A monetary system in which currency values are defined in terms of gold

A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. Three types can be distinguished: specie, bullion, and exchange. Most nations abandoned the gold standard as the basis of their monetary systems at some point in the 20th century, although many hold substantial gold reserves.

Conferences and Conventions

31 Oct - 1 Nov 2008, The Gold Standard Revisited, The Mises Institute, in Auburn, Alabama

Articles

Along Pennsylvania Avenue, by Murray Rothbard, Faith and Freedom, Apr 1955
Discusses the 1955 $10,000 annual pay increase (about $90,000 in 2018) granted to themselves by members of the U.S. Congress, a proposed $20 annual tax cut, inflation and issues of statehood for Alaska and Hawaii (still dependent territories at the time)
"The gold standard question has failed to stir the public because discussion has been waged on a highly technical level. The vital issues in the gold problem must not be lost in a maze of technicalities. They are twofold: one, the public must not be deprived of the right to own gold. Second, paper money and book credits can be inflated at will by the government. Gold cannot. Therefore, if paper and book credits are payable in gold, the people can exercise a check on inflationary overissue by the government. And the people can then fall back on a 'hard' money that cannot be diluted by government edict."
Related Topic: Inflation
Anne Robert Jacques Turgot, Who First Put Laissez-Faire Principles into Action, by Jim Powell, The Freeman, Aug 1997
Biographical essay, covering his life, works and involvement with the Physiocrats, as well as his accomplishments as an administrator
"Defending gold, Turgot wrote: 'It is ridiculous to say that metallic money is only a sign of value, the credit of which is founded on the stamp of the king. This stamp is only to certify the weight and the title. ... It is then as merchandise that coined money is ... the common measure of other merchandise, and that not by an arbitrary convention ... but because, being fit to be employed in different shapes as merchandise ... and being besides suitable of reduction to a given standard and of being equally divided, we always know the value of it. Gold obtains its price from its rarity.'"
"Bad Money Drives Out Good", by Charles Adams, Future of Freedom, Dec 2003
Explains Gresham's Law, recounting how Queen Elizabeth I restored pure silver coinage, how the Romans debased the Greek silver drachma and how Swiss bankers bought gold from the U.S. Treasury in the early 1970s
"... in the end the Roman government had to go back to gold and mint a new gold denarius. Since then, gold has remained the basis for all sound revenue systems, and, despite arguments to the contrary, most governments today have pursued a policy of minting phony coinage or printing worthless paper. No longer do Americans have gold certificates, or even silver certificates, redeemable at the U.S. Treasury, as they once did. If history is any guide, these stacks of fiscal cards will collapse and nations will be forced to return to pure gold and silver coinage once again."
Related Topics: Money, Switzerland, United Kingdom
Competing Money Supplies, by Lawrence H. White, The Concise Encyclopedia of Economics
Discusses the arguments in favorand against free banking, with multiple private banks issuing their own notes, including historical precedents and proposals for the medium for note redemption
"Other episodes of the competitive provision of banknotes took place in Sweden, Switzerland, France, Ireland, Spain, parts of China, and Australia. In total, more than sixty episodes of competitive note issue are known, with varying amounts of legal restrictions. In all such episodes, the countries were on a gold or silver standard (except China, which used copper). In a free banking system based on a gold standard, competing private banks would issue checking deposits and banknotes redeemable on demand for gold."
Related Topics: Banking, Central Banking, Money
George W. Bush's Nixonomics, by Gregory Bresiger, Mises Daily, 22 May 2006
Describes the various fiscal, monetary and economic policies during the Nixon presidency and compares them to those under George W. Bush
"The United States under Nixon, and predecessor presidents Lyndon Johnson and John Kennedy, was cheating on the promises of a gold standard, using other nations to disguise its own deficits. It was a system that allowed Americans to pay foreigners in depreciated dollars, while foreigners had to settle debts in gold or in another currency other than their own. ... Said Nixon, in announcing the dollar was no longer, in any way, tied to gold: 'I have directed the Secretary of the Treasury to defend the dollar against the speculators.... We are not about to ease up and lose the economic leadership of the world.'"
Gold Policy in the 1930s, by Richard Timberlake, The Freeman, May 1999
Discusses U.S. government monetary policies during the 1930s, in particular, the Gold Reserve Act (1934) which allowed FDR to devalue the dollar, the Banking Act (1935) which reformed the FRS and the misguided policies of Treasury Secretary Morgenthau
"Under a true rule-of-law gold standard, the Treasury would not have had a 'gold policy.' The gold standard itself would have been the gold policy and would have been self-regulating through the concerted actions of thousands of households and businesses that bought and sold goods and services in hundreds of markets. The gold, more important, would not have been stockpiled in Treasury vaults unavailable and illegal for human use, like some dangerous drug or weapon. It would have been in commercial banks primarily, serving its conventional function of securing bank-issued money."
Harry Browne, RIP, by Lew Rockwell, 3 Mar 2006
Discusses the impact and influence of Browne's first book, his involvement in Libertarian politics in the 1990s and his outspokenness after 9-11
"His book How You Can Profit From the Coming Devaluation, which came out in 1970, was a blockbuster in its day. He foresaw what would result from Nixon's abandonment of the gold standard. ... he knew from his reading of the Austrian economists such as Murray Rothbard that an inflationary period was on the horizon and that gold prices would not go down but up. ... But the book also had pedagogical merit. ... He explained the origin and nature of money, and how the gold standard had been destroyed by governments, not for good reasons, but to provide fuel for the growth of power."
H.L. Mencken: The Joyous Libertarian, by Murray Rothbard, New Individualist Review, Jun 1962
Examines the themes and style in Mencken's writings, mainly from the self-selected pieces in A Mencken Chrestomathy
"His old friend, Hamilton Owens, writes of Mencken's vehement anger at Roosevelt's taking America off the gold standard. 'With all the vehemence of which he was capable he insisted it was downright robbery. He talked about taking court action in person.'"
How Gold Was Money—How Gold Could Be Money Again, by Richard Timberlake, The Freeman, Apr 1995
Examines U.S. monetary history, as it relates to gold, from the Constitution to the late 20th century, suggesting that rather than lobbying for a return to a gold standard, sound money advocates should insist on Treasury gold being returned to taxpayers
"The gold cannot be forced into a monetary role. No government, including especially the U.S. government, is going to re-establish a gold standard by specifying the gold content of gold coins and declaring them legal tender. Treasury spokesmen would claim with some validity that it would be impossible to estimate the gold value of the current Federal Reserve dollar. They would argue that the indeterminacy of gold's monetary value was a good excuse for doing nothing. So the gold would lie there, a useless heap similar in its non-function to other surplus commodities the government has stockpiled."
Ludwig von Mises, socialism's greatest enemy, by Jim Powell
Lengthy biographical essay on Mises, including details on Menger and Böhm-Bawerk
"Mises presented a strong defense of a gold standard: 'The excellence of the gold standard is to be seen in the fact that it renders the determination of the monetary unit's purchasing power independent of the policies of governments and political parties. Furthermore, it prevents rulers from eluding the financial and budgetary prerogatives of the representative assemblies. ... Viewed in this light, the gold standard appears as an indispensable implement of the body of constitutional guarantees that make the system of representative government function.'"
Making Money Disappear, by Richard W. Rahn, The Washington Times, 22 Nov 2011
Defines money, discusses inflation and the gold standard and suggests that the problems will only go away if governments relinquish their monopolies on money issuance
"Under a classic gold standard, the sale of bonds by government was limited to the amount of gold the government held, plus the amount of gold that the bond buyers could reasonably expect the government would be able to buy from projected tax revenues if it became necessary. ... At some point, politically intolerable rates of inflation or economic stagnation will result. This, in turn, will force a massive monetary contraction or a move back to a gold standard or some other real backing for the money. ... A gold standard for money is not a panacea, but it is far better than an undisciplined fiat standard."
Related Topics: Inflation, Money, Zimbabwe
Milton Friedman (1912-2006), by Richard Ebeling, Sheldon Richman, 17 Nov 2006
Memorial tribute, highlighting Friedman's role in opposing Keynesianism, and his books and other public activities
"In making the case for a monetary rule, Friedman advocated a paper-money standard rather than the gold standard, arguing that this would save on the resource costs of digging the metal out of the ground just to store it away in bank vaults. But in the years after he received the Nobel Prize he had second thoughts about his monetary rule and the gold standard ... He therefore concluded that, given the actual history of Federal Reserve policy in the twentieth century, remaining on the gold standard would have been far less costly for America than the Fed-created inflations and recessions."
Milton Friedman, 1912-2006, by Hans Sennholz, 7 Dec 2006
Memorial essay, but critical of professor Friedman's advocacy of monetary policies which would leave money issuance in hands of the government
"... man is forever searching for a dependable medium of exchange. The precious metals have served him well throughout the ages. Because of their natural qualities and their relative scarcity, both gold and silver were dependable media of exchange. ... What Professor Friedman called the 'dethroning' of gold was, in truth, the default of central banks to make good on their legal and contractual obligations. Following the example set by the United States on August 15, 1971, central banks all defaulted in their duty to redeem their currencies in gold. The default, unfortunately, did not bring stability and prosperity ..."
Related Topics: Banking, Milton Friedman, Money
Monetary Central Planning and the State, Part 26: Milton Friedman and the Monetary "Rule" for Economic Stability, by Richard Ebeling, Future of Freedom, Feb 1999
Examines Friedman's arguments, in a 1967 speech to the American Economic Association, about what monetary policy could not accomplish and his defense of a paper money standard in the 1960 book A Program for Monetary Stability
"His basic answer is that the mining and supplying of a commodity money, such as gold, takes away resources that could be used for other purposes, and that this is an unnecessary cost to society. "The maintenance of a commodity standard requires the use of real resources to produce additional amounts of the monetary commodity — of men and other resources to dig gold or silver or copper out of the ground or to produce whatever other commodities constitute the standard ... The use of ... resources for this purpose establishes a strong social incentive in a growing economy to find cheaper ways to provide a medium of exchange.""
Monetary Central Planning and the State, Part 27: Milton Friedman's Second Thoughts on the Costs of Paper Money, by Richard Ebeling, Future of Freedom, Mar 1999
Discusses how Friedman changed his mind about the advisability of a paper money standard
"Why wouldn't a market-based gold standard be feasible or desirable under present circumstances? Friedman explained his reasoning in an April 1976 lecture entitled "Has Gold Lost Its Monetary Role?" ... Simply put, governments are no longer willing to be restrained by a gold standard. They want control over money for various macroeconomic manipulative purposes. ... But if a "real honest-to-God" market-based gold standard were to be reestablished, how might it be brought about? Milton Friedman offered his own suggestion in a 1961 paper entitled "Real and Pseudo Gold Standards" ..."
Related Topics: Milton Friedman, Government, Money
Monetary Central Planning and the State, Part 29: The Gold Standard in the 19th Century, by Richard Ebeling, Future of Freedom, May 1999
Discusses the evolution of the gold standard, from the creation of the Bank of England (1694), the Bank Restriction Act (1797), arguments for its repeal by David Ricardo and John Stuart Mill, and its international development until the 1890s
"By the fact that such a large number of countries had each linked their respective currencies to gold at some fixed rate of redemption in this manner, there emerged an international gold standard. A person in any one of those countries could enter any number of established, authorized banks and trade in a certain quantity of bank notes for a stipulated sum of gold, in the form of either coin or bullion ... There was only one fundamental problem and inconsistency ... It left control over the value and supply of money in government hands ... The gold standard, after all, was a government-managed monetary system."
Monetary Central Planning and the State, Part 30: The Gold Standard as Government-Managed Money, by Richard Ebeling, Future of Freedom, Jun 1999
Describes how, by allowing central banks to manage gold-backed currencies, the road was paved for central planning in other areas
"The international monetary order of the last century ... was nonetheless the creation of a planning mentality. The decision to "go on" the gold standard in each of the major Western nations was a matter of state policy ... That even the gold standard was a government-managed monetary system was succinctly explained by economist Michael A. Heilperin ... The classical liberals ... believed that only a monetary system under which all bank-issued notes and other claims were redeemable on demand for gold could act as a sufficient check against the abuse and debasement of a currency."
Monetary Central Planning and the State, Part 31: Ludwig von Mises on the Case for Gold and a Free Banking System, by Richard Ebeling, Future of Freedom, Jul 1999
Examines Mises' thinking on why the gold standard is needed, why it is necessary for it not be subject to political manipulation, why free banking is needed and the ideological environment required for its success
"Why gold? Mises explained this ... in a 1965 essay entitled "The Gold Problem": "Why have a monetary system based on gold? Because, as conditions are today, and for the time that can be foreseen today, the gold standard alone makes the determination of money's purchasing power independent of the ambitions and machinations of governments, of dictators, of political parties, and of pressure groups. The gold standard alone is what the nineteenth-century freedom-loving leaders (who championed representative government, civil liberties, and prosperity for all) called 'sound money.' ...""
Related Topics: Banking, Ludwig von Mises, Money
Money and Gold in the 1920s and 1930s: An Austrian View, by Joseph Salerno, The Freeman, Oct 1999
Criticizes Richard Timberlake's Freeman articles on U.S. monetary policy during 1920-39, contrasting the British Banking School vs. Currency School definitions of inflation
"Rothbard was quite cognizant that the U.S. monetary regime of the 1920s and 1930s was not a genuine gold standard in which the supply of money was determined exclusively by market forces, that is, by the balance of payments and the mining of gold, but a hybrid system in which the Fed possessed substantial power to manipulate the money supply by pyramiding paper bank reserves atop its stock of gold reserves. ... under a genuine, Currency School-type gold standard, a country's money supply would increase by exactly the amount of the gold inflow from abroad. This is not inflationary ..."
Money in the 1920s and 1930s, by Richard Timberlake, The Freeman, Apr 1999
Attempts to set the record straight on the economic and monetary events of the 1920s and early 1930s, arguing against both the Austrian view (as expressed by Murray Rothbard) and those who put the blame on stock market speculation
"The gold standard after World War I was anything but the autonomous, self-regulating institution that the Founding Fathers had prescribed—quite the contrary. The Federal Reserve Bank officers ... exercised a monetary policy that often finessed the gold standard. ... If Fed Banks wished to block the effects of gold deposited with them to prevent the creation of common money based on the new gold, they could restrict their own lending to the commercial banks ... the Fed's money managers could deliberately and purposely supplement or counteract what the gold standard machinery did as a result of market forces."
Mont Pelerin: 1947-1978, The Road to Libertarianism, by Ralph Raico, Libertarian Review, Dec 1979
Reviews the presentations and discussions at the 1978 meeting of the Mont Pelerin Society, with an overview of the Society's history and particularly the 1958 meeting which had similar themes
"Donald Kemmerer noted in reply that the greatest lesson of economic history is that fiat money does not work. But this understanding has been lost, he said, due to the elimination of the study of gold from money courses. F.A. Hayek then rose from the audience to answer monetarism. He noted that the gold standard historically was the only discipline on governments. He reaffirmed his own opposition to all monopoly on money and to all government control of money. He presented what he calls his revolutionary program—monetary competition in each country after denationalization or destabilization of money."
Robert Morris to President of Congress, by Robert Morris, The Papers of Thomas Jefferson, 15 Jan 1782
Report, as U.S. Superintendent of Finance, to the Congress (under the Articles of Confederation); examines weights, measures and money practices in various states and countries, particularly England and France, and recommends coinage of U.S. dollars
"In England the Money Standard is rather affixed to Gold than to Silver because all Payments are made in the former and in France it is rather affixed to Silver than to Gold. ... Since therefore a Money Standard affixed to both the precious Metals will not give this certain Scale it is better to make use of one only. Gold is more valuable than Silver and so far must have the Preference but it is from that very Circumstance the more exposed to fraudulent Practices. Its Value rendering it more portable is an Advantage."
Related Topic: Money
The Case for Gold, by Mark Calabria
Review of The Case for Gold (1982) by Rep. Ron Paul and Lewis Lehrman
"Published in book form by the Cato Institute that year, the report covers the history of gold in the United States, explains how the breakdown in its use as a financial standard was caused by government, and details the critical need for sound money — where prices reflect market realities, government stays in check, and people retain their freedom. ... Paul and Lehrman remind us that the ultimate purpose of a monetary standard is not price stability, but 'trust and honesty.' A gold standard is an avenue, among others, to restore our trust in government, by appropriately constraining the discretionary power of government."
Related Topics: Ron Paul, Murray Rothbard
The Case for the Barbarous Relic, by Lew Rockwell, Mises Daily, 21 Mar 2006
Argues for a return to the gold standard by reviewing U.S. political, economic and monetary history
"We do not lack plans to restore sound money. Indeed, defining the dollar as a fixed weight of gold and eliminating the power of the Fed to print money is all that is necessary. What we lack is the political will to do so. A gold standard would be the single best reform we could make to the cause of freedom. Its commercial benefits include stability, predictability, and honesty in finance. Its moral benefits include a financial system that does not reward living beyond one's means. From the point of view of government, a gold standard would tie the hands of the state."
The Federal War on Gold, Part 1, by Jacob Hornberger, Future of Freedom, Aug 2006
Discusses some of the provisos in the U.S. constitution regarding coinage and the issuance of paper money
"One, the gold standard eliminated the power of federal officials to do what governments had historically done to their citizenry — plunder and loot the people through the issuance of depreciating paper money. Two, the gold standard had an enormously positive effect on capital markets, which was one of the major contributing factors for the tremendous economic expansion and prosperity that characterized the United States through most of the 19th and early 20th centuries."
The Federal War on Gold, Part 3, by Jacob Hornberger, Future of Freedom, Oct 2006
Describes Franklin Roosevelt's executive order confiscating gold and nullifying gold clauses in contracts, its constitutional ramifications and subsequent related history
"Keep in mind that the Framers had implemented a gold standard so that the American people would be forever protected from the destructiveness of inflation. It was the gold standard — that is, the requirement that the federal government redeem all its paper notes and bills in gold — that had operated as a restraint on government's ability to print ever-increasing amounts of paper money. The gold standard's positive effect on capital markets was also one of the primary reasons that the United States rather quickly became one of the most prosperous nations in history."
The Gold-Plated Sting, by Gary North, 3 Mar 2007
"The gold standard was a restraint on governments . . . until the governments grew tired of the restraint. The gold standard was a restraint on privately owned ... banks after governments turned their nations' gold over to the central banks . . . until the central bankers grew tired of the restraint. The modern gold standard was therefore from day one a gigantic con job."
The New Deal and Roosevelt's Seizure of Gold: A Legacy of Theft and Inflation, Part 2, by William L. Anderson, Future of Freedom, Sep 2006
Describes Roosevelt's Executive Order 6102, its threats for non-compliance and its immediate effects, as well as its legacy: Btretton Woods, Nixon's closing of the gold window and current inflation
"The monetary system of the United States at the time of the Depression could not sustain inflation very long because the country was on a gold standard. If people sensed that the government was printing too many paper dollars, by law they could redeem those dollars from the government’s store of gold. ... Since the gold standard included requirements that the country's money supply have at least a 40 percent gold backing, a drain on gold reserves would have forced the government to stop printing so many dollars. Therefore, the plans of the New Dealers ran headlong into the reality of the gold standard and its check on inflation."
The Organization of Debt into Currency: On the Monetary Thought of Charles Holt Carroll, by Robert Blumen, Mises Daily, 27 Apr 2006
Review of the fractional reserve banking and monetary arguments made by Charles Holt Carroll, a 19th century Massachusetts merchant, in a collection of 36 essays re-published in 1964 in Organization of Debt into Currency and Other Papers
"To put and end to recurring financial crises, and to restore the nation to sound and honest principles of trade, Carroll advocated a bullion standard, with the dollar defined as a fixed weight of gold. 'The true policy for every nation is to keep the currency sound and strong. As gold and silver form the acknowledged money of the world, we can do no better than to use them in their standard purity, and permit nothing to be acknowledged as a dollar that is not a dollar.'"
Related Topics: Banking, Inflation, Money, Prices
The Reserve Requirement Debacle of 1935-1938, by Richard Timberlake, The Freeman, Jun 1999
Delves in greater detail into the reserve requirement policy of the Federal Reserve during 1935-38, discussed in the previous article "Gold Policy in the 1930s"
"Part of the problem was the flawed real bills doctrine ... According to this view, the production of goods, services, and capital led to the production of money through the operation of banks and the gold standard. In fact ... it was the other way around ... A related policy shortcoming that aggravated the Federal Reserve's restriction of money was the official attitude toward 'the' gold standard. Since 1920, the gold standard in practice had become an unwelcome nuisance to be fit into the government’s monetary-fiscal program in ways that would not interfere with the current hands-on priorities of current policy."
The Roots of the Great Depression, by Richard Timberlake, Navigator, Jan 2001
Topics discussed include Federal Reserve policy during 1920-1939, the British attempt to return the pound to its World War I value and U.S. interventions during the Hoover and Roosevelt administrations
"Without a central bank interfering, the traditional gold standard and clearinghouse adjustments in the form of accommodation to the commercial banks would have righted the economy as early as 1931. ... A central bank operating under a gold standard can always freeze incoming gold so that the gold has no monetary effect. ... Every 'gold standard' law fixed the official price of gold, so its real value appreciated as all money prices fell. ... the Banking Act of 1935 ... made a sham of the gold standard. From this point on, central bankers, not the gold standard, determined the outstanding money stock in the United Sates."
Under the Shadow of Inflationomics, by Hans Sennholz, Mises Daily, 1 Jun 2006
Explains how inflation has its roots in central banking and fiat money, and describes the influence of Keynesian economics on the policies of U.S. presidents from Richard Nixon to George W. Bush
"The common failure of the bimetallic standard tended to give rise to a de facto monometallic currency, usually silver coins. In England it led to a gold standard. The monetary system of the United States was based on bimetallism during most of its history. A full gold standard was in effect from 1900 to 1933. The Legal Tender Act of 1933 made all American coins and paper money 'legal tender' which must be accepted at face value by creditors in payment of any debt, public or private. The Gold Reserve Act of 1934 stipulated that gold could no longer be used as a medium of domestic exchange ..."

Videos


GMU's Lawrence H. White on Free Banking and the Gold Standard (11/18/10), by Lawrence H. White, 18 Nov 2010
Central Banking vs. Free Banking and the Gold Standard, presentation by Lawrence H. White, Professor of Economics, George Mason University, at the Cato Institute's 28th Annual Monetary Conference
Related Topics: Banking, Central Banking

The introductory paragraph uses material from the Wikipedia article "Gold standard" as of 23 Nov 2018, which is released under the Creative Commons Attribution-Share-Alike License 3.0.