Reply #5: Gold Standard [View All]

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The classical economists and modern Austrian economists favor commodity-based money. Mr. paul considers it part and parcel of a laissez-faire system. There were depressions in the 19th century under a gold standard, but those were almost all due to excessive credit expanansions by government central banks. The depressions never lasted long becuase the states response was to shrink itself or else do nothing. The malinvestments and debt were allowed to be liquidated. Companies were allowed to go banrupt and the economy was allowed to purge itself of all the bad investments. There was a gently falling price level throughout most of the 19 century with the exception of the Greenback and Confederacy fiat currency era of the Civil War period.

Paper money should be able to work in theory, but no government in the history of the earth has had the discipline to not overprint it. The state can pay for some of its bills simply by printing new money. Our Federal Reserve system actaully creates new electronic money or accounting money with the stroke of a keypad. Government can pay back its creditors with a debased money as well. That is what our glorious central planners at the FED are attempting to do right now. The price that the people pay is the insidious inflation tax. The government in effect steals purchasing power from savers. Our dollar has lost over 96% of its purchasing power since the creation of the Federal Reserve.

Mr. Paul and many others would eventually like to see a separation of money and government altogether. The Founders expressly enumerated the power of the central government to coin money and regulate the value there of. They only wanted commodity based money to be used because they had lived through state-issued fiat currencies and the disastrous fiat Continental paper currency. There were numerous currencies in circulation in the late 18th-early 19th centuries. The Spanish mill dollar was the most commonly used. Anyone could create their own currency and have a government official attest to its weight. Paper money was used as as a substitute for the gold or silver much like you use a check as a substitute for paper money. The money was the commodity itself though. I favor Hayek's plan to separate the state from money. Money is just a product like toothpaste. If your interested, I would recommend Hayek's " The Denationalization of Money."