The Case for Gold Book Review

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Case for Gold

By Ron Paul and Lewis Lehrman
The Ludwig von Mises Institute 2007
221 pages

published in 1982, The Case for Gold might well have been
written in 2010. For the historical and economic realities facing
the U.S. at the present time are almost identical to those of the
1980s. Economic prosperity and political freedom are at stake.

In his foreword
to the book, Ron Paul says, “This report was written to demonstrate
as clearly as possible the choices available to us: political (paper)
money or commodity (real) money.”

He begins by
discussing the present monetary crisis, which – remember –
was the recession of the early 1980s. Paul examines Nixon’s
decision to close “the gold window” in 1971. During the
ten year period following that decision, retail prices “more
than doubled.” Interest rates doubled, while business and personal
bankruptcies more than doubled. Real wages went down and unemployment
went from 5.5% to 8.9%. Paul’s conclusion is simple: “the
Federal Reserve’s discretionary policy of the last several
decades has been the cause of our inflation.” In other words,
paper money has not only failed. It has failed splendidly.

In chapter
two, Paul presents the history of money and banking in the U.S.
prior to the 20th Century. He points out that “apart from medieval
China, which invented both paper money and printing centuries before
the West, the world had never seen government paper money until
the colonial government of Massachusetts emitted a fiat paper issue
in 1690.” Within a year, the new paper pound depreciated by
more than 40%.

By 1740, all
the colonies – except for Virginia – did the same thing.
They started printing paper money. In each instance, the result
was identical. “Dramatic inflation, shortage of specie, massive
depreciation.” Later, after learning the hard way, the colonies
returned to specie, which “occasioned remarkably little dislocation,
recession, or price inflation.”

This is precisely
the point Paul is trying to make. Going back to hard money is relatively
painless. All the previous imbalances are done away with and things
return to a healthy normal. As Paul proceeds through his masterful
history of money and banking, it becomes obvious that paper money
doesn’t work. Fiat currency is inflationary and produces boom
bust cycles with devastating regularity.

Chapter three
picks up the natural chronology, providing a look at money and banking
in the U.S. in the 20th Century. According to Paul, the bankers
“had long chafed to cartellize the banking industry still further.”
The National Banking System was good, but not good enough. The bankers
wanted an even more centralized system. They got their druthers
with the Panic of 1907. The Federal Reserve System came into being
in 1913. And even though the U.S. was still formally under a gold
standard, “the banking systems would now be pyramiding on the
U.S. issue of paper money.” Reserve requirements for the banks
were chopped in half under the Fed. This meant, as Paul says, “the
Federal Reserve was designed from the very beginning to be an instrument
for a uniform and coordinated inflation of bank money.”

And that’s
exactly what happened. Between 1922 and 1928, bank credit doubled,
which caused “speculative excess.” By 1928, the government
became alarmed and tightened the money supply, which caused the
Depression. Then in 1931, England went off the gold standard. A
move that shook the international community. Shortly thereafter,
FDR took America off the gold standard.

the rest of the article

26, 2010

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