Why They Hate the Gold-Coin Standard

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If there is a single confession of faith uniting economists all over the world today it is this: their uncompromising hostility to a full gold coin standard.

The second confession of faith is their qualified support of the idea of central banking.

The two positions are operationally one position.

Austrian School economists oppose central banking. This goes back to Ludwig von Mises’ 1912 book, The Theory of Money and Credit. Mises promoted free banking: commercial banking governed by the law of contracts. He did not support the idea of legislation to establish 100% reserve banking.

His disciple Murray Rothbard promoted 100% reserve banking. But, because he opposed the existence of the state, his call for 100% reserves was not a call for legislation requiring 100% reserves. As far as I can see, operationally speaking, his position was the same as Mises’ position: free banking.

Austrian School economists support whatever monetary standard that a free market society produces through voluntary exchange. They believe that this monetary standard is likely to be monies – plural – based on the precious metals. They believe in parallel standards: silver coins, gold coins, and token base metal coins trading without any state-legislated controls. They do not believe in price controls – fixed exchange rates – as the basis of unifying multiple metal coin standards.

Hard-core Austrians reject the idea of state-issued money. Money issued by the state should not be trusted. Why not? Because the state’s officials always are tempted to debase the currency. They want to increase government spending without imposing visible new taxes, which lead to political resistance. It is cheaper, easier, and safer to expand the money supply, and then spend the newly created (counterfeited) money into circulation. They buy today’s goods at yesterday’s lower prices, at least until the investors catch on and begin to bid up prices in the commodity futures markets. I have written a book on this, Honest Money.

Why are economists so opposed to a gold coin standard? There are three reasons: (1) self-interest, (2) arrogance, and (3) faith in the State.


Let us begin with the #2 assumption of all free market economic methodology: personal self-interest is the #1 motivating factor behind economic action. (The #1 assumption is scarcity: “At zero price, there will be greater demand than supply.”)

Let us assume that a newly minted Ph.D. in economics goes looking for a job. He has no ability to make money as an entrepreneur. He is a bureaucrat certified by bureaucrats. He cannot successfully forecast markets.

No one in the private sector is likely to pay him to write unreadable term papers based on formulas that have no relation to actual markets. Yet writing such term papers is his main skill. His only other skill is taking exams based on these formulas.

He is in his late 20s. He is heavily in debt. The state has funded most of his education, but still he is in debt. He overpaid.

There has been a glut in Ph.D.s since 1969. It has gotten worse every year. But, because university departments are paid more by the university for graduate students than for undergrads, the faculties have an incentive to recruit students into graduate school. He was sucked in. He did not see my debate on why it is not a good idea to get a Ph.D. in economics.

No department of economics will hire him: the glut. But the Federal Reserve System will, if he specialized in money and banking. The Huffington Post in 2009 published an indispensable article, “Priceless: How the Federal Reserve Bought the Economics Profession.”

In 1993, we are told, Alan Greenspan informed the House Banking Committee that 189 economists worked for the Board of Governors (a government operation) and 171 worked for the 12 regional Federal Reserve banks (privately owned). Then there were 703 support staff and statisticians. These came from the ranks of economists.

This was only part of the story: the proverbial tip of the iceberg. From 1991 to 1994, the FED handed out $3 million to over 200 professors to conduct research.

This is still going on. There has been growth. The Board of Governors now employs 220 Ph.D.-level economists. But the real growth has been in contracts.

A Fed spokeswoman says that exact figures for the number of economists contracted with weren’t available. But, she says, the Federal Reserve spent $389.2 million in 2008 on “monetary and economic policy,” money spent on analysis, research, data gathering, and studies on market structure; $433 million is budgeted for 2009.

That is a great deal of money. This amount of money, the author implied, is sufficient to buy silence. He added that there are fewer than 500 Ph.D.-level members of the American Economic Association whose specialty is either money and interest rates or public finance. In the private sector, about 600 are part of the National Association of Business Economists’ Financial Roundtable.

If you count existing economists on the payroll, past economists on the payroll, economists receiving grants, and those who want in on the deal, “you’ve accounted for a very significant majority of the field.”

I can think of only one Austrian School economist who ever took a job with the Federal Reserve. He did so as soon as he received his Ph.D. He ceased writing for Austrian School publications for the next 35 years. “If you take the queen’s shilling, you do the queen’s bidding.”


The heart of Austrian School economic analysis is the idea that the free market provides better information to decision-makers than any government committee can assemble. The decentralized sources of information, when governed by a price system, provide more accurate information. The sanctions of profit and loss reward accurate information-collectors and penalize inaccurate ones. This means that Austrian School analysis is inherently hostile to the claim by bureaucrats that the civil government, especially the national government, can make more efficient decisions than the free market can.

This faith has waned ever since the economic collapse of the Soviet Union, 1987-1991. But, even so, there is one exception heralded by academic economists: the Federal Reserve System. We are asked to believe that the FED does not operate as a normal government-created cartel does, even though its characteristic features are shared by all other government-created, government-defended cartels: high prices, little accountability, self-serving managers, guaranteed income, and all due to a monopolistic grant of privilege by the government.

In college textbooks on economics, the chapter on cartels is separated from the chapter on the Federal Reserve, usually by at least a dozen chapters. References back and forth do not appear.

The newly minted Ph.D. has been given a schizophrenic education, from Economics 1a to the final oral examination. He has been told that cartels are bad for consumers, and the Federal Reserve System has been a benefit. The student has accepted both positions, which means that he cannot connect cause with effect in economics. He cannot follow a chain of reasoning from one zone in the economy (cartels) to another (central banking). In short, he would make a good economic staff member in any of the 12 regional Federal Reserve Banks or the Board of Governors.

To get a job he must do this: teach that the cartel of central banking is a positive non-cartel. It can make unproductive people (economists) productive. It can provide money for governments, yet not weaken democratic control over governments.

Central banks are said to be able to provide positive policies in the aggregate for most members of society, despite the fact that central bankers favor national political objectives for one group or another, or one region or another. Economists assert that despite winners and losers, and despite the fact that economic theory teaches that there is no common value scale uniting all members of the civil order, that central banking is better than the gold coin standard.

He believes that he, along with other employees of the banking cartel’s enforcer, the central bank, are capable of devising a national economic strategy and then executing it, so that the results conform to the government’s economic plan.

They firmly believe that they possess specialized economic knowledge that enables them and others like them to join together in an agency that possesses the government-chartered power of coercion. This information enables them to dream up policies that will make people better off than a free market outcome would have been for the great mass of citizens.

They believe that their knowledge, which would bankrupt them in a few hours in the currency futures market, puts them in a better position to plan the central institution of a division of labor social order: the monetary system.

They believe that formulas taught in graduate school that are loss-producing in the currency futures markets are wealth-creating in a central bank.

They believe that bureaucratic control over the monetary base – mainly government IOUs – which is the central economic policy tool in society, is superior to the currency markets, where profit and loss govern the flow of information. They believe that tenure is more of an incentive to guess correctly than is the profit-and-loss system of the futures markets.

They believe that they, when they are part of a government-created and government-protected cartel, are wiser than the currency markets.

They are supremely arrogant.

Congress does not control the central bank. The private capital markets cannot control it. Then what does control it? The employees’ fear of getting blamed for depression and default on one hand, and hyperinflation on the other. They are in control in between.


This faith is easily summarized in a formula: M + B + G = P, where M is money, B is badges, G is guns, and P is prosperity.

This faith is faith in legalized coercion: badges and guns. The presence of badges makes guns efficient in the production of wealth. Guns without badges are seen as wealth-destroying: the law of theft. But when badges are added to guns, everything somehow changes. Those officials who carry both badges and guns are transformed. They can now be trusted to enforce decisions that will lead to outcomes that increase everyone’s wealth.

This faith in the state is challenged in the curriculum materials of Chicago School economists. Keynesians extend this faith to other departments of the government, especially government finance. But Chicago School economists are taught not to trust any cartels, except two: (1) the banking system, (2) the educational system.

To make these two institutions work, meaning work better than (1) non-Chicago programs and (2) the free market, politicians must adopt two rules: (1) a fixed rate of increase for M1 (or maybe M2) of 2% to 5% per year, and (2) educational vouchers.

Naturally, neither of these two recommendations has ever been implemented, which means that Chicago School economists can continue to promote their reforms, justifying them on this basis: “They have never been tried.”

Chicago School economists strive to make the State more efficient by imposing rules other than the free market’s rules, which are: 1. The law of contracts 2. Private ownership 3. No government restrictions on entry into markets 4. Prohibitions against violence and fraud

Chicago School economists profess faith in the outcomes of these four rules, except in banking and education. In these two areas, the rules do not apply. Why, we are not told.

I think it has something to do with self-interest, arrogance, and faith in coercion, when the rules governing coercion are designed by professional economists.


In 1946, the economics department of the University of Chicago had an opportunity to hire F. A. Hayek away from the London School of Economics. Hayek’s book, The Road to Serfdom (1944), had become a best-seller by 1945. It was published by the University of Chicago Press.

The department of economics rejected him. The reason? Hayek’s view of economics was insufficiently scientific. Translation: he was more systematic in opposing the use of badges and guns as ways to increase efficiency and liberty.

Hayek was more committed to badges and guns than his mentor Ludwig von Mises was. Chicago’s economics department never hired Mises, either.

Hayek came to Chicago as an unpaid professor, just as Mises came to New York University. The William Volker Fund paid their salaries.

Yet in 1994, Friedman wrote the Introduction to the 50th anniversary edition of The Road to Serfdom. He refused to mention the long-term hostility of his pro-free market colleagues to Hayek’s views.


Economists oppose the gold coin standard because they do not fully believe in the free market social order. They do not believe that voluntary exchange in a private property social order produces greater liberty, and therefore greater wealth, than government planning does, meaning planning by tenured committees.

The gold coin standard is a threat, both in theory and practice, to modern economic theory as taught by the cartel of higher education. It is a standing testimony to the unwillingness of self-interested, arrogant, cartel-certified economists to extend what they say they believe about free markets to the two cartels that employ them: higher education and the fractional reserve banking system.

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

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