September 7, 2012
The 2012 Republican Party platform contains a plank concerning a possible return to the gold or other metallic standard. The US dollar has been a fiat currency since President Richard Nixon suspended its convertibility to gold on August 15, 1971.
The plank reads,
Determined to crush the double-digit inflation that was part of the Carter Administration’s economic legacy, President Reagan, shortly after his inauguration, established a commission to consider the feasibility of a metallic basis for U.S. currency. The commission advised against such a move. Now, three decades later, as we face the task of cleaning up the wreckage of the current Administration’s policies, we propose a similar commission to investigate possible ways to set a fixed value for the dollar.
While it is heartening to see the gold standard becoming a mainstream issue once again, the purpose of the “gold plank” is primarily political — to placate Ron Paul supporters — and it should not be construed as anything more.
Why would the Republican Party leadership worry about placating the supporters of a congressman whose presidential campaign was soundly defeated?
Well, despite being outspent 100 to 1 by Mitt Romney and being opposed by the entire GOP establishment, Ron Paul garnered two million primary votes and collected nearly 200 delegates in the primaries and caucuses. His message of small government, non-interventionism, constitutionalism, and sound money resonated with a significant minority of Republican voters.
The Republican Party leadership fears that many of Paul’s supporters are embittered by the shabby treatment their candidate received at the state and local level and on the convention floor, and thus will not support Romney in November.
While it is highly doubtful that Paul’s supporters would vote for Obama, they could simply sit out the election — or worse, organize a nationwide write-in campaign on behalf of Paul. Given that Paul supporters have proven themselves adept at exploiting the Internet for organization and fundraising, a write-in campaign could have the effect of a third-party run.
The inclusion of the “gold plank” in the GOP platform is an attempt by the party’s leadership to keep the “Paulistas” within the Republican fold. Whether this ploy will work is anyone’s guess.
Looking beyond the upcoming election, we should ask ourselves, what are the chances of the gold standard getting a serious consideration?
I’d say they run anywhere from zero to nil.
Let’s deal with political reality. Neither the Democrats nor the Republicans want to reduce the size of the federal government. So, regardless of who wins this year’s presidential election, Washington will be spending more, passing more laws, raising taxes, inflating, and incurring more debt in 2013 and beyond.
Congress has run budget deficits in excess of a trillion dollars for the last four years and has added $10 trillion to the national debt in the last decade.
The US Treasury has relied on China’s central bank to purchase a large chunk of that debt. But with China now selling Treasuries, the Federal Reserve has been forced to pick up much of the slack by increasing its debt purchases.
Now, in order for the Fed to continue monetizing federal-government debt, it must continue to amass Treasuries. The Fed can only do this by increasing the monetary base.
A restored gold standard or anything resembling it would severely restrict the Fed’s ability to expand the money supply, which would mean Congress could no longer rely on the Fed as the lender of last resort. Under these circumstances, Congress would have to radically cut spending, perhaps as much as 40 percent. There is no will on Capitol Hill to impose spending cuts of that size.
The reason governments of all forms have traditionally loathed the gold and other metallic standards is the fiscal discipline they impose. As Ron Paul writes,
As governments and central banks continue the cycle of spending and inflating, the purchasing power of their currencies is constantly being degraded. These currencies are what the people are working for and saving. This inflation guts the savings and earnings of the people, who have very limited options for protecting themselves against these ravages. One option is to convert their fiat currency into something out of reach of central banks and government spending, such as gold or silver.
It is fairly typical in the midst of economic crises like these for gold to come under attack from Keynesian economists and their amen corner in the media. The arguments against gold are usually straw men, based on a fundamental misunderstanding of the purpose of buying gold. Gold is not a typical investment. It is a defense against the predictable behavior of governments to debase a fiat currency under its absolute control. The people who run the printing presses have trouble shutting them off. In order to limit one’s exposure to this reckless behavior, it is wise to exchange unsound assets for sound ones.
As the foundation of their power, their fiat currency, is rejected or avoided, government power is compromised. Fiat currencies trade the people’s freedom and security for the government’s freedom to squander the wealth of the nation on wasteful pet programs, wars, and corruption. This is why the freedom of the people is so intertwined with a sound monetary unit. This is also why the founders liked gold and silver, and supporters of big government hate them.
A genuine gold standard would mean the government relinquishing the power of the printing press and handing control of money back to the people. With sound money jingling in their pockets, people could veto the decisions of the central bank and rein in a spendthrift government by simply demanding delivery of their gold.
That is too much economic democracy for the ruling elites, who rely on coercive legal-tender laws and the inflationary central-banking system to stay in power.
However, with the economy still mired in a deep recession and the federal government confronted with increasing unfunded liabilities, there is a very good chance the Fed will continue printing money to provide more pork-filled “stimulus” and to pay for Uncle Sam’s gargantuan debts.
This next round of inflation could spark a run against the dollar and cause a worldwide panic to buy gold and silver. So we could end up with a gold or other metallic standard after all.
This article was first published by the Future of Freedom Foundation.