The Myth of the Gold Standard

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gold standard isn’t worth the paper it’s written on.”

Yogi Berra

Yogi didn’t say that. I said it. But if people believed that
Yogi said it, the aphorism would gain greater currency (as David
Gordon might say).

One of
the litmus tests of a person’s conservatism is his commitment
to the ideal of the gold standard. This is an appropriate test
for conservatives. It shows a person’s commitment to one of
the movement’s least understood and most futile political causes.
It also identifies the adherent as a card-carrying member of
the movement’s cognoscenti. The listener thinks, “Maybe this
person even understands Gresham’s law.” Most important, it defends
big government in the name of limited government. And, just
like almost everything else in the conservative movement, it
eventually backfires. It backfires for the same reason the other
conservative programs backfire whenever inaugurated: it calls
on the State to limit the State.


The person
who calls for the re-establishment of “the” gold standard —
nobody agrees as to exactly what “the” gold standard should
be — begins with an unstated judicial presupposition: “The
State has a legitimate legal right to control the issue of money.”
This is another way of saying: “Monetary policy is an example
of market failure.” More than this, it implies the following:
“Because money is the central economic institution in a high
division of labor economy, the State has a legal right and a
moral obligation to control money, so as to retain influence
over every area of the market.”

It goes
far beyond this, however. One of the greatest little-known books
in recent history is Ethelbert Stauffer’s Christ and the
Caesars (Westminster Press, 1955). Stauffer was both a theologian
and a historian of numismatics: coinage. He traces the moral,
theological, and political confrontations between the early
church and the Roman Empire. He does this by means of a survey
of the coinage. He shows, coin by coin, how the messianic claims
of the emperors as the source of salvation paralleled the debasement
of the coins.

The coins
were implements of political and religious propaganda. The images
of the emperors and the slogans on the coins were important
devices in promoting faith in the Roman Empire. Stauffer shows
that the inscriptions on the coins were challenges to all rival
gods with universal claims. There was an inescapable war between
Christ and the Caesars.

was a war against the Jews, too. During Bar Kochba’s revolt
(133—35), Jews issued their own coinage. These coins did
not have any person’s image on them.

Most of
the world’s currencies and coins today have images of politicians,
either dead or alive. By law, American coins and bills may not
have the image of anyone living. (In this instance, I am strongly
in favor of a law. If I must daily look at pictures of politicians,
I prefer the dead ones.)

and governments have long asserted an authority, if not an absolute
monopoly, over the coinage. It has to do with control over the
images. It has to do with the ability of the state to extract
wealth from the public by means of currency debasement: taxation
by stealth, whose negative effects can be blamed on private
speculators. But, from the standpoint of economic theory, this
monopoly over money has to do with a theory of market failure.

The next
time you hear someone waxing eloquent — and, in all likelihood,
incoherent — about the marvels of the gold standard, ask
him this: “Why don’t you trust the free market?” This question
is intended to elicit what I like to call a jude awakening.

Be prepared
for a blank stare, followed by “Huh?”


This phrase
is well chosen. It presents gold as the standard of comparison.
It usually is applied to something that isn’t as good as gold.

In monetary
affairs, it applies to a substitute for gold, or what is called
a fiduciary instrument. It is a piece of paper that is offered
in lieu of gold.

Gold has
its flaws. Its flaws are extensions of its unique benefits.
Let me list three.

gold is heavy. Paper is lighter. Digits are lighter still. A
person can carry pieces of paper with lots of zeroes rather
than gold coins.

gold is universally in demand, despite its impersonal nature.
This means that, when stolen, it is easy for the thief to find
buyers. In the era of the gold standard, a fence liked gold
coins so much that he offered a reduced discount to the thief.
So, people with a lot of money adopted checks and other less
universal means of payment. You can stop payment on a stolen

gold is highly transportable. This means that it is easy to
lose. Lose a check, and you have not lost much. You can stop
payment on a lost check.

But to
retain their status as being as good as gold — and a little
better under most circumstances — fiduciary instruments
had to preserve the greatest benefit of gold — its scarcity
due to the high cost of mining — despite the low cost of
printing. It is easier to counterfeit paper than to counterfeit
gold. It is easier to sign a promise to pay gold than to pay

All of
the defenders of the gold standard believe — I am not making
this up — that the best way to reduce the practice of counterfeiting
is to hand over a legal monopoly over money creation to the
most accomplished and universally recognized counterfeiters
in history: civil governments.


A gold
standard is a promise made by a self-licensed professional counterfeiter
that he will always stand ready to redeem his pieces of paper
and official digits in exchange for gold at a fixed ratio. As
the mid-1950’s comedian George Gobel used to say, “Suuuuuuure
he will.”

The gold
standard became universal in the nineteenth century. Because
the public had the right of redemption for a century, 1815 to
1914, the price level remained relatively stable for a century.
This right of gold redemption was invariably suspended during
major wars, but it was restored a few years after the war ended.

This was
the era of free market economic theory and the politics of limited
government. We speak of “nineteenth-century liberalism”: free
markets, low taxes, and the gold standard.

The nineteenth
century was the first stage of an international sting operation.
As in the case of every con game, the con man must create a
sense of trust on the part of his mark. Whether it is a Ponzi
scheme or a more traditional scam, if the targeted sucker distrusts
the con artist, he won’t surrender his money. For the con game
to work, the con man must create an illusion of reliability.
In short, he must present himself, economically speaking, as
if he were “as good as gold.”

The era
of limited government led to enormous economic expansion. It
also led to the mass production of high-tech weapons. Governments
had to get their hands on these weapons in order to defeat other
governments. There were few Third World nations in 1885 that
could afford fifteen minutes of ammo for a Maxim machine gun.
The big governments, in the words of nineteenth-century New
York City politician George Washington Plunkett, “seen their
opportunities and took them.” The age of modern empires began
in earnest.

The bigger
the world’s economy got, the bigger the national governments
got. The bigger the national governments got, the more they
jostled with each other for supremacy. By 1914, they were ready
for mass destruction on an unprecedented scale.

War I began with the suspension of gold payments by the commercial
banks. The was the violation of contract — a lie from the
beginning — that fractionally reserved banks would redeem
bank notes and accounts at any time for gold coins. As soon
as the governments all retroactively validated this violation
of contract by commercial banks, they used their central banks
to extract the gold from the commercial banks. They have yet
to give it back.

The big
crooks muscled into the territories of the small crooks. The
big counterfeiters extracted the loot from the little counterfeiters.


The free
market created money. Civil government spotted an opportunity
and took it. The State granted itself a monopoly over money.
It did so in the name of law: the defense of society from unscrupulous
cheats and counterfeiters. From the day King Croesus (rhymes
with “greases”) asserted authority over the new invention of
the round metallic device that we call the coin, the State has
muscled into monetary affairs. For 2,600 years, the public has
accepted this arrangement. It worked for 1,100 years in Byzantium:
325 to 1453. It has not worked anywhere else for longer than
a century or two.

Then came
paper and ink. As Ludwig von Mises once said, “Only government
can turn valuable items like paper and ink into something utterly
worthless.” Actually, Mises didn’t say it. Maybe Yogi Berra
said it.

are conservatives who still present this 2,700 year-old con
job of State-issued honest money as a philosophy of limited
government. Whenever I hear this assertion, I always hear the
faint sound of a piano playing Scott Joplin’s “The Entertainer.”
My mind becomes clouded by an image of Paul Newman and Robert
Redford, arm in arm, walking away with my gold. Fade to black.

For conservatives
who don’t quite understand what I’m getting at, they should
read my little book, Mises
on Money
and subscribe to my free newsletter, The
Gold Wars
. They won’t. But it would be nice if a
few libertarians would.

28, 2003

North is the author of Mises
on Money
. Visit
For a free subscription to Gary North’s newsletter on gold, click

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