Promoting the “gold standard,” even with modifiers such as “classical,” “pure,” “100%” and others, or any monetary regime whereby paper money is “backed by,” “redeemable into,” “pegged to” or in any other way related to gold is a mistake for six reasons:
- The gold standard is not authorized by the Constitution. The only money authorized is gold and silver coin. There is no other way to read Article 1 Section 10: “No State shall . . . coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts.” If U.S. money is not gold and silver coin, how can the states comply with this part of the Constitution? Further, states are not authorized to tender payment in something that is redeemable into gold or silver, just the real stuff in the form of coins. By debating and voting overwhelmingly to strike the words “emit bills of credit” from what came to be included in Article 1 Section 8 of the Constitution, Congress was—and remains—denied the power to issue paper money, redeemable, backed or not. Mindful that all U.S. laws must be in conformity with the Constitution, the gold standard violates the “rule of law;”
- The gold standard is not a free-market phenomenon. It is a bank invention (specifically the Bank of England) so that banks can achieve greater leverage—and profits—by issuing loans, i.e., extending credit, denominated in claims on money (gold) which they do not have. That is to say, it is an historical fact from the outset that banks issued more receipts for gold and silver, a.k.a. “banknotes,” than for which they had gold and silver;
- The gold standard is an invitation to fraud because the issuing authority misrepresents that its promissory notes are redeemable “on demand” for gold. The issuing authority fails to disclose that the “on demand” promise is contingent on whether the gold “backing”: (a) has not been lent to an insolvent debtor; (b) has not been invested in an illiquid entity; (c) has not been stolen; (d) is on hand and ready for delivery or whatever. Another way of looking at this is that a gold standard is part gold and part fiat money. The “backing” is certainly gold, but since all of the paper money cannot be redeemed for gold, that portion which is not redeemable is in fact fiat. Also, the percentage of gold “backing” can vary. Some, e.g., Rothbard, suggest that the only acceptable system is one where the gold “backing” is 100%. But if that is the case, then why designate paper as the money? Most importantly, paper should never be “legal tender.
- ”The gold standard is inherently unstable because there always comes a time when the issuing authority over leverages by creating receipts for gold greatly in excess of its gold. That is, there always comes a time when the temptation to over issue becomes so overwhelming that it cannot be resisted. The Catholic Church has a line for this, and the Catholic Church has this exactly right: “In the face of temptation, reason succumbs.” A much tighter and unassailable reason why the gold standard is inherently unstable is that there is no self-correcting mechanism for increasing the money supply. A “rule” that depends on human action is not self-correcting. As every engineer/scientist will confirm, cross-culture and cross-time, any system that does not have a self-correcting mechanism blows up. No exceptions;
- The gold standard is dishonest. In order for people to use paper money that is supposedly redeemable, pegged to, or in some way linked to gold, as opposed to using gold, the paper money must at some point be declared as legal tender. In other words, the paper money must be deemed by law to be just as good as gold. At the end of the 19th century, when William Jennings Bryan ran against William McKinley for President of the United States, the American Federation of Labor, in The Federationist, asked the exact right questions and which are still relevant today with regard to legal tender: If our money is good and would be preferred by the people, then why must we be forced to use it? If our money is not good, why in a democracy should we be forced to use it? The answer to those questions was previously penned in 1871 by then Chief Justice Salmon Chase: “[legal tender] is only valuable for the purposes of dishonesty.” Greenspan, in a letter to former Congressman Dr. Ron Paul dated November 20, 2003 wrote: “So long as we issue fiat currency, I see no alternative to a legal tender law.” In other words, if the monetary authority is going to continue to issue bogus, i.e., dishonest, currency, we must have legal tender for it to circulate; and,
- The gold standard has empirically failed.
Even without these objections, it is still a mistake and pointless to promote the gold standard because there is overwhelming and unassailable opposition to it. Promulgating the gold standard is the monetary equivalent of the Charge of the Light Brigade: defeat is assured. For every gold standard proponent—almost all of whom are not credentialed—there are hundreds of credentialed (with prizes, doctorates, endowed chairs, books, heads of department, published peer-reviewed papers) “expert” naysayers who will drown out him out.
For example, at the 2013 American Economic Association annual meeting in San Diego, economist Mark Skousen reported that there was only one proposition that had 100% unanimous (forgive the redundancy) agreement: We should not return to the gold standard. Even the so-called hero of free markets, the venerated Nobel Laureate Milton Friedman, intensely disparaged the gold standard, or anything to do with gold, for that matter.
Importantly, the banking (cartel) system can be relied upon to use its very considerable resources to mobilize its thousands of lobbyists as well as its bought-and-paid-for elected representatives to defeat needed legislation.
There is no appetite in any country (with possible notable exceptions of Russia, China, and some small countries) for a monetary role for gold. Nearly every country has it as official policy to depreciate the purchasing power of its currency, the jargon for which is “inflation targeting.” Haruhiko Kuroda, Governor of the Bank of Japan, has even more deceptive jargon for depreciating the purchase power of the Japanese yen. He calls it “price stability targeting.” The gold standard would be positioned as deflationary; something to be avoided at all costs. There is no possibility, sans a catastrophic collapse, to pass legislation providing a monetary role for gold.
As a practical matter, because of the mountain of debt along with contingent obligations and liabilities that has been building in nearly every country, there is no way to legislate a transition to either the gold standard or an honest monetary system.
Finally, mainstream media is also nearly unanimous in opposing the gold standard. It is a gross strategic error to devote limited and precious resources to something that contradicts free-market principles, is not authorized by the Constitution, is an invitation to fraud, is inherently unstable, has empirically failed, is dishonest and is doomed to failure no matter what.
The challenge, it seems to me, is to enable gold as an alternate currency to mitigate the damage when the current make-believe money monetary regime collapses, which may occur while you are reading this.
What is to be done?
There is a possibility to pass legislation that will begin to remove the barriers to enabling a competitive currency to the make-believe, a.k.a., fiat, dollar. In my view, legislation that has the most likelihood of being enacted would merely remove IRS taxation on U.S. Gold and Silver Eagles.
Existing statutes and Supreme Court decisions already authorize these coins as legal tender currency for their face amounts. Gold clauses have been reauthorized in black-letter law since 1977 and have been upheld by the courts. If the IRS were to treat these coins as U.S. currency instead of as “property” in accordance with existing law and stop taxing them, economic laws will trump political laws.
At the margin, some people will begin including gold clauses in contracts that call for future payment, especially pensions. U.S. Silver and Gold Eagles will begin to circulate at the margin as an alternate currency in competition to the make-believe dollar.
From a longer-term strategic viewpoint, one cannot simply propose legislation that would give gold an explicit role in the monetary system and expect it to pass, or even to get out of committee. Better to not even mention gold but to insist on simple honesty in our monetary system and hammer on the injustice, perfidy and myriad perils of make-believe money.
Honesty in this context means that everything having to do with our monetary system, especially what is printed on “FRNs,” government bonds and other financial instruments have no misrepresentations, full disclosure of material information, and not involve coercion of any genre, e.g., legal tender.
In sum, a worldwide campaign could be launched to broadly promote the benefits of an honest monetary system and the perils of our legal tender irredeemable paper-ticket-electronic make-believe money monetary system.
After the tradeoffs are understood, producers, savers, Labor, small countries and ordinary people everywhere will demand an honest system. For reasons discussed elsewhere, the result will be gold/silver-as-money in conformity with the Constitution.
Larry Parks is the Executive Director of the Foundation for the Advancement of Monetary Education, and the author of What Does Mr. Greenspan Really Think?
 Knox v. Lee, 79 U.S. 457 (1871)
 Economic Club of New York, The Honorable Haruhiko Kuroda, Governor, Bank of Japan, Speech 10/8/14
 Thompson v. Butler, 95 U.S. 694 (1877).
 In 1977 an amendment is currently codified under Volume 31 of the United States Code, Section 5118(d)(2), that plainly states that the provisions of the 1933 joint resolution banning gold clauses do not apply to “obligations issued” (i.e., contracts entered into) after its date of enactment in October 1977.
 Testimony Before the U.S. House Committee on Financial Services, Subcommittee on Domestic Monetary Policy and Technology, 112th Congress, September 13, 2011, Dr. Lawrence Parks, Executive Director, Foundation for the Advancement of Monetary Education; See: Larry Parks HR1098 Congressional Testimony 9-13-11