12. The 100 Percent Gold Standard: A Proposal for Monetary Reform

CHAPTER 12

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The 100 Percent Gold Standard: A Proposal for Monetary Reform

Introduction: The Current Debate on Gold

On October 26, 1981, the Federal Gold Commission held its third meeting since its formation on June 22, 1981 under the aegis of the U.S. Treasury Department.¹ The commission, which consists of seventeen prominent economists, legislators, businessmen, and Reagan administration officials, is charged with studying and reporting upon the feasibility of according a larger role to gold in the monetary system of the U.S. Professor Paul McCracken, one of the commission’s leading members and an adviser to three previous Republican Presidents, observed at its first meeting on July 16 that the commission is conducting the first serious governmental monetary study in over seventy-five years. Much more significant, of course, is the fact that the subject of the commission’s study is the gold standard.²

As recently as the early 1970s, the prospect of a governmental body seriously deliberating the merits of reinstituting the gold standard would have been considered unthinkable. In the years following World War II, the overwhelming majority of economists and economic policymakers as well as the population at large came increasingly to consider gold as a relic of a barbarous and bygone age, unfit to perform the functions of money in a modern industrial economy. The tiny handful of gold standard advocates, both inside and outside the economics profession, were then regarded as hopelessly benighted economic Neanderthals or thralls to a peculiar fetish.

Recent developments in the world economy, however, have conspired to effect a profound rethinking of the prevailing view on gold. In particular, there was the cold reality of the chronic stagflation which began to engulf the market-oriented economies of North America, Western Europe, and Japan in the early 1970s and which has since proved unresponsive to the orthodox Keynesian demand-management policies of fiscal and monetary fine tuning. Moreover, the unprecedented and agonizing combination of double-digit inflation and recession-level unemployment which characterizes stagflation could not be explained within the theoretical framework of textbook Keynesianism. Not surprisingly, there has recently emerged a thoroughgoing disenchantment with the Keynesian approach to macroeconomic stabilization policy and a search for alternatives. One such alternative is offered by Milton Friedman and the “monetarists,” who argue that the monetary authority should adopt “a stable and predictable monetary growth rule.” However, in Great Britain, Margaret Thatcher’s much ballyhooed attempt to implement the monetarist program has produced wildly erratic monetary growth accompanied by a continued and relentless upward spiral in prices and an unemployment rate which has not been exceeded since the Great Depression. For example, during 1980, money supply growth underwent spectacular swings, with the quantity of money growing at annual rates of 10 percent in the first quarter, -4.1 percent in the second quarter, 11 percent in the third quarter, and 17.8 percent in the last quarter, to yield an average growth rate of 8.4 percent for the year.³ The effect of this monetary inflation was a 12.7 percent increase in consumer prices and a 10.9 percent rise in industrial wholesale prices.⁴ In the meanwhile, the British economy was plunged deeper into recession as real gross domestic product and employment declined at annual rates of 3.4 percent and 4.1 percent respectively during the first three quarters of 1980.⁵

The story has been much the same in the U.S. where, in October 1979, the Federal Reserve publicly proclaimed its intention of eschewing all further attempts to control interest rates in favor of implementing the monetarist prescription of maintaining a steady rate of growth of the money supply. While its efforts in this direction have not led to a significant abatement of the symptoms of stagflation, the Fed has found its task impossibly complicated of late by the divergent signals being conveyed by alternative gauges of money supply growth. For example, while both M1A and M1B indicated that monetary growth was grossly deficient and, in fact, negative during the four months beginning April 1, 1981, M2 was growing at an annual rate of 7.2 percent over the same period—well within the Federal Reserve’s target range of growth for this monetary aggregate.⁶ In fact, during July and August, when the growth rate of M1B (shift adjusted) was below its target range, the rate of growth of M2 actually exceeded its target range.⁷ Consequently, while monetarists such as Milton Friedman who focus on M2 have urged the Federal Reserve to hold the line or even pull the reins in on money supply growth, others such as Undersecretary of the Treasury Beryl Sprinkel have pointed to M1B and chided the Fed for an overly stringent monetary policy which threatens to precipitate a recession.⁸

It is this perceived failure of both the Keynesian and monetarist alternatives to provide any relief from our current economic malaise that accounts for the growing wave of support for gold and the sympathetic hearing it is being accorded in the renewed debate over macroeconomic stabilization policy. Although the new advocates of the gold standard are by no means a unified school of thought, the most prominent among them tend to be associated with “supply-side economics.” These include Arthur Laffer, Jude Wanniski, George Gilder, Irving Kristol, Representatives Jack Kemp and Ron Paul, Senators Jesse Helms and Roger W. Jepsen, and even President Reagan himself in the early stages of his presidential campaign. Others who have been involved, though less intimately, with the supply-side movement are the eminent monetary economist Robert Mundell and Lewis Lehrman, a businessman and writer.

Support for the gold standard, however, has not been confined to the adherents of supply-side economics. A gold-based monetary standard has also elicited favorable comments from a number of “mainstream” academic economists. For example, the respected monetary theorist, Robert J. Barro, in a recent study, concluded that:

In relation to a fiat currency regime, the key element of a commodity standard is its potential for automaticity and consequent absence of political control over the quantity of money and the absolute price level.… The choice among different monetary constitutions—such as the gold standard, a commodity reserve standard, or a fiat standard with fixed rules for setting the quantity of money—may be less important than the decision to adopt some monetary constitution. On the other hand, the gold standard actually prevailed for a substantial period (even if from an “historical accident,” rather than a constitutional choice process), whereas the world has yet to see a fiat currency system that has obvious “stability” properties.⁹

Another noteworthy contribution is an historical study of the gold standard by Professor Roy W. Jastram.¹⁰ Quite recently, Jastram summarized the findings of this study for the Wall Street Journal:

From 1792 into the 1930s Britain was on a gold standard and the United States was on either a bimetallic standard or one of gold alone. During all those years, in both countries, price inflations and subsequent deflations average sensibly to zero. The result: for both the U.K. and the U.S. the wholesale price index numbers at the end of the gold standard were at just the level of 1800.¹¹

Jastram goes on to suggest that this is “not unpredictable because the gold standard discipline was at work.” Thus he concludes that “With the money supply showing ominous signs of being out of control, serious thought must be given to a new form of monetary discipline, one which might be suggested by age-old experience.”¹²

A further indication that proposals for a restoration of the gold standard are not being taken lightly can be seen in the growing number of prominent opponents of gold that have been induced to break their silence and join the controversy. For example, under the aegis of the prestigious and neo-Keynesian-oriented Brookings Institution, Edward M. Bernstein, a leading authority on the international monetary system, has taken up his pen against the gold standard.¹³ Recently, an historical study of the classical gold standard appeared in the monthly review of the St. Louis Federal Reserve Bank,¹⁴ a widely recognized bastion of monetarism. A critical analysis of the gold standard was contributed by William Fellner to the latest volume of the annual survey of contemporary economic problems published by the influential American Enterprise Institute,¹⁵ an institution generally sympathetic to monetarist policy prescriptions. Finally, some former and current high-ranking economic policymakers including Herbert Stein,¹⁶ William Nordhaus,¹⁷ and Henry Wallich¹⁸ have made their cases against gold in the popular press.

Despite its newfound respectability, however, the gold standard remains shrouded in an almost impenetrable fog of myths, which were concocted during the Keynesian revolution and the era of the “new economics” that it ushered in. For the most part, these myths have gone unchallenged to this day. As a consequence, the gold standard still remains for most people—and especially for most economists schooled in the current orthodoxy—beyond the pale of rational discussion. Indeed, if questioned on the issue, many laymen as well as economists are capable of reciting a seemingly formidable litany of objections to the gold standard. The result is that gold is usually peremptorily dismissed at the outset of any discussion of monetary policy. This places the gold standard advocate at a severe disadvantage since he must undertake to demythologize an institution before a rational consideration of his policy prescriptions can even begin.

The monetary reformer intent upon presenting the case for the gold standard confronts another problem created by the very ambiguity attaching to the term gold standard. This stems from the fact that the term has been used very loosely to denote a number of diverse historical monetary systems and monetary reform proposals in which gold is a key element. Since these gold-based monetary systems differ in much more than minor details, it behooves the monetary reformer—in order to avoid misinterpretation and misplaced criticism—to carefully specify the precise nature of the “gold standard” he is proposing.

In what follows, I shall present the main argument for the private, market-chosen, pure-commodity-money standard as represented by the 100 percent gold standard. After briefly delineating its nature and operation, I shall address the most common objections to such a standard and to the gold standard in general.

Why a Commodity Money

The case for a free market commodity money such as gold was trenchantly and succinctly stated by Ludwig von Mises nearly sixty years ago:

The reason for using a commodity money is precisely to prevent political influence from affecting directly the value of the monetary unit.… Gold is the standard money primarily because an increase or decrease in the available quantity is independent of the orders issued by political authorities. The distinctive feature of the gold standard is that it makes changes in the quantity of money dependent on the profitability of gold production.¹⁹

Almost one-half century later, with the government-manipulated, pseudo-gold standard of the Bretton Woods system racked by inflationary spasms and on the verge of collapse, von Mises eloquently restated his argument:

The quantity of money is the decisive problem. The quality that makes gold fit for service as money is precisely the fact that the quantity of gold cannot be manipulated by governments. The gold standard has one quality, one virtue. It is that the quantity of gold cannot be increased in the way that paper notes can be increased. The usefulness of the gold standard consists in the fact that it makes the supply of money depend on the profitability of mining gold, and thus checks large-scale inflationary ventures on the part of governments. Gold cannot be produced in a cheaper way by any governmental bureau, committee, institution, office, international agency, or so on. This is the only justification of the gold standard. One has tried again and again to find some method to substitute these qualities of gold in some other way. But all these methods have failed.

The eminence of the gold standard is to be seen in the fact that the gold standard alone makes determination of the monetary unit’s purchasing power independent of the ambitions and activities of dictators, political parties, and pressure groups.²⁰

In short, the case for commodity money rests on the fact that it furnishes the only effective bulwark against inflation.

The 100 Percent Gold Standard

Under a pure commodity standard, the monetary unit would be a unit of weight of the commodity chosen by the market as the general medium of exchange. Assuming that the market chose gold— and this need not be the case—the monetary unit would be, e.g., an ounce or a gram of gold. The transformation of the money-commodity into those shapes such as coins which are deemed most useful by buyers and sellers for mediating their exchanges would be performed by private mints competing for profits in a free market. Whatever the various forms in which market participants might prefer to hold gold in their money balances, the total quantity of money in the economy would be rigidly fixed at any moment by the total weight of gold owned by all individuals in the economy. This is true despite the likely development under a pure commodity standard of money substitutes, i.e., claims to money which are tendered and accepted in monetary exchanges in place of the actual money-commodity.

Such claims to money arise when people choose to store a portion of their money holdings in private money warehouses, or “banks,” receiving in exchange warehouse receipts, whether in the form of paper tickets or deposits subject to draft by check, entitling them to redeem their gold upon demand. If the money warehouses are generally viewed as reputable firms, then the notes and demand deposits which they issue would begin to function as money substitutes because, under certain circumstances, individual transactors would find it less costly to consummate exchanges without the money-commodity being physically present. The use of money substitutes would, however, have no effect on the quantity of money since, as actual warehouse receipts, they are and legally must be fully “covered” by the gold to which they are instantly redeemable claims. Rather than being a net addition to the money supply, the money substitutes would literally substitute for an equal amount of gold in circulation, with the gold so displaced now locked away in the vaults of the various money warehouses. In less apt but more familiar terminology, the banks would be legally required to maintain 100 percent reserves against all demand liabilities.²¹

The fundamental reason for preferring the 100 percent gold standard to other gold-based proposals for monetary reform is that it is the only monetary system which effects the complete separation of the government from the supply of money. Under this system, the money supply process is totally privatized: the mining, minting, certification, and storage of the money-commodity as well as the issuance of fully covered notes and deposits are carried out by private firms operating in a free market. In thus removing all vestiges of the government monopoly over money, the pure commodity standard provides a practically inflation-proof currency. This becomes clearer once it is realized that inflation occurs for no other reason than that it benefits that group or institution—in almost every case the national government—which succeeds in arrogating to itself the legal monopoly over money creation. This requires a few words of explanation.

In a money economy, an individual or organization can obtain a money income in one of two ideal typical ways: via the “economic means” or the “political means.” The economic means refers to the voluntary production and exchange of useful goods on the market. The political means, on the other hand, denotes the expropriation of income from the producers—that is, those individuals who have obtained their incomes through the economic means.”²² Taxation, a levy on the incomes of the producers, is an example of the political means and is the method regularly employed by all governments to secure the bulk of their revenues. However, whatever the moral or practical justification of taxation, by virtue of the fact that it is essentially coercive, tax increases have historically found little favor with the citizenry. Fearful of arousing political unrest, governments through the ages have cast about for alternative methods of augmenting their revenues. Having secured the legal monopoly of the supply of money precisely for this reason, it is no wonder that almost all governments have resorted to inflation. For inflation provides its practitioners with a relatively simple, costless, and secure “political” avenue to amassing money assets, one which circumvents the unpopularity connected with the imposition of higher taxes. In substance, all government need do to increase its real income is slap some ink on paper and spend the proceeds on commodities and services produced by the private market. Actually, in the world of modem banking, inflation becomes a much more arcane process little understood by the population at large. This fact serves well to obscure the true cause of inflation and permits the government to shift the blame for the shrinking purchasing power of the monetary unit and the other undesirable consequences of inflation from itself to other groups, e.g., OPEC, monopolistic corporations, powerful nations, spendthrift consumers, etc.

It should be no cause for surprise, then, that all government-monopolized paper fiat currencies exhibit symptoms of inflationary disorder—just as it is no surprise when other groups in the economy exploit political means to augment their money incomes, e.g., via tariffs, occupational licensure, exclusive public franchises, etc. Indeed, it is a frequent observation of sociology as well as a rule of common sense that an individual or group endowed with a legal monopoly over any area of the economy will use it to its own best advantage. To put it rather bluntly, government is an inherently inflationary institution and will ever remain so until it is dispossessed of its monopoly of the supply of money.

Indeed, F. A. Hayek, Nobel Laureate in economics, has recently and forcefully argued that the recurring bouts of macroeconomic instability which have always afflicted market economies are “a consequence of the age-old government monopoly of the issue of money.”²³ According to Hayek, furthermore:

There is no justification in history for the existing position of a government monopoly of issuing money. It has never been proposed on the ground that government will give us better money than anybody else could. It has always, since the privilege of issuing money was first explicitly represented as a Royal prerogative, been advocated because the power to issue money was essential for the finance of government—not in order to give us good money, but in order to give to government access to the tap where it can draw money it needs by manufacturing it. That, ladies and gentlemen, is not a method by which we can hope ever to get good money. To put it into the hands of an institution which is protected against competition, which can force us to accept the money, which is subject to incessant political pressure, such an authority will not ever again give us good money.²⁴

Certainly, Hayek’s insight is amply illustrated in the history of government involvement with money which is, for all practical purposes, the history of inflation. Even a staunch proponent of fiat money and government monetary policy, such as William Fellner, has been reluctantly forced to admit recently that there is a “substantial element of truth involved in the assertion that fiat money has been misused in all history—has always led to the corruption of the currency.”²⁵ (Emphases are mine.)

And therein lies the fatal flaw in the monetarist program. Aside from any theoretical objections to monetarism, its policy prescriptions completely fail to address the radical (in the etymological sense of “root”) cause of inflation in the modern world, viz., the governmental monopolies of the money-supply process which exist in every nation. The monetarist “quantity rule” is not an anti-inflation policy at all, but merely the enunciation of a request that the political authorities exercise restraint in exploiting their monopoly, which, under the monetarist program, would remain virtually intact. Such a request, I might add, is incredibly naive in the light of theory and history.

The virtue of the 100 percent gold standard, in contrast, is precisely that it establishes a free market in the supply of money and brings about a complete abolition of the governmental monopoly in this most sensitive and vital area of the market economy. Indeed, although he regards a pure commodity standard as ultimately undesirable because of its high resource cost, Milton Friedman is essentially in agreement with this point. According to Friedman:

If money consisted wholly of a physical commodity … in principle there would be no need for control by the government at all.…

If an automatic commodity standard were feasible, it would provide an excellent solution to the liberal dilemma of how to get a stable monetary framework without the danger of irresponsible exercise of monetary powers. A full commodity standard, for example, an honest-to-goodness gold standard in which 100 percent of the money consisted literally of gold, widely supported by a public imbued with the mythology of a gold standard and the belief that it is immoral and improper for government to interfere with its operation, would provide an effective control against government tinkering with the currency and against irresponsible monetary action. Under such a standard, any monetary powers of government would be very minor in scope.²⁶

It should be emphasized that, while almost any type of a gold standard will yield a far less inflationary monetary system than the present regime of national fiat currencies, all but the 100 percent gold standard ascribe a greater or lesser role to the political authorities in their operation. As I shall argue in greater detail below, these watered-down versions of the gold standard are, as a consequence, dynamically unstable because the government can be expected to take every opportunity to use its predominant position in the system to further water down and undermine the barriers to its inevitably inflationary predilections. Historically, this is borne out by the key role played by the governments of the Western nations in the step-by-step transformation of the relatively noninflationary classical gold standard into the nominally gold-based and highly inflationary Bretton Woods system. This travesty of the gold standard was administered a merciful death in 1971 and, shortly thereafter, a regime of fluctuating national fiat currencies was foisted upon the world economy. It is no coincidence that inflation in most capitalist nations began to accelerate significantly at about the same time.

Although it is, of course, possible for the government to engineer an inflationary transformation of the 100 percent gold standard, it is much more difficult than in the case of other gold-based systems. The reason is that under a pure commodity standard every stage of the money-supply process from mining to banking is in private hands. Any steps taken by the state to achieve an initial position of power in this process could not be camouflaged as merely innocuous tinkering with the “rules of the game.” Such actions would be easily recognized for what they in fact were—a self-serving assault on private property rights by the government which would more than likely provoke stiff resistance on the part of the populace.

Having made my case for the desirability of the 100 percent gold standard, I shall now attempt to briefly delineate its workings. This will aid in detecting and dispelling the myths underlying a number of the more pervasive and persistent objections to the gold standard.

In order to grasp the functioning of a free market in money, all that is required is a basic understanding of the operation of the venerable supply-and-demand mechanism supplemented by insight into the unique position occupied by money in the sphere of economic goods. To begin with, the function of money is, by definition, to mediate the exchanges of all other goods. People acquire money in exchange for the goods and services which they themselves produce with a view to re-exchanging it for more desired goods and services at some time in the future. The performance of this medium-of-exchange function does not necessitate the physical destruction of the money-commodity. This fact differentiates money from consumers’ goods and producers’ goods—i.e., capital goods and natural resources, since the latter two are used up in performing their respective functions.

On the other hand, money, like other scarce goods, has a price which at any moment is determined by its supply and demand. Money’s price is its purchasing power or command over all other goods for which it exchanges on the market. For example, if the demand for money increases while the supply of money remains unchanged, the purchasing power of money will rise. That is to say, the alternative quantities of other goods for which a given unit of money, such as a gold ounce, exchanges on the market will increase as money prices in the economy undergo a general fall. A rise in the purchasing power of money will also result from a decrease in the supply of money in the face of an unchanged monetary demand. Conversely, a decline in the demand for money or an augmentation of its supply, other things remaining equal, will bring about a decrease in the purchasing power of the monetary unit manifested in a general rise of money prices in the economy.

This brings us to the fundamental respect in which money differs from other economic goods. While increases in the supplies of the various nonmonetary goods in the economy augment the satisfaction of human wants—directly in the case of consumers’ goods and indirectly in the case of producers’ goods—the same cannot be said of an increase in the supply of money. An addition to the physical number of units of money in the economy will not permit money to discharge its medium-of-exchange function any more fully or expeditiously. The existing quantity of money is always sufficient to yield society the full utility of a medium of exchange. The sole effect of an increase in the supply of money will be a dilution of the purchasing power of the monetary unit or, what is the same thing, a general increase of money prices.

The foregoing analysis equips us to address some of the more common objections to the gold standard and to bare the myths upon which they stand.

One of the charges most frequently brought against the gold standard is that it cannot provide for the monetary needs of a growing economy. Increases in the supply of money, it is said, are necessary to finance the purchases of the increasing quantities of goods and services resulting from economic growth. The gold standard cannot be depended upon to produce the required additions to the money supply at the right times or in the right proportions. The consequence of such monetary deficiency is a stunting of economic growth or possibly even a precipitous depression. It is this reasoning which underlies a popular explanation of the Great Depression as stemming from a worldwide shortage of gold. It has also served as the rationale of governments for their implementation of policies which led to the progressive debilitation and eventual collapse of the classical gold standard in the 1930s. The view that the relative insufficiency of gold constitutes a barrier to economic growth was summed up in the oft-quoted statement of Keynes that, “at periods when gold is available at suitable depths experience shows that the real wealth of the world increases rapidly; and when but little of it is so available, our wealth suffers stagnation or decline.”²⁷

However plausible, this line of reasoning is untenable because it ignores the supply-and-demand mechanism operative in a free market for money. The market insures that any quantity of money is capable of performing all the work required of a medium of exchange by adjusting its purchasing power to the underlying conditions of supply and demand. The increasing stocks of goods which sellers seek to exchange for money in a growing economy represent an overall increase in the demand for money. Thus, if the quantity of money remains unchanged in the face of a growth in real output, the result will be a general bidding down of prices in the economy and, pari passu, an increase in the purchasing power of money. With each unit of money now capable of doing more work in exchange, the same quantity of money will suffice to finance the increased volume of transactions.

It might be added that it is precisely through falling prices that the fruits of increased productivity and economic growth are spread throughout the market economy. For example, if prices in general fall due to a growth in real output, all other things equal, all individuals in the economy will experience a growth in their real incomes despite the fact that their money incomes remain unchanged. If the government, acting under the false belief that a growth in real output necessitates an increase in the money supply, injects new money into the economy, it will counteract the free-market forces leading to a fall in prices, and consequently frustrate the natural market process by which productivity gains are distributed throughout society. The result will be that some groups, especially those who receive the new money first, such as stockholders and workers in defense firms working on government contracts, will appropriate a disproportionate share of the gains at the expense of other groups—pensioners, annuitants, and others whose money incomes are fixed.

The same considerations apply to the objection that the gold standard is not flexible enough to withstand the bouts of hoarding which, it is alleged, may spontaneously take hold among consumers and investors in the economy. If not offset by timely injections of new money in the economy, it is argued, such hoarding threatens a shrinkage of expenditure, income, and output which may plunge the economy into a downward spiral of deflation and depression. These fears are groundless, however, because the term “hoarding” denotes nothing more or less than the voluntary decisions of individuals in the economy to reduce their rate of spending in order to increase their money holdings. The result of these decisions is an increase in the aggregate demand for money on the market. If the supply of money is fixed, the increased demand for money will effect a general fall in money prices. Lower prices will translate into a greater purchasing power of the monetary unit, a development which allows the same quantity of money to fulfill people’s desires for increased money holdings. Thus “hoarding”—or more properly, an increase in the social demand for money—far from being economically disruptive, is in fact a boon to society. It is the means by which the free market adjusts the purchasing power of individuals’ money balances to suit their voluntarily expressed preferences. Once again, any government intervention designed to offset the effects of hoarding merely hampers this market adjustment process and frustrates the desires of money-holders.

This brings us to the criticism that, under the gold standard, the “price level” is unstable. Among other things, this allegedly reduces money’s effectiveness as a “measure of value,” introducing widespread inefficiency and instability into the economy. For example, unforeseen changes in money’s value or purchasing power cause businessmen to err in their anticipations of future costs and prices and in their subsequent allocation of scarce resources. Moreover, such changes effect an unforeseen redistribution of wealth between debtors and creditors.

This objection rests on a basic confusion regarding the nature of money. Simply put, money is not some sort of measuring device whose value is or should be eternally fixed. Money is, in fact, a commodity chosen by the market as a medium of exchange. Like other goods on the market it has a price which fluctuates according to changes in its supply and demand. There is no more justification for government to take steps to render the free market supply-and-demand mechanism inoperative in the case of money than there is in the case of other commodities. In fact, changes in the purchasing power of money have important functions on the market. As we saw above, these include the distribution of the fruits of a growing economy to all the public and the satisfaction of people’s desires for changes in their money balances. If the government were to succeed in freezing the purchasing power of money—i.e., in “stabilizing the price level”—money would be rendered incapable of performing these vital functions. In practice, of course, the attempts of modern governments to achieve a stable price level through manipulations of the money supply have succeeded only in seriously destabilizing the economy (witness our present stagflation) while, at the same time, rendering the purchasing power of money much more volatile than it ever was under the classical gold standard.

Furthermore, the desire for a stable “price level” betrays a fundamental misconception of the value of money. As noted above, the value or purchasing power of the monetary unit, say an ounce of gold, is a vast array of alternative quantities of goods and services for which a gold ounce exchanges on the market, e.g., one color television set or four men’s suits or one-twentieth of a new automobile, etc. Since the array consists of specific and heterogeneous quantities, it cannot be mathematically manipulated to yield a unitary value such as a “price level.” In other words, the value of money is embedded in the specific prices of particular goods and services—e.g., 1 oz. per color television, 1/4 oz. per men’s suit, 20 oz. per automobile, etc.

If the value of money cannot be expressed apart from the reality of specific prices paid in specific market transactions, then stabilizing the value of money logically implies freezing all market prices both absolutely and in relation to one another. For it is precisely through the interaction of the supplies and demands for particular goods as expressed in sales and purchases for money that there emerges, at one and the same time and as part of the same process, the exchange value of each good in terms of every other—”relative prices”—and of each good in terms of money—the so-called price level or purchasing power of money. As a result, the “value of money” is inextricably intertwined with particular money prices and the two cannot be even conceptually separated. It is therefore meaningless to advocate, as proponents of price level stabilization do, that on the one hand, the value of money or the general level of prices be held constant while, on the other hand, particular prices be left free to vary in relation to one another according to supply and demand.

Of course, those who favor stabilizing the value of money have no desire to see the price of every single good eternally fixed. Instead, they advocate that some arbitrarily chosen statistical index of the prices of selected goods—the consumer price index, the GNP deflator, etc.—be maintained constant through political manipulation of the money supply. Unfortunately, this presents yet another problem. For even if the government possessed the inclination and the ability to implement such a monetary policy, their success in doing so would not suppress fluctuations in the value of money; it would merely alter and distort the structure of particular prices which emerges on the market and through which is reflected the purchasing power of the monetary unit. These distortions in relative prices, furthermore, effect an allocation of investments and resources which is not in accord with the true preferences of consumers and savers in the economy. The result of the continued pursuit of this monetary policy is the piling up of unsustainable malinvestments and resource misallocations which will eventually precipitate a painful but necessary period of liquidation and readjustment for the economy. In sum, every attempt to “stabilize the price level” through governmental monetary policy inevitably distorts the free-market pattern of relative prices and leads to a destabilization of the entire economy through business cycles, or, in more modern parlance, fluctuations in macroeconomic activity.

Finally, under a free market commodity-money standard, if debtors and creditors truly wished to rid themselves of the uncertainty born of unanticipated changes in the value of money, they could voluntarily avail themselves of the indexing techniques provided by a tabular standard. Under the voluntary tabular standard, the money payments called for in a credit or loan contract would be adjusted according to an agreed-upon index number registering changes in the prices of a selected group of commodities and services. The fact that these voluntary indexing schemes have never been widely resorted to (except, perhaps, during hyperinflation) should indicate to the stabilizationists that, in Murray Rothbard’s words:

Businessmen apparently prefer to take their chances in a speculative world rather than agree on some sort of arbitrary hedging device. Stock exchange speculators and commodity speculators are continually attempting to forecast future prices, and, indeed all entrepreneurs are engaged in anticipating the uncertain conditions of the market. Apparently, businessmen are willing to be entrepreneurs in anticipating future changes in purchasing power as well as other changes.²⁸

Another oft-repeated criticism of the gold standard is that the supply of gold, and therefore of money, is determined “arbitrarily,” depending as it does on such fortuitous factors as discoveries of new mines and technological improvements in the methods of extraction. This is surely a curious, if not vacuous, use of the term “arbitrary,” however, since the supplies of oil and of apples and, for that matter, of every good produced on the market are influenced by changes in the availability of resources specific to their production and by improvements in technology. In truth, what these critics are really objecting to is precisely the greatest virtue of the gold standard: the determination of the supply of money solely by market forces and independently of political considerations. In this context, an examination of the money-supply process operative under a pure commodity standard will serve to illustrate further the superiority of the gold standard over a government-monopolized fiat money.

Under the gold standard, the supply of the money-commodity depends entirely upon the demand for it in monetary and nonmonetary uses and the money costs involved in its production. A change in either factor brings about a change in the supply of money in the economy. To delineate the process involved, let us begin from a position of equilibrium in which the supply of and demand for money and, hence, its purchasing power are constant. In this situation, gold mining firms maximize monetary profits by producing a quantity of gold per year just equal to the annual amount allocated to nonmonetary uses plus the amount used up or destroyed in monetary employment during the course of a year as a result of wear and tear.

An improvement in the technology of mining gold or the discovery of new, more accessible sources of gold destroys this initial equilibrium by lowering the costs and, thereby, increasing the profitability of gold production, resulting in an increased annual supply of gold on the market. With an unchanged demand for money, the larger supply of the money-commodity exerts an upward pressure on prices which reduces the purchasing power of money, as each gold ounce now purchases fewer goods and services on the market. Happily, the dilution of the purchasing power of the monetary unit is not the only effect of the augmentation of the supply of gold. A fall in the monetary value of gold also reduces the opportunity costs of employing it in alternative nonmonetary uses like jewelry, dental filling, raw material in industrial processes, etc. As a result, a portion of the additional supply of gold is employed in expanding the supplies of producers’ and consumers’ goods on the market, thus facilitating an increased satisfaction of human wants.

An increase of the supply of the money-commodity under the gold standard yields net benefits to society assuming there is still a nonmonetary demand for gold. But a government fiat currency, by definition, has no alternative nonmonetary uses. An increase in the supply of a fiat currency, as in the case of counterfeiting, benefits primarily those who create the new money, as well as the initial recipients of their largesse or expenditures, at the expense of the rest of society. Most importantly however, even in the case in which gold has completely lost its value in nonmonetary uses—certainly a theoretical possibility, if not an empirical likelihood—the money-commodity would still involve the use of scarce, and therefore costly, resources. As a result, the 100 percent gold standard provides a natural market brake on the supply of money which is practically immune to tampering by the political authorities.

Furthermore, since gold is an extremely scarce as well as highly durable commodity its annual production tends to be a tiny proportion of the existing stock. Consequently, even relatively large reductions or increases in its costs of production will not cause great fluctuations in the annual supply of money. The significance of the scarcity and durability of gold for the stability of the money supply has been vividly expressed by the monetary theorist, Edwin Kemmerer:

Largely by reason of its beauty, gold very early in the history of the human race became an object of keen and widespread demand for ornament. The fact, however, that, although gold is found almost everywhere throughout the world, both on land and sea, it usually can be obtained in substantial quantity only by much effort and that nature is very niggardly in her offering of gold to man, except in a few limited parts of the world, makes gold a very scarce commodity. The entire twelve billion dollars of monetary gold in the world today [1935] would represent a cube only about 42.1 feet on a side. A universal demand for gold for ornament and a widespread demand for gold for monetary uses, coupled with this very limited supply, spell scarcity and high values.

Gold is a very durable metal, especially when alloyed with a baser metal like copper, as it usually is. There is gold in the world today that men extracted from nature thousands of years before Christ. Ancient gold ornaments and coins may be seen in almost any of the world’s leading museums. Gold in one form is continually being melted down to reappear in another form. Doubtless there are modern gold coins and gold watches in the world today that contain gold that was dug out of the earth thousands of years ago. Although the permanent losses of gold through abrasion, shipwreck and similar causes, are substantial, it should be remembered that, because of their high value, one’s gold possessions are usually guarded carefully. The world’s present total known supply of gold, therefore, is the accumulation of the ages. Gold being such a durable object and the world’s present stock being the accumulation of the ages, the production of any one year is a small percentage of the total stock. Furthermore, since a large part of the world’s known stock of gold—much more than half—is in relatively unspecialized forms, such as coins and bars, forms into which very little labor has been wrought, the major part of the world’s accumulated gold at any time is a potential supply on the market. It therefore takes a relatively long time for changes in the amount of gold produced annually to affect materially the market supply.²⁹

Under a pure commodity standard, the supply of money also responds to forces operating on the demand side. For instance, an increase in the demand for money, ceteris paribus, effects a general lowering of prices in the economy, including lower prices for the resources employed in mining gold. As a result, the production of gold is rendered more profitable relative to the production of other goods and services. Entrepreneurs respond by increasing the rate of production from currently operational mines, by reopening old mines, and by exploiting for the first time previously known but submarginal sources of gold. They also increase investment in the search for new sources of gold and in the development of new and less costly methods of extraction. In addition, the higher monetary value of gold gives individuals an incentive to shift additional amounts of existing gold from nonmonetary to monetary employments. Thus, an increase in the market demand for money, which is initially satisfied by an increase in the purchasing power of the monetary unit, calls forth a gradual expansion of the supply of money that tends, in the long run, to offset the initial decline in prices and to restore the purchasing power of money to its original level.

Conversely, a fall in the demand for money causes a general rise in prices, and in the process drives up the costs associated with digging up gold. As higher costs reduce the profit margins of gold-mining firms, the production of the metal tends to fall off. Additionally, the lower monetary value of gold induces people to shift some units out of their money balances and into nonmonetary uses, the products of which are now, in effect, purchased more cheaply. The operation of these actors results eventually in a contraction of the supply of money on the market, which tends to reverse the initial rise of prices and reestablish the original purchasing power of the monetary unit.

In summary, under a gold standard, the supply of money does not change arbitrarily but varies directly with monetary demand, resulting in a tendency to long-run stability in the purchasing power of gold. Moreover, in the short term, large fluctuations in the supply of money are precluded by the natural scarcity and durability of gold. Of course, this is not to argue that the gold standard would, or even should, insure perfect stability in the value of money. In fact, as I have argued above, such a goal is chimerical, and all attempts to achieve it in the real world will only create widespread maladjustments and instability in the economy. The point to be made, however, is that the market, when left to its own devices, has chosen and will choose a commodity money whose qualities render its purchasing power sufficiently stable over time to permit market participants to realize the tremendous benefits of indirect exchange and economic calculation which accrue in the form of a tremendously broadened scope for division of labor and specialization and for capital accumulation. As von Mises has noted in this regard:

The free market has succeeded in developing a currency system which well served all the requirements both of indirect exchange and of economic calculation. The aims of monetary calculation are such that they cannot be frustrated by the inaccuracies which stem from slow and comparatively slight movements in purchasing power. Cash-induced changes in purchasing power of the extent to which they occurred in the last two centuries with metallic money, especially with gold money, cannot influence the result of the businessmen’s economic calculations so considerably as to render such calculations useless. Historical experience shows that one could, for all practical purposes of the conduct of business, manage very well with these methods of calculation.³⁰

Indeed, the historical record clearly shows that a gold money, even when adulterated with elements of fiduciary media—uncovered bank notes and deposits and government fiat currency—and subject to a variety of government interventions, has maintained great stability in its purchasing power over the long run.³¹ Furthermore, it must be realized that any attempt to improve upon the money which emerges spontaneously on the market involves the enormous presumption that the myriad of individual transactors whose decisions and actions have conditioned the market’s choice of a money over the ages have consistently and repeatedly erred in assessing the relative benefits and costs of alternative media of exchange. In fact, it is much more likely that the age-old political interference with money, far from improving it, has severely hindered the evolution and improvement of money and monetary institutions which would have occurred naturally on the free market. We cannot even presume to know the direction which such improvement would have taken precisely because, like the institution of money itself, it is the unintended result of a free and spontaneous process of interaction among a multitude of human minds. In Hayek’s words:

The monopoly of government of issuing money has not only deprived us of good money but has also deprived us of the only process by which we can find out what would be good money. We do not even quite know what exact qualities we want because in the two thousand years in which we have used coins and other money, we have never been allowed to experiment with it, we have never been given a chance to find out what the best kind of money would be.³²

This brings us to the most serious objection to the gold standard. Milton Friedman, among others, has argued that the gold standard “is not desirable because it would involve a large cost in the form of resources used to produce the monetary commodity.”³³ Surprisingly, many staunch defenders of the gold standard, from Adam Smith to Ludwig von Mises, have conceded the point to their opponents that the scarce resources expended in the provision of a commodity money represent a pure economic loss to society because these resources are diverted from the satisfaction of human wants. Advocates of the gold standard like von Mises go on to contend, however, that “if one looks at the catastrophic consequences of the great paper money inflations, one must admit that the expensiveness of gold production is the minor evil.”³⁴ On the other hand, Opponents of gold urge that the substitution of a “practically costless” and “well-managed” paper fiat currency would yield substantial benefits to society because the productive resources previously tied up in gold mining as well as the monetary stock of gold itself could now be allocated to the production of producers’ and consumers’ goods, leading to a net increase in human want-satisfaction.

The foregoing is a most persuasive argument which has seduced many good economists out of sound habits of thought. Setting aside for the moment the sociological insight that a legal monopoly of money is inherently inflationary and will never be “well-managed,” the flaw in the argument is that it proves too much. Thus, it could be argued, per analogiam, that the enormous diversity in clothing styles and colors on the free market involves a wasteful expenditure of scarce resources which curtails human want satisfaction in other areas. If only a more “rational,” i.e., government-monopolized production and distribution system for clothing could be organized, the cost of providing the populace with clothing would be drastically cut. And no doubt the outfitting of the whole population with, say, gray Mao pajamas, would diminish the physical amount of resources devoted to producing clothing in the economy. But any economist worth his salt would reject this preposterous proposal out of hand as hardly optimal from an economic standpoint. Why so? Because he understands that, from the point of view of consumers, gray pajamas are a lower-quality clothing than the clothing array available on the market. In other words, the higher level of resource expenditure associated with clothing diversity is economically justified because the increased quality of clothing which results is more highly valued by consumers than the products yielded by alternative employments of the extra resources.

But the same chain of reasoning holds, link for link, in the case of money, which is itself a tangible economic good necessarily possessing qualitative dimensions. The choice of gold by the market, therefore, was not arbitrary but crucially dependent upon its possession of certain qualities: general acceptability, natural scarcity, durability, portability, etc., which well suit it to function as the general medium of exchange. On the other hand, since the market has never deemed inconvertible paper tickets issued by one agency to be fit for monetary use, we are forced to conclude that a paper currency is not more efficient than a gold currency in discharging the functions of money in the relevant economic sense which must necessarily take into account quality considerations. As a consequence, the substitution of government-monopolized paper money for a free market commodity money must bring about a misallocation of resources which, ipso facto, raises costs in the economy—and this apart from the misallocations caused by the inflation which will almost inevitably follow.

Although the objection to the gold standard on the grounds of its high resource cost was probably first introduced into economics by Adam Smith, it holds a particular allure for modem economists, who tend to theorize in a general equilibrium framework. Since general equilibrium involves the conceptualization of an economy in which the interrelated phenomena of time and economic change are assumed absent, it in effect assumes away the basic reason why people desire to hold money—the uncertainty of the future bred by ceaseless and unforeseen economic change. Needless to say, what is called “money” in this system “is not a medium of exchange; it is not money at all; it is merely a numeraire, an ethereal and undetermined unit of accounting of … vague and undefinable character.…”³⁵ For someone who conceives of money in this way, as an insubstantial accounting fiction, it is quite easy to downplay or altogether ignore the qualitative aspects of the tangible economic good which constitutes the general medium of exchange in the real world.³⁶ The resource-cost argument against a commodity money thus only has validity in the context of a highly unrealistic theoretical construct where the very conditions of money’s existence have been assumed away!

There is one other criticism of the gold standard which, because of its apparently wide acceptance by free-market-oriented economists, also warrants brief mention and response. This criticism, generally leveled by proponents of freely floating exchange rates between national fiat currencies, invokes the prestige of the free market against the international gold standard. Thus, it is alleged by these critics that the gold standard is a fixed-exchange-rate system which requires governments to intervene in the market to “fix” the prices of gold and foreign currencies in terms of the domestic currency. Such governmental price fixing, it is said, disrupts the smooth and efficient operation of the free market in foreign exchange and inevitably results in surpluses and shortages of the various national currencies. Government policies, such as tariffs, quotas, exchange controls, etc., designed to suppress the symptoms of these foreign-exchange disequilibria only breed further distortions and inefficiencies in international trade and investment.

While superficially quite plausible, this argument is based on a fundamental conceptual confusion. For, under a genuine gold standard, national currencies do not exist as separate and distinct entities apart from gold. For example, during the era of the classical gold standard prior to 1914, governments did not “fix” the price of gold in terms of their national currencies; the national currency units, such as the “dollar,” “pound,” “franc,” etc., were themselves merely names for a specific weight of the money-commodity, gold. Thus the dollar was defined as ounces of gold, the pound as slightly less than ¼ ounces of gold, and so forth. The “rate of exchange” between dollars and pounds was therefore five to one, not as a consequence of government “price fixing,” but simply because, by the rules of arithmetic, ounces of gold (five dollars) equals ¼ ounces of gold (one pound). In fact, strictly speaking, it is inappropriate to use the concept of an exchange rate when describing the relationship of equivalence between dollars and pounds. The reason is that an exchange rate or price designates a ratio of quantities of two different goods, whereas pounds and dollars denote different weights of the same good, i.e., gold.

Thus, the argument that the international gold standard involves fixed exchange rates between different national currencies is akin to arguing that the present U.S. monetary system involves fixed exchange rates between, say, nickels, dimes, and dollars. That this is not immediately apparent is the unfortunate result of certain peculiarities of the classical gold standard. Under this system, as already noted, the gold currency unit came to bear different names in different nations rather than being denominated by standard weight units such as the gram or ounce, a development which was actively fostered by governments who stood to benefit thereby.³⁷ Furthermore, monopolization of the note issue and the centralization of gold reserves were achieved by government-controlled central banks. These developments gave rise to the fiction that the notes issued by the central bank and the deposits of private banks denominated in these notes were not merely claims to the actual money-commodity, gold, but were themselves money. As a result, gold came to be viewed as “reserves” or “backing” for the nation’s money supply which was “bought” and “sold” by the central bank at a “fixed price” in terms of the national currency unit.

It should be noted that such confusion could not have arisen under a fully private 100 percent gold standard because, in this system standard names of weight are used to designate the currency unit, with the consequence that the absurdity of speaking of an “exchange rate” between a gram of gold and an ounce of gold becomes immediately apparent. Furthermore, since bank notes and deposits are issued solely by private, profit-making institutions, which are not invested with the high authority and prestige of a government central bank, there is little likelihood that people will think that these warehouse receipts for gold are a money that is separate and distinct from gold.

Bibliography

Barro, Robert J. 1979. “Money and the Price Level under the Gold Standard.” Economic Journal 89 (March).

Bernstein, Edward M. 1980. “Back to the Gold Standard?” Brookings Bulletin 17 (Fall): pp. 8–12.

Bordo, Michael David. 1981. “The Classical Gold Standard: Some Lessons for Today.” Federal Reserve Bank of St. Louis Review 63 (May): pp. 2–17.

Evans, Rowland and Robert Novak. 1981. “Gold Standard Rears Its Head Again.” New York Post (August 5): p. 29.

Federal Reserve Bank of St. Louis. 1981. International Economic Conditions (August 15).

____. 1981. Monetary Trends (September 25).

Fellner, William. 1981. “Gold and the Uneasy Case for Responsibly Managed Fiat Money.” In idem, ed., Essays in Contemporary Economic Problems: Demand, Productivity, and Population. Washington, D.C.: American Enterprise Institute for Public Policy Research.

Friedman, Milton. 1959. A Program for Monetary Stability. New York: Fordham University Press.

____. 1970. Essays in Positive Economics. Chicago: University of Chicago Press.

Hayek, F.A. 1978. Denationalization of Money—The Argument Refined: An Analysis of the Theory and Practice of Concurrent Currencies, 2nd enl. ed. London: The Institute of Economic Affairs.

____. 1979. “Toward a Free Market Monetary System.” Journal of Libertarian Studies 3, no. 1.

Jastram, Roy W. 1976. The Golden Constant: The English and American Experience, 1560–1976. New York: John Wiley & Sons.

____. 1981. “The Gold Standard: You Can’t Trust Politics.” Wall Street Journal (May 15).

Kemmerer, Edwin W. 1937. Money: The Principles of Money and their Exemplification in Outstanding Chapters of Monetary History. New York: Macmillan.

Keynes, John Maynard. 1964. The General Theory of Employment, Interest, and Money. New York: Harcourt, Brace & World, Inc.

Mises, Ludwig von. 1966. Human Action: A Treatise on Economics, 3rd rev. ed. Chicago: Henry Regnery Company.

____. 1969. On Current Monetary Problems. Lansing, Mich.: Constitutional Alliance, Inc.

____. 1978. On the Manipulation of Money and Credit, Percy L. Greaves, Jr., ed., Bettina Bien Greaves, trans. Dobbs Ferry, N.Y.: Free Market Books.

Nordhaus, William. 1981. “Gold in the Year of the Quack.” New York Times (October 4): section F, p. 3.

Oppenheimer, Franz. 1975. The State, John Gitterman, trans. New York: Free Life Editions, Inc.

Reuff, Jacques. 1960. “The Fallacies of Lord Keynes’s General Theory.” In The Critics of Keynesian Economics, Henry Hazlitt, ed. Princeton, N.J.: D. Van Nostrand Company, Inc.

Rist, Charles. 1966. History of Monetary and Credit Theory: From John Law to the Present Day, Jane Degras, trans. New York: Augustus M. Kelley.

Rothbard, Murray N. 1970. Man, Economy, and State: A Treatise on Economic Principles, 2 vols. Los Angeles: Nash Publishing.

____. 1974. The Case for a 100 Per Cent Gold Dollar. Washington, D.C.: Libertarian Review Press. Reprinted from idem, 1962. “The Case for a 100 Per Cent Gold dollar.” In In Search of a Monetary Constitution, Leland Yeager, ed., pp. 94–136. Cambridge, Mass.: Harvard University Press.

____. 1978. What Has Government Done to Our Money? Novato, Calif.: Libertarian Publishers.

Skousen, Mark. 1980. The 100 Percent Gold Standard: Economics of a Pure Money Commodity. Lanham, Md.: University Press of America, Inc.

Stein, Herbert. 1981. “Professor Knight’s Law of Talk.” Wall Street Journal (October 4): p. 28.

Walker, Francis Amasa. 1968. Money. New York: Augustus M. Kelley.

Wallich, Henry C. 1981. “Should We (and Could We) Return to the Gold Standard?” New York Times (September 6): section E, p. 4.

Wall Street Journal Article. 1981. “Return to an International Gold Standard Opposed by U.S. Panel Majority at Debate.” Wall Street Journal (October 27): p. 16.

Wall Street Journal Editorial. 1981. “Blaming Volcker.” Wall Street Journal (October 14).

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From: “The 100 Percent Gold Standard: A Proposal for Monetary Reform,” in Supply-Side Economics: A Critical Appraisal, ed. Richard H. Fink (Frederick, Md.: University Publications of America, 1982), pp. 454–88.

¹See “Return to an International Gold Standard Opposed by U.S. Panel Majority at Debate,” Wall Street Journal, October 27, 1981, p. 16.

² McCracken’s remarks are reported in Rowland Evans and Robert Novak, “Gold Standard Rears Its Head Again,” New York Post, August 5, 1981, p. 29.

³ Federal Reserve Bank of St. Louis, International Economic Conditions (August 15, 1981), p. 50.

⁴ Ibid., p. 51.

⁵ Ibid., pp. 52, 53.

⁶ Federal Reserve Bank of St. Louis, Monetary Trends (September 25, 1981), pp. 2, 5.

⁷ Editorial, “Blaming Volcker,” Wall Street Journal, October 14, 1981, p. 28.

⁸ Ibid.

⁹ Robert J. Barro, “Money and the Price Level under the Gold Standard,” Economic Journal 89 (March 1979): p. 31.

¹⁰ Roy W. Jastram, The Golden Constant: The English and American Experience, 1560–1976 (New York: John Wiley & Sons, 1976).

¹¹ Roy W. Jastram, “The Gold Standard: You Can’t Trust Politics,” Wall Street Journal, May 15, 1981, p. 32.

¹² Ibid.

¹³ Edward M. Bernstein, “Back to the Gold Standard?” Brookings Bulletin 17 (Fall 1980): pp. 8–12.

¹⁴ Michael David Bordo, “The Classical Gold Standard: Some Lessons for Today,” Federal Reserve Bank of St. Louis Review 63 (May 1981): pp. 2–17.

¹⁵ William Fellner, “Gold and the Uneasy Case for Responsibly Managed Fiat Money” in idem, ed., Essays in Contemporary Economic Problems: Demand, Productivity, and Population (Washington, D.C.: American Enterprise Institute for Public Policy Research, 1981), pp. 92–97.

¹⁶ Herbert Stein, “Professor Knight’s Law of Talk,” Wall Street Journal, October 14, 1981, p. 28.

¹⁷ William Nordhaus, “Gold in the Year of the Quack,” New York Times, October 4, 1981, section F, p. 3.

¹⁸ Henry C. Wallich, “Should We (and Could We) Return to the Gold Standard?” New York Times, September 6, 1981, section E, p. 4.

¹⁹ Ludwig von Mises, On the Manipulation of Money and Credit, ed. Percy L. Greaves, Jr. and trans. Bettina Bien Greaves (Dobbs Ferry, N.Y.: Free Market Books, 1978), p. 22.

²⁰ Ludwig von Mises, On Current Monetary Problems (Lansing, Mich.: Constitutional Alliance, Inc., 1969), pp. 29–30.

²¹ For works detailing the nature and operation of a pure commodity money, see Murray N. Rothbard, The Case for a 100 Per Cent Gold Dollar (Washington, D.C.: Libertarian Review Press, 1974), reprinted from idem, “The Case for a 100 Per Cent Gold Dollar,” in In Search of a Monetary Constitution, ed. Leland Yeager (Cambridge, Mass.: Harvard University Press, 1962), pp. 94–136; Murray N. Rothbard, What Has Government Done to Our Money? (Novato, Calif.: Libertarian Publishers, 1978); Milton Friedman, Essays in Positive Economics (Chicago: University of Chicago Press, 1970), pp. 206–10; idem, A Program for Monetary Stability (New York: Fordham University Press, 1959), pp. 4–8; idem, “Should There Be an Independent Monetary Authority,” in Yeager, In Search of a Monetary Constitution, pp. 220–24; Jacques Rueff, “The Fallacies of Lord Keynes’s General Theory,” in The Critics of Keynesian Economics, ed. Henry Hazlitt (Princeton, N.J.: D. Van Nostrand Company, Inc., 1960), pp. 242–46; Mark Skousen, The 100 Percent Gold Standard: Economics of a Pure Money Commodity (Lanham, Md.: University Press of America, Inc., 1980).

²² This important distinction between the “economic means” and the “political means” of acquiring income was drawn by the German sociologist and economist Franz Oppenheimer. See Franz Oppenheimer, The State, trans. John Gitterman (New York: Free Life Editions, Inc., 1975).

²³ F.A. Hayek, Denationalization of Money—The Argument Refined: An Analysis of the Theory and Practice of Concurrent Currencies, 2nd enl. ed. (London: The Institute of Economic Affairs, 1978).

²⁴ F.A. Hayek, “Toward a Free Market Monetary System,” Journal of Libertarian Studies 3, no. 1 (1979): p. 7.

²⁵ Fellner, “Gold and the Uneasy Case for Responsibly Managed Fiat Money,” p. 99.

²⁶ Friedman, “Should There Be an Independent Monetary Authority?” pp. 220–22.

²⁷ John Maynard Keynes, The General Theory of Employment, Interest, and Money (New York: Harcourt, Brace & World, Inc., 1964), p. 132.

²⁸ Murray N. Rothbard, Man, Economy, and State: A Treatise on Economic Principles, 2 vols. (Los Angeles: Nash Publishing, 1970), Vol. 2, p. 742. For a description and critique of the tabular standard, see also Edwin W. Kemmerer, Money: The Principles of Money and Their Exemplification in Outstanding Chapters of Monetary History (New York: Macmillan, 1937), pp. 103–07.

²⁹ Kemmerer, Money, pp. 76–77.

³⁰ Ludwig von Mises, Human Action: A Treatise on Economics, 3rd rev. ed. (Chicago: Henry Regnery Company, 1966), p. 425.

³¹ For abundant evidence of the long-run stability of the purchasing power of gold in English and American monetary experience, see Jastram, The Golden Constant.

³² Hayek, “Toward a Free Market Monetary System,” p. 5.

³³ Friedman, “Should There Be an Independent Monetary Authority?” pp. 223–24.

³⁴ Mises, Human Action, p. 422.

³⁵ Ibid., p. 249.

³⁶ Very few economists have taken issue with the resource-cost argument against a commodity money. Two who have come to my attention are the nineteenth-century American monetary economist and 100 percent gold standard advocate, Francis Amasa Walker, and the eminent French monetary theorist Charles Rist. Both explicitly attacked the argument on the grounds that it ignores the qualitative aspects of money. See Francis Amasa Walker, Money (New York: Augustus M. Kelley Publishers, 1968), pp. 521–28; and Charles Rist, History of Monetary and Credit Theory: From John Law to the Present Day, trans. Jane Degras (New York: Augustus M. Kelley Publishers, 1966), pp. 80–90.

³⁷ On government actions which helped foster the supercession of standard units of weight by national currency names, see Rothbard, The 100 Percent Gold Dollar, pp. 12–19.