The Myth of the Gold Standard

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

~ Yogi Berra

Actually, 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.

There 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.)

Kings 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.

First, 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.

Second, 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 check.

Third, 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 gold.

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.

World 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.

There 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.

May 28, 2003

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

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