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Ron Paul’s The Gold Standard

Ron Paul’s January 15th talk in Washington and Lee’s Lee Chapel was inspiring, exciting, and overall great for the University. Ron Paul is an exciting speaker and it is easy for a crowd of young students to get caught up in his rhetoric and forget about what is actually being applauded. The crowd clapped for his “protect our borders” and “protect our liberty” points. Sandwiched between all of these points was Ron Paul’s assertion that America needs to go back to the gold standard. The natural knee-jerk reaction was for the students to clap. In that moment, I was disappointed that the crowd did not pause in silence.

The case for returning to the archaic “gold standard” is weak at best. As professor Jim Casey said in environmental econ, “we might as well go to the tree bark standard.” Professor Casey’s reasoning was that gold is an arbitrary good that is purely determined by society’s value of the item. Casey asked what happens if one day the world wakes up and doesn’t like gold? Professor Casey also believes that when we are running low or want to increase the supply, we will just steal gold from other nations (like we do with other natural resources).

I had a similar discussion with Professor Hooks, who echoed Professor Casey’s sentiment. She brought up the issue of people not liking coins. This is likely why the silver dollar coin has failed even though the government has made numerous efforts to implement it into currency. Professor Hooks holds that coins often end up in couches or returned for paper dollars. In fact you can go to Kroger and exchange your coins for paper money and kroger will take 35% of the money.

[the prof: this is not the definition of “money”, which is a means of exchange – we and every other prosperous economy use bank deposits, the amount of which bears little relationship to the amount of coin and paper]

In preparation for hearing Ron Paul I went and did some independent research. It is true that Ron Paul’s “Austrian Economics” holds that paper money backed up by a gold standard is ideal. It is well known that economists rarely agree on anything, ( but economists on both the right and the left agree that the world’s worst idea is the gold standard. The gold standard contributed to the Great Depression, as the Fed raised interest rates rather than lowered them to protect gold. In 2008 the Fed was able to increase the money supply by 16 trillion dollars (a point which Ron Paul disagreed with) but most economist believe that the situation would have been much worse without the ability to increase the money supply.

[the prof: we should again be careful with definitions, but that qualitative story of increase remains]

Ron Paul preaches to let markets do the work and have the government stay out of the way of the “invisible hand”. This hands-off monetary policy is one that on the surface economists should support. In contrast, the gold standard, is an ideal that seems incomprehensible to economists, politicians, and voters alike.

[the prof: this is a version of the old “rules” vs “discretion” debate, which even Milton Friedman eventually decided was unworkable]

the prof: I am approving most of the comments, deleting only those that were mere ad hominem attacks


  1. Burke Burke

    While the gold standard might sound incomprehensible to most Keynesian economists and politicians, more and more voters understand the need for sound money. Fiat currency is money created out of thin air and only impoverishes the middle class and poor. Attaching our money, once again, to something of value only limits the government from creating and sustaining all kinds of spending. Anyone who thinks being 16 trillion in debt and trillions in unfunded liabilities leads to prosperity must be someone who believes that spending money they don’t have on credit cards is a good idea. I believe we all know where that ends.

    • That’s possible in the abstract (and all too real in Zimbabwe) but in the US the Fed clamped down on the only significant inflation we’ve had since World War I (1980-81, when Paul Volcker was Chairman). In the subsequent 3 decades I think a more accurate statement is that we’ve been biased towards too little inflation (given various intrinsic issues, such as the ability in surveys to compensate for substitution among similar goods and of new retailers for old, which means the CPI overstates the “real” level of inflation).

      • StokeyBob StokeyBob

        If you look at Robert Sahr’s chart of the devaluation of the dollar based on the Consumer Price Index you can see that we had devastating inflation after every war. Now they are at war with all of us about everything. They have stripped so much wealth out of my friends and my wealth our occupations no longer makes ends meet. Think of all of the industries that had made it through the ages and they are all collapsing.

        Banking is broken in both directions. You can’t save for the future when they pay a half a percent and inflation is around eight. If you had money to loan you could never keep up with the counterfeiters and their loans.

        They have destroyed every way to save for the future. If you need money the counterfeiters are now the only game in town.

    • Yes, he’s firmly in the 1950s and early 1960s with its fixation on the Cold War and on fixed exchange rates (by then, the Bretton Woods system). Well, the Cold War is over, and from the conservative side Milton Friedman long ago put rest to the idea that the gold standard or any fixed monetary rule would work. (Friedman had yet to reach that conclusion in his early popular writings — again, Ron Paul is stuck in the remote past.)

      • Chris Chris

        How is Ron Paul stuck in the remote past/fixated on the Cold War? Who else calls for pulling US military personnel out of Germany, Korea, Japan, UK …? This is the apex of Cold War empire turf-war aggression … Cold War mentality. He is diametrically opposed to it.

        Where are all the forward thinking politicians and thinkers on this issue? Stuck in the Cold War mentality?

  2. zhang zhang

    Whether it’s a pegged exchange rate or a pegged dollar to gold, a system without flexibility or oversight has failed every time throughout history. It is insufficient and dare I say useless to critisize the metaphors that the author of this post used because the main idea is that the gold standard is “barbaric” and potentially susceptible to manipulation.

  3. Maggie Maggie

    I think this is an interesting comment on the idea behind the gold standard. I may not know a ton in favor or against the idea of a gold standard, however I am leaning towards Professor Casey’s argument. My recent research on the resource curse has revealed just how dangerous natural resources, gold included, can be. I do not understand why you would want to use a gold standard when commodity prices are extremely volatile and have the potential to create so much instability. If you choose to believe the Malthusian idea of a fixed amount of natural resources and the associated upward trajectory in commodity prices, then gold is again a bad choice. If demand grows with population and supply is fixed, this will create periods of excess demand and macroeconomic instability. While I am not arguing in favor of a fixed amount of resources or a “Hubbert’s Peak”, I think it is important to know the negative effects natural resources can have on an economy.

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