perspectives in the Austrian School.
Read the full transcription here
The Case for Gold

“One of the basic insights of the great Austrian economists, both Carl Menger and Ludwig von Mises, is that money emerged by evolution from the market process. It was not invented by governments. There are basic economic forces today that are contributing to the further evolution of the monetary system, and there is a political strategy that I believe will make it possible to liberate those forces and restore the monetary role for gold. Because of the current economic and political climate, it is important to understand what we can do — and what we cannot hope to do in the short run.”
…………
“In The Theory of Money and Credit, Mises wrote, “The first step must be a radical and unconditional abandonment of any further inflation.”[2] Although I strongly support this objective, I do not believe it would ever be possible to achieve such a requirement if we place it as “the first step.”

Banishing inflation is, in fact, the ultimate objective we expect to achieve by creating a new gold standard. The US government has moved so far in the direction of fiscal irresponsibility that the reform of our basic monetary and financial institutions has become much more complex. For political reasons, ending inflation cannot be the “first” step. We must subdivide it into many smaller preparatory steps even to approach the task.”
………………..
“One of the points on which Mises was adamant is the role of the Federal Reserve System: “It is essential for the reform suggested that the Federal Reserve System should be kept out of its way.”[4] Mises advocated the creation of a “Conversion Agency” that would be responsible for issuing gold coins and bullion to the public, and redeeming excess quantities of gold in circulation if the public should choose to exchange gold for paper. The Federal Reserve would continue to have some responsibility under his plan, as a fiscal agent for the Treasury in managing the national debt, but the Conversion Agency would maintain the domestic and international exchange value of the dollar.

This is one of the most distinctive differences between Mises and other advocates of the gold standard, who want the Federal Reserve to buy and sell gold at a fixed conversion for dollars. The government’s fiscal agent necessarily performs a banking function as it collects and disburses tax money. It would have to be separate from a conversion agency that would function more like an office of the National Bureau of Standards than like a bank. Mises’s analysis of financial institutions and the market process led him to favor free, decentralized banking.[5] He was thus a consistent advocate of a separation of powers.

Ludwig von Mises understood that the problem with monetary institutions is first of all a political problem. By proposing this separation of powers between the central bank and a conversion agency, he was an early proponent of an institutionalized competition in currency. Even the government of a constitutional republic like the United States could not be trusted with discretionary monetary power:

The President, Congress, and the Supreme Court have clearly proved their inability or unwillingness to protect the common man, the voter, from being victimized by inflationary machinations. The function of securing a sound currency must pass into new hands, into those of the whole nation.[6]
………………..
“The choice for advocates of a gold-coin monetary system, therefore, is straightforward: either we move ahead with a program for US gold coins denominated by weight, with no face value in terms of dollars — thereby starting the transition period immediately — or we sit on our hands, perhaps for decades, debating the fine points of banking theory, until the paper money system collapses around us. Even then, it is not obvious that the collapse of the paper money system would bring about the political pressure necessary to restore a gold standard. We might end up with controls on wages, prices, credit, and exchange controls instead of a gold-coin standard.”
…………..
The genius of Ludwig von Mises was his profound insight into the free-market process, the science of catallactics. The most important thing I have learned from his work is that the achievement of a new gold standard in our society will have to come from the free market itself. This is why I believe the first step must be a new troy-ounce gold coinage, even without any legal tender qualities or special tax treatment. As we have found in recent banking deregulation, the market develops new procedures and techniques in the monetary and financial system, and Congress follows with repeal of old, restrictive laws. This is the political and economic dynamic process that we also can harness to restore gold to its proper monetary role.”
……………….
“Restoring a gold coinage is also the highest duty we now face, as citizens of this country. We no longer live in a world where the free market is taken for granted. On the contrary, most people assume government must control and guide the economic system for the benefit of all. Ludwig von Mises suffered during most of his career because he understood too well the stakes of this ideological conflict:

“Cynics dispose of the advocacy of the restitution of the gold standard by calling it Utopian. Yet we have only the choice between two Utopias: the Utopia of a market economy, not paralysed by government sabotage, on the one hand, and the Utopia of totalitarian all-round planning on the other hand. The choice of the first alternative implies the decision in favour of the gold standard.”[14]

I believe the goal of a market economy, not paralyzed by government sabotage on behalf of vested interests and pressure groups is an ideal worth fighting for. This is why I first ran for Congress, and it is the only reason I believe justifies political action.”

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6 Responses to “The Political and Economic Agenda for a Real Gold Standard”

  1. […] Clay wrote an interesting post today onHere’s a quick excerptby Ron Paul This paper was originally delivered at the Mises Institute’s 1985 conference on the gold standard. It later appeared as the final chapter in The Gold Standard: Perspectives in the Austrian School. Read the full transcription here […]

  2. Johnson said

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  5. Thanks for the information, but I’m not sure that a ‘REAL’ gold standard will ever get sorted out, too many beuracratic idiots trying to have their piece of the pie.

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  6. great article, very informative!

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