CATO Institute, 224 Second Street, S.E., Washington, D.C. 20003), 1982 • 226 pages • $8.95 paper
The Case for Gold is more significant in analysis and insight than its title might imply. It is a record of the political economy and banking of the United States as they have evolved in history. It is an important reinterpretation of American history with respect to the uses of the public treasury by financial interests, and of the accompanying struggles, manipulations, and political developments. The book traces the recent economic decline, details the process by which the dollar has lost public trust and has suffered decreased purchasing power, and proposes specific reforms predicated on a monetary standard. It is a specific defense of the political, economic, and moral desirability of an honest money standard.
This book is anything but a compilation of esoteric statistical data; it is both original and restorative. It contains just about everything one would ask about the history, significance, and importance of the gold standard, past, present, and future, if one knew enough to ask the right questions. The implications of the topic dealt with are enormous; the penalty for public failure to come to grips with the truths presented here would be severe.
This is not to say that The Case for Gold is a sensationalist work, for it is not. It is not written with exclamation marks! Honest money (redeemable specie measured by a known standard of value) versus the continuation of politically manipulable fiat paper money which is undefined by, is not redeemable in, and is not backed by specie of specific value, poses questions of such in tense reverberation that realism speaks in unfettered terms of the cataclysmic consequences of continuing failure to respect and abide by fundamental economic law.
The question of fiat political money versus honest money poses some of the most dramatic and consequential political and economic issues of the day. The question of honest money, of necessity, goes to the essence of freedom, liberty, limited government, the role of law, and prospects for economic growth and business predictably. The importance of public understanding and willingness to take appropriate curative steps can scarcely be overemphasized or exaggerated.
Paul and Lehrman make an explicit case for the desirability of an honest money standard (a requirement gold suitably meets) with respect to its political, moral and economic parameters. It was not until August 15, 1971, that the United States severed the last link between the dollar and gold. This act ushered in a new era of inflationary psychology and lack of trust. Gold has value of itself; paper does not. As Thomas Jefferson stated in debate over the money issue in 1784: “If we determine that a dollar shall be our unit, we must then say with precision what a dollar is.” From 1792 until August 15, 1971, the dollar was defined as a precise weight of either gold or silver. For the last decade, the dollar has been undefined and unbacked. It is sustained only by popular faith, and that faith has declined steadily. The dollar, in consequence, is worth only about one- third of what it was worth in 1971, as measured by its command over goods and services. The loss of definition of the monetary unit is directly related to the financial and economic problems of today.
The institutionalization of money-creating powers in the Federal Reserve has not and cannot perform the economic miracle of turning stones into bread. Paul and Lehrman argue that the entire process—the creation of the Federal Reserve in 1913, President Roosevelt’s confiscation of privately owned gold and devaluation of the dollar in 1934, withdrawal of silver certificates from circulation and the debasement of coinage and its replacement by copper sandwiches for coins in the 1960s, terminating with the ending of the international convertibility of the dollar into gold in 1971—“is a catalogue of broken promises and outright theft on the part of the federal government as it sought to substitute a managed, irredeemable paper money for a gold standard.”
Elimination of honest money, that is, of money as a commodity defined precisely by weight—is a threat to freedom itself. John Locke argued that the right of the individual to own gold was a civil liberty equal in importance to the liberty to speak, write, or practice one’s own religion. When the Founding Fathers wrote the U.S. Constitution in the summer of 1787, the debacle of the paper money issued by the Continental Congress was fresh in their minds. The framers of the American Constitution, men who were greatly influenced by both English Common Law and biblical law, regarded money as “a weight of precious metal, not a weightless piece of paper with green ink printed on it.” The authors contend that today’s paper money system, issued by a coercive banking monopoly, has no basis in the Constitution. It is, they state, “a form of taxation without representation, and a denial of the hard fought and won principle of consent before payment of taxes,” and is a blatant contradiction of the Constitutional provision restricting legal tender to gold and silver.
Chapter one of The Case for Gold reviews the problem of persistent inflation and general economic havoc which have become accentuated by the last decade of paper money. Chapters two and three review the history of money and banking in the United States and the process by which we arrived at our present state of economic disorganization through paper currency. Chapter four sets forth arguments for monetary freedom based on historical experience with the free market and an absence of legal tender laws.
Chapter five makes the case for the gold standard. The authors dispose of the common objections, and set forth the benefits derived from sound money. These include low interest rates (anticipated to stabilize at three to four per cent), accelerated real economic growth, increased savings, renewal of longterm financing, checking of government spending, and a growing economy with increasing demands for employment.
Chapter six outlines specific reforms that are needed to correct the blunders of the past. These include repeal of the legal tender laws, definition of the dollar in terms of a specific metallic unit, gold coinage by government and private mints, removal of monopoly privileges over money by the Federal Reserve, continuing audits of America’s gold reserves, and deregulation of banking. Paul and Lehrman point out that there is no free entry into the banking business, which is largely centralized by the Federal Reserve and other federal and state regulatory agencies. Deregulation of banking, including free entry by simply filing the legal documents with the appropriate government clerk, is a must for monetary freedom.
The last chapter of The Case for Gold presents two contrasting scenarios for the next decade. One perspective, based on a gold standard and monetary freedom, moves toward longterm stability of prices and business growth with prosperity made possible by maintenance of a sound currency. The alternative is to continue the present course with irredeemable paper accompanied by accelerating rates of inflation and unemployment, the punishment of thrift, and the eventual spectre of whirlwind inflation and social chaos. Americans must choose.