Thirty years after its first publication in 1982, The Case for Gold remains remarkably timely. The Case for Gold is the minority report of the U.S. Gold Commission and lays out a thorough and comprehensive defense of sound money. Today, The Case for Gold remains a timeless piece of scholarship, offering successive generations both a prescient warning and a path to sound currency and a stable U.S. dollar.
When Lewis Lehrman and I submitted this minority report, it had been 10 years since Richard Nixon, by executive fiat, ended the last vestiges of the gold standard. Those intervening 10 years should have shown us again what all of human history teaches: When a nation adopts paper (which can be printed without limit) as the basis of its monetary system, the results cannot be good for the people. The elites and the government can fare pretty well for a time, but the people suffer in the end. Paper money experiments, usually adopted as temporary expedients, do not end well for anyone.
The 1970s was a decade of economic malaise, resulting from the U.S. government's decades-long loose monetary policy. Outflows of gold throughout the 1960s led to President Nixon's decision to close the gold window in 1971, severing the final link between the dollar and gold. The next several years witnessed the emergence of stagflation, as both inflation rates and unemployment rates rose in unison. Inflation rates soared into double digits by the end of the decade, while unemployment rates continued to rise, peaking at nearly 11% in the early 1980s. It was against this economic backdrop that the call came to establish the U.S. Gold Commission.
In 1980, Sen. Jesse Helms introduced an amendment to a Senate bill, and I introduced a similar amendment in the House, calling for the establishment of a commission to examine the use of gold in the monetary system. Although the legislation establishing the commission was signed into law by President Carter, his loss in the 1980 presidential election meant that President Reagan—a public supporter of the gold standard—would be responsible for appointing many members of the commission. While President Reagan was sympathetic to the gold standard, he did nothing to restrain the anti-gold members of his administration. As a result, the Gold Commission was packed with establishment supporters of fiat money and the Fed. Thus, the deck was stacked against the pro-gold forces from the outset.
Despite the commission's ultimate endorsement of the fiat paper money system, the commission's work resulted in positive developments: the eventual adoption of legislation to authorize the minting of gold coins by the United States Mint and the publication of the commission's minority report as The Case for Gold. And the intellectual case for gold put forth in the commission's minority report provided the underpinnings for the continued drive toward a restoration of sound money.
Most of the historical research in The Case for Gold was undertaken by the eminent Austrian School economist Murray Rothbard. Rothbard was the leading scholar in America's monetary history. His work makes it is only too clear that government intervention into monetary affairs is at the root of all economic crises. The Case for Gold explains the numerous interventions, the disastrous effects of those interventions, and the steps needed to free the markets in order for gold to return to its rightful place as the ultimate commodity money.
We predicted in this report that without substantive change, the nation would experience continued economic hard times, economic cycles, dollar depreciation, government growth, and the continued diminution of human liberty. Despite periodic illusions of rising prosperity that turned out to be false booms, this prediction turned out to be indisputably true.
Since that time, nothing has worked to restrain government growth. We've lost a decade of economic gain in the 1990s, average Americans have less disposable income than any time since the 1970s, and the dollar has fallen in value by 82% since 1971. Median income has risen only 12% in real terms in that entire period. The 1982 dollar is now worth 42 cents. A $1 trillion ($1T) government debt of those days is now a $16T government debt. The banking system is broken. Taxpayers and savers are being looted daily at unprecedented levels to sustain a system of zombie banks, bad debt, high unemployment, low business creation, and bankrupt government. This is why many young people today despair for their future.
It could have been different. Back in those days, we could have, as a nation, embraced sound money and spared ourselves all this suffering. The means to make a change were right there, but the political will was lacking. Paper money makes life too easy for those who want to extend their rule over society. It lets leviathan out of its cage. It removes all discipline from the federal government that state governments, businesses and households deal with every day.
How to make a change? In this report from 1982, we suggested many different paths to reform: competitive currencies, repeal of legal tender, redefining the dollar as a certain unit of gold, juridical changes that enforce the monetary clauses of the Constitution as they read in plain language, the application of standard free-enterprise competition to the banking industry, and more.
Any one of these reforms would have been an excellent step. Instituting all of them would have restored sound money and spared us the grueling and continuing economic problems that are slowly killing the American dream today.
Today, in light of technological developments, we can add more paths. The rise of digital networks could enable unprecedented monetary entrepreneurship, with digital currencies and new payment systems, as well as new banking and lending structures that bring together consumers and producers in genuine market relationships. But it turns out that such development is seriously hobbled by regulations and monopolization. Simply put, free enterprise in money and banking is illegal. At a time when digital economics are revolutionizing all sectors, money and banking seem forever stuck in the analog age and the errors of the past.
I did my best during my presidential campaign and with my book End the Fed to make money a public issue, a topic on the table. I sought to break the silence. The political class largely ignored what I was saying. As this economic reality becomes more evident, however, the political tides begin to change as well.
Not since The Case for Gold's initial publication in the early 1980s has discussion of gold been so widespread among the punditry class and within the financial press. Investment in gold is no longer the domain of long-derided "gold bugs," but rather an integral inflation hedge for ordinary investors ravaged by the decline in their purchasing power. The Republican Party recently embraced a gold commission in its party platform. No less than Forbes magazine has called for serious consideration of a gold standard. And even former Federal Reserve governors are beginning to question the wisdom of the Federal Reserve's monopoly on currency creation and are calling for a free market in money.
I'm thrilled today that the young generation has become excited about the topic. They now see that the Fed is more than another Washington bureaucracy. They see it as a threat to their future. As a result, it is not unusual for Fed employees to look out their windows and see groups of protesters on the sidewalks. This is all to the good. There is also serious pressure on the Fed to be more public about its operations. Its power no longer goes unquestioned.
The Fed's paper money system is the major source of economic suffering today. It is the reason that Congress can't control its spending. It's why it can fund wars and the police state. The paper money monopoly distorts economic signals and causes booms and busts. It robs the American people with the insidious tax called inflation. We must never forget that the Fed has the massive power it does only because of paper money. If it were restrained by a gold standard or monetary competition, the Fed would be a menace, but not a mortal threat. As it is, the Fed, and, by extension, the government itself, holds our entire economic future hostage.
The most conspicuous policy of today that harms the middle class is the Fed's "zero interest rate policy." The idea here is to inspire lending and give the economy a boost. It has done nothing of the sort. Instead, it acts as a method by which the Fed is permitted to pay a rate of return on bank deposits in an environment that is risk-free for the industry.
Banks are now in the unprecedented position of ignoring their customers (both depositors and would-be borrowers) and still enjoying a high rate of return on their balance sheets sustained by Fed-created money and an unlimited guarantee on deposits courtesy of federal deposit insurance. This is several steps beyond the old "too big to fail" doctrine and one or two steps shy of total nationalization.
These are the types of extremes that the Fed has pursued to sustain an unworkable system. This is a predictable trajectory: from paper money to total government control. Each new step away from free-market money creates new problems that seem to cry out for more intervention, which creates more problems, and so on until the entire system unravels. And this is precisely what we are seeing.
The risks are very high for the middle class. The incredible bust of 2008 might turn out to be just a warm-up. Another, even worse meltdown threatens because rather than face reality, the Fed papered over problems. As a result, hyperinflation is a real possibility, and it is not possible for the Fed to simply pull a lever to stop it once it starts. Bank runs will continue to threaten. The dollar will continue to lose its purchasing power. Government will continue to grow.
But now with "zero interest rate" policies, we are seeing something else. It is no longer possible to make money through saving money in the normal way that economic structures would provide in a normal market. Saving is no longer rewarded with even a normal rate of return. To be sure, the insiders find ways to make money regardless through risky and far-flung techniques. It is the middle class—the people who live honestly and work hard to provide for themselves—who are being harmed.
How much more evidence do we need? A failed system has proven itself a failure too many times. I will once again issue this challenge: Reform the monetary system or strangle the future of freedom itself. This is the choice we face. It is not too late. And such reform has never been easier. The government should permit free enterprise a role in the management of money. Let the entrepreneurs take over where the Fed failed.
In an ideal world, we would see the dollar made good as gold. This would be the first action of a responsible Congress and president. But even without reforming the dollar, it should be legal for producers and consumers to migrate to other market-based systems of money and banking.
The need for reform has never been more urgent. I'm pleased that a revived Laissez Faire Books, an institution I depended on to provide literature in my early years in Congress, is bringing out a new edition of The Case for Gold to teach money and banking to a new generation and to show the path forward.
The case for reform is fundamentally the same today as it was when it was first published. The principles never change. Freedom and sound money are inseparable. Money must be returned to the people to manage and be taken away from the government and its planning apparatus at the central bank. Socialism works in no area of life. Freedom works in every area.