The Road Ahead

Having decided to return to a 100 percent gold dollar, we are confronted with the problem of how to go about it. There is no question about the difficulty of the transition period required to reach our goal. But once the transition period is concluded, we will have the satisfaction of possessing the best monetary system known to man and of eliminating inflation, business cycles, and the uneconomic and immoral practice of people acquiring money at the expense of producers. Since we have many times the number of dollars as we have gold dollars at the present fixed weight of the dollar, we have essentially two alternative, polar routes toward 100 percent gold: either to force a deflation of the supply of dollars down to the currently valued gold stock, or to “raise the price of gold” (to lower the definition of the dollar’s weight) to make the total stock of gold dollars 100 percent equal to the total supply of dollars in the society. Or we can choose some combination of the two routes.

Professor Spahr and his associates wish to return to the gold standard (though not to 100 percent gold) at the current “price” of $35 an ounce, stressing the importance of fixity of the weight of the dollar. If these were before 1933 and we were still on a gold standard, even if a defective one, I would unhesitatingly agree. The principle of a fixed weight for the dollar, and above all the principle of the sanctity of contract, are essential to our entire system of private property, and therefore would have been well worth the difficulties of a severe deflation. Aside from that, we have built deflation into an absurd ogre, and have overlooked the healthy consequences of a deflationary purgation of the malinvestments of the boom, as well as the overdue aid that fixed income groups, hit by decades of inflationary erosion, would at last obtain from a considerable fall in prices. A sharp deflation would also help to break up the powerful aggregations of monopoly unionism, which are potentially so destructive of the market economy. At any rate, while the deflation would be nominally sharp, to the extent that people would wish to save much of their present cash holdings, they would increase voluntary savings by purchasing bank debentures in lieu of their deposits, thereby fostering “economic growth” and mitigating the rigors of the deflation.

On the other hand, there is no particular reason to be devoted to the $35 figure at the present time, since the existing “gold standard” and definition of the dollar are only applicable to foreign governments and central banks; as far as the people are concerned, we are now on a virtual fiat standard. Therefore, we may change the definition of the dollar as a preliminary step to return to a full gold standard, and we would not really be disturbing the principle of fixity. As in the case of any definition of weight, the initial definition is purely arbitrary, and we are so close now to a fiat standard that we may consider any dollar in a new standard as an initial definition.

Depending on how we define the money supply—and I would define it very broadly as all claims to dollars at fixed par value—a rise in the gold price sufficient to bring the gold stock to 100 percent of total dollars would require a ten- to twentyfold increase, This of course would bring an enormous windfall gain to the gold miners, but this does not concern us. I do not believe that we should refuse an offer of a mass entry into Heaven simply because the manufacturers of harps and angels’ wings would enjoy a windfall gain. But certainly a matter for genuine concern would be the enormous impetus such a change would give for several years to the mining of gold, as well as the disruption it would cause in the pattern of international trade.

Which course we take, or which particular blend of the two, is a matter for detailed study by economists. Obviously little or none of this needed study has been undertaken. I therefore do not propose here a detailed blueprint. I would like to see all of those who have become convinced of the need for a 100 percent gold standard join in such a study of the best path to take toward such a goal under present conditions. Broadly, the desired program may be summarized as follows:

1. Arrival of a 100 percent gold dollar, either by deflation of dollars to a gold stock valued at $35 per ounce, or by revaluation of the dollar at a “gold price” high enough to make the gold stock 100 percent of the present supply of dollars, or a blend of the two routes.

2. Getting the gold stock out of the hands of the government and into the hands of the banks and the people, with the concomitant liquidation of the Federal Reserve System, and a legal 100 percent requirement for all demand claims.

3. The transfer of all note-issue functions from the Treasury and the Federal Reserve to the private banks. All banks, in short, would be allowed to issue deposits or notes at the discretion of their clients.

4. Freeing silver bullion and its representative in silver certificates (which would now be issued by the banks) from any fixed value in gold. In short, silver ounces and their warehouse receipts would fluctuate, as do all other commodities, on the market in terms of gold or dollars, thus giving us “parallel” gold and silver moneys, with gold dollars presumably remaining the chief money as the unit of account.

5. The eventual elimination of the term “dollar,” using only terms of weight such as “gold gram” or “gold ounce.”[47] The ultimate goal would be the return to gold by every nation, at 100 percent of its particular currency, and the subsequent blending of all these national currencies into one unified world gold-gram unit. This was one of the considered goals at the abortive international monetary conferences of the late nineteenth century.[48] In such a world, there would be no exchange rates except between gold and silver, for the national currency names would be abandoned for simple weights of gold, and all the world’s money would at long last be freed from government intervention.

6. Free (but presumably not gratuitous) private coinage of gold and silver.

I must here differ with Professor Mises’ and Henry Hazlitt’s suggestion for return to the gold standard by first establishing a “free market” in gold by cutting the dollar completely loose from gold, and then seeing, after several years, what gold price the market would establish.[49] In the first place, this would cut the last tenuous link that the dollar still has to gold and yield us a totally fiat money. Second, the market would hardly be a “free” one, since almost all the nation’s gold would be sequestered in government hands. I think it important to move in the reverse direction. The Federal government, after all, seized the people’s gold in 1933 under the guise of a temporary emergency. It is important, for moral and economic reasons, to permit the people to reclaim their gold as rapidly as possible. And since the gold is still held as hostage for our dollars, I believe that the official link and official convertibility between dollars and gold should be re-established as soon as Congress can be so persuaded. And finally, since the dollar is merely a weight of gold, properly speaking, it is not at all appropriate to establish a “market” between dollars and gold, any more than there should be a “market” between one-dollar bills and five-dollar bills.

There is no gainsaying the fact that this suggested program will strike most people as impossibly “radical” and “unrealistic”; any suggestion for changing the status quo, no matter how slight, can always be considered by someone as too radical, so that the only thoroughgoing escape from the charge of impracticality is never to advocate any change whatever in existing conditions. But to take this approach is to abandon human reason, and to drift in animal- or plant-like manner with the tide of events. As Professor Philbrook pointed out in a brilliant article some years ago, we must frame our policy convictions on what we believe the best course to be and then try to convince others of this goal, and not include within our policy conclusions estimates of what other people may find acceptable.[50] For someone must propagate the truth in society, as opposed to what is politically expedient. If scholars and intellectuals fail to do so if they fail to expound their convictions of what they believe the correct course to be, they are abandoning truth, and therefore abandoning their very raison d’être, All hope of social progress would then be gone, for no new ideas would ever be advanced nor effort expended to convince others of their validity.