The Best Medium of Exchange

U.S. $3 gold piece of 1874.

During most of the 19th century, we had a functioning gold standard. Combined with classical liberal economic policies and limited government, this set the stage for the greatest economic growth in history.

Although many Americans today see sound money as the exception, and paper as the rule, the opposite is true. Even the American dollar had a connection with gold up until 1971. Since the severing of that tie, the debasement of the dollar has accelerated, with the money supply doubling. Prices have more than doubled in the last ten years, not to mention the economic distortions that accompanied this inflation.

There is no law of economics stating that only gold can be used as money in a free society. But gold has served as the principal medium of exchange throughout history because its value does not depend on a government fulfilling its promises, especially in times of crisis. Gold is scarce; it is portable; it is easily divisible; it is durable; it is desirable for non-monetary purposes; and it is impossible to counterfeit. ^*

Paper money’s worth depends on the promises of government, and it is all too easy to reproduce. Combine these with the human flaws that seem to be especially common in politicians and central bankers, and you have the fact that no fiat currency can serve as a stable medium of exchange for more than a short time. Until we recognize this, constructive monetary reform is impossible.

Once we do recognize it, we can begin to make progress toward a modern gold standard. Refinement of past systems is necessary because—having been monopolized by government—they have suffered from the inevitable expediency of the politicians.

^* Although this booklet was written to encourage the establishment of a gold-coin standard, it does not suggest the discouragement of other, non-fraudulent commodity money.