"Gold Standard" Follies

There have been a number of recent articles on the Internet calling for the United States to "return" to the "gold standard" as a way of saving our country's monetary system from total collapse (see here, here, and here for examples). By "gold standard", these writers refer to a monetary system in which a paper note is redeemable by law for a fixed amount of gold.

There are several problems with restoring the gold standard that the idea's proponents seem unaware of:

1. Employing a "gold standard" (or a "silver standard", or any other kind of a "standard") would require a constitutional amendment as there is presently no authorization in the Constitution for any such a thing. The Constitution mandates only gold and silver coin and prohibits the states from issuing paper money (i.e. "bills of credit") -- whether backed by precious metal or not -- while withholding that power from the Federal Government.

2. The so-called "gold standard" of the late 19th and early 20th centuries, which adherents of this idea wish to "restore", was never a true gold standard in that the bank notes which claimed on their faces to be redeemable in gold were in fact issued to such excess that there was never sufficient gold "backing" in the system to cover more than a fraction of the obligations outstanding. It was indeed this shortage of gold relative to notes that fueled the banking crisis of 1932-1933 as well as spawning numerous "bank runs" and failures in the decades prior to the "Great Depression".

3. Any system in which gold, silver, or any other valuable commodity is used as "backing" for inherently worthless paper -- i.e. notes -- is susceptible to abuse by those controlling the issue of the inherently worthless paper. This is likely the reason why the Founders -- wise as they were -- instituted their ban against paper money (i.e. "bills of credit") -- whether backed or unbacked -- and mandated circulating gold and silver coin as the only lawful tender. For they knew full well that any system which is vulnerable to abuse through human weakness will be abused sooner or later.

Inasmuch as the Constitution makes no provision for -- and history has demonstrated the folly of -- a "gold standard", it would be exceedingly unwise to resort to such a scheme now when the wisest, soundest, and most honest form of money -- precious metal coin -- is the surest remedy for the monetary and economic ills that beset us.

Let us hope that sanity prevails in the restoration of our constitutional monetary system and the rule of law generally.