The Case for a 100% Gold Dollar, Part 2

0:005. The Decline from Weight to Name, Encouraging Bank Inflation The natural tendency of the state is inflation. This statement will shock those accustomed to viewing the state as a committee of the whole nation ardently dispensing the general welfare, but I think it nonetheless true. The reason seems to be obvious. As I have As mentioned above, money is acquired on the market by producing goods and services, and then buying money in exchange for these goods. But there is another way to obtain money, creating money oneself without producing, by counterfeiting. Money creation is a much less costly method than producing.

0:48Therefore, the state, with its ever-tightening monopoly of money creation, has a simple route that it can take to benefit its own members and its favored supporters, and it is a more enticing and less disturbing route than taxes, which might provoke open opposition. Creating money, on the contrary, confers open and evident benefits on those who create and first receive it. The losses it imposes on the rest of society remain hidden to the lay observer. This tendency of the state should alone preclude all the schemes of economists and other writers for government to issue and stabilize the supply of paper money. While countries were still on a specie standard, banknotes and government paper were issued as redeemable in specie.

1:41They were money substitutes, essentially warehouse receipts for gold that could be redeemed in face value on demand. In however the issue of receipts went beyond 100% reserve to outright money creation. Governments have persistently tried their best to promote, encourage and expand the circulation of bank and government paper and to discourage the people's use of gold itself. Any individual bank has two great checks on its creation of money, a call for redemption by Non-Clients, that is, by clients of other banks or by those who wish to use standard money, and a crisis of confidence in the bank by its clients causing a run. Governments have continually operated to widen these limits, which would be narrow in a system of free banking, a system where banks are free to do anything they please so long as they promptly They Redeemed Their Obligations to Pay Specie They have created a central bank to widen the limits to the whole country by permitting all banks to inflate together under the tutelage

2:54of the government. And they have tried to assure the banks that the government will not permit them to fail, either by coining the convenient doctrine that the central bank must be a lender of of Last Resort, or reserves to the banks, or, as in America, by simply suspending specie payments, that is, by permitting banks to continue operations while refusing to redeem their contractual obligations to pay specie. It is a commonly accepted myth that the excess of wildcat banks in America stemmed from free banking. Actually, a much stronger cause was the tradition, beginning in 1814 and continuing in every economic crisis thereafter, of permitting banks to continue in operation without paying in specie.

3:47It is also a widespread myth that central banks are inaugurated in order to check inflation by commercial banks. The Second Bank of the United States, on the contrary, was inaugurated in 1817 as an inflationist sop to the state chartered banks, which had been permitted to run riot without paying in specie since 1814. It was a weak substitute for compelling a genuine return to specie payments. This was correctly pointed out at the time by such hard-money stalwarts as Daniel Webster and John Randolph of Roanoke. Professor William H. Wells, Federalist of Delaware, said that the bank bill was ostensibly for the purpose of correcting the diseased state of our paper currency by restraining and curtailing the over-issue of bank paper, and yet it came prepared to inflict upon us the same evil, being itself nothing more than simply a paper-making machine.

4:50As for the Federal Reserve system, the major arguments for its adoption were to make the to make the money supply more elastic and to centralize reserves and thus make them more efficient, that is, to facilitate and promote inflation. As an additional, Philip, reserve requirements themselves were directly lowered at the inauguration of the Federal Reserve System. Another device used over the years by governments was to persuade the public not to use gold in their daily transactions. To do so was scorned as an anachronism, unsuited to the modern world. The yokel who didn't trust banks became a common object of ridicule. In this way, gold was more and more confined to the banks and to use for very large transactions.

5:41This made it very much easier to go off the gold standard during the Great Depression. for then the public could be persuaded that the only ones to suffer were a few selfish anti-social and subtly unpatriotic gold hoarders. In fact, as early as the panic of 1819 the idea had spread that someone trying to redeem his banknote in specie, that is, to redeem his own property, was a subversive citizen trying to wreck the banks and the entire economy And by the 1930s, it was thus easy to denounce gold hoarders as virtual traitors. During the panic, the economist Condé Ragé, State Senator from Philadelphia, wrote to a puzzled David Ricardo as follows.

6:29You state in your letter that you find it difficult to comprehend why persons who had a right to demand coin from the banks in payment of their notes, so long forebore to exercise it. This no doubt appears paradoxical to one who resides in a country where an act of parliament was necessary to protect a bank, but the difficulty is easily solved. The whole of our population are either stockholders of banks or in debt to them. An independent man who was neither a stockholder or debtor who would have ventured to compel the banks to do justice would have been persecuted as an enemy of society. In 1931, for example, President Hoover launched a crusade against traitorous hoarding.

7:16The crusade consisted of the Citizens Reconstruction Organization, headed by Colonel Frank Knox of Chicago, and Jesse Jones reports that during the banking crisis of early 1933, Hoover was seriously contemplating invoking a forgotten wartime law making hoarding a criminal offense. It should also be noted here that the Hoover administration's alleged devotion to retaining the gold standard is largely myth. As Hoover's undersecretary of the Treasury has declared rather proudly, the going off gold cannot be laid to Franklin Roosevelt. It had been determined to be necessary by Ogden Mills, secretary of the Treasury, and myself as his undersecretary, long before Franklin Roosevelt took office.

8:05And so, by imposing central banking, by suspending species payments, and by encouraging a shift among the public from gold to paper or bank deposits in their everyday transactions, the governments organized inflation, and thus an ever larger proportion of money substitutes to gold, an increasing proportion of liabilities redeemable on demand in gold to gold itself. By the 1930s, in short, the gold standard, a shaky gold base supporting an ever greater pyramid of monetary claims, was ready to collapse at the first severe depression or wave of bank runs. Funds. Currently, the worst example of government aid to banks is the highly popular deposit insurance, for this means that banks have virtually carte blanche from government to protect them from any redemption crisis. As a result, virtually all natural market checks on bank inflation have been destroyed. Query, if banks are thus protected from losses by by Government, To What Extent Are They Still Private Institutions?, 6, 100% Gold Banking, We have thus come to the cardinal difference between myself and the bulk of those economists

9:31who still advocate a return to the gold standard. These economists, represented by Dr. Walter E. Sparr and his associates in the Economists and its National Committee on Monetary Policy, essentially believe that the old pre-1933 gold standard was a fine and viable institution in all its parts, and that going off gold in 1933 was a single wicked act of will that only needs to be repealed in order to re-establish our monetary system on a sound foundation. I, on the contrary, view 1933 as but the last link in a whole chain of unfortunate actions. It seems clear to me that the gold standard of the 1920s was so vitiated as to be ready to collapse.

10:21A return to such a gold standard, while superior to the present system, would only pave the way for another collapse, and this time, I am afraid, gold would get no further chance. Although the transition period would be more difficult, it would be kinder to the gold standard as well as better for the long-run economic health of the country to go back to a stronger, more viable gold standard than the one we have lost. I dare say that my audience has been too much exposed to the teachings of the Chicago School to be shocked at the idea of 100% reserve banking. This topic, of course, is worthy of far more space than I can give it here. I can only say that my position on 100% banking differs considerably in emphasis from the Chicago School.

11:13The Chicago group basically views 100% money as a technique, as a useful, efficient tool for government manipulation of the money supply, unburdened by lags or friction in the banking system. My reasons for advocating 100% banking cut much closer to the heart of our whole system of the free market and property rights. The other very important difference, of course, is that I advocate 100% reserves in gold or silver in contrast to the 100% fiat paper standard of the Chicago School. 100% gold, rather than making the monetary system more readily manageable by government, should completely expunge government intervention from the monetary system.

12:04In my view, issuing promises to pay on demand in excess of the amount of goods on hand is simply fraud and should be so considered by the legal system. For this means that a bank issues fake warehouse receipts. Warehouse receipts, for example, for ounces of gold that do not actually exist in the vaults. This is legalized counterfeiting. This is the creation of money without the necessity for production, to compete for resources against those who have produced. In short, I believe that fractional reserve banking is disastrous both for the morality and for the fundamental bases and institutions of the market economy.

12:50I am familiar with the many arguments for fractional reserve banking. There is the view that this is simply economical. The banks began with 100% reserves, but then they shrewdly and keenly saw that only a certain proportion of these demand liabilities were likely to be redeemed, so that it seemed safe either to lend out the gold for profit or to issue pseudo-warehouse receipts, either as banknotes or as bank deposits for the gold, and to lend out those. The banks here take on the character of shrewd entrepreneurs, but so is an embezzler shrewd when he takes money out of the company till to invest in some ventures of his own. Like the banker, he sees an opportunity to earn a profit on someone else's assets.

13:41The embezzler knows, let us say, that the auditor will come on June 1st to inspect the Accounts, and he fully intends to repay the loan before then. Let us assume that he does. Is it really true that no one has been the loser and everyone has gained? I dispute this. A theft has occurred, and that theft should be prosecuted and not condoned. Let us note that the banking advocate assumes that something has gone wrong only if everyone One should decide to redeem his property, only to find that it isn't there. But I maintain that the wrong, the theft, occurs at the time the embezzler takes the money, not at the later time when his borrowing happens to be discovered.

14:29I want to make it quite clear that I do not accuse present-day bankers of conscious fraud or embezzlement. The institution of banking has become so hallowed and venerated that we can only say that it allows for legalized fraud, probably unknown to almost all bankers. As for the original goldsmiths that began the practice, I think our opinion should be rather more harsh. Another argument holds that the fact that notes and deposits are redeemable on demand is only a kind of accident, that these are merely credit transactions. The depositors Creditors or noteholders are simply lending money to the banks, which in turn act as their agents to channel the money to business firms.

15:15And why repress productive credit? Mises has shown, however, the crucial difference between a credit transaction and a claim transaction. Credit always involves the purchase of a future good by the creditor in exchange for a present good, money. The creditor gives up a present good in exchange for an IOU for a good coming to him in the future. But a claim, and banknotes or deposits are claims to money, does not involve the creditor's relinquishing any of the present good. On the contrary, the note-holder or deposit-holder still retains his money, the present good, Because he has a claim to it, a warehouse receipt, which he can redeem at any time he desires.

16:07This is the nub of the problem, and this is why fractional reserve banking creates new money while other credit agencies do not. For warehouse receipts or claims to money function on the market as equivalent to standard money itself. To those who persist in believing that the bulk of bank deposits are really saved funds voluntarily left with the banks to invest for savers and are not just kept as monetary cash balances, I would like to lay down this challenge. If what you say is true, why not agree to alter the banking structure to change these deposits to debentures of varying maturities? A shift from uncovered deposits to debentures will, of course, mean an enormous drop in the supply of money.

16:58But if these deposits are simply another form of credit, then the depositors should not object and we 100% theorists will be satisfied. The purchase of a debenture will, furthermore, be a genuine saving and investment of existing money rather than an unsound increase in the money supply. In sum, I am advocating that the law be changed to treat banknotes and deposits as what they are in economic and social fact, claims warehouse receipts to standard money, in short, that the note and the deposit holders be recognized as owners-in-law of the gold, or under a fiat standard of the paper in the bank's vaults.

17:45Now treated in law as a debt, a deposit or note should be considered as evidence of a bailment. In relation to general legal principles, this would not be a radical change, since warehouse receipts are treated as bailments now. Banks would simply be treated as money warehouses in relation to their notes and deposits. The builder Sparr often uses the analogy of a bridge to justify fractional reserve money. The builder of a bridge estimates approximately how many people will be using it daily. He builds the bridge on that basis and does not attempt to accommodate all the people in the city should they all decide to cross the bridge simultaneously.

18:31But the most critical fallacy of this analogy is that the inhabitants do not then have a This would be even more evident if the bridge were owned by a private firm. On the other hand, the holders of money substitutes most emphatically do have a legal claim to their own property at any time they choose to redeem it. The claims must then be fraudulent, since the bank could not possibly meet them all. A bank could not possibly meet them all. A bank that fails is therefore not simply an entrepreneur whose forecasts have gone awry. It is a business whose betrayal of trust has been publicly revealed. Furthermore, a rule of every business is to adjust the time structure of its assets to the time structure of its liabilities, so that its assets on hand will match its liabilities due.

19:27The only exception to this rule is a bank, which lends at certain terms of maturities while its liabilities are all instantly payable on demand. If a bank were to match the time structure of its assets and liabilities, all its assets would also have to be instantaneous, that is, would have to be cash. To those who want the dollar convertible into gold but are content with the pre-1933 standard, we might cite the analysis of Amasa Walker, one of the great American economists a century ago. So far as specie is held for the payment of these fractional reserve-backed notes, this kind of currency is actually convertible and equivalent to money.

20:15But in so far as the credit element exceeds the specie, it is only a promise to pay money, and is inconvertible. A mixed fractional reserve currency, therefore, can only be regarded as partially convertible, the degree of its convertibility depending upon the proportion the specie bears to the notes issued and the deposits. For a believer in free enterprise, a system of free banking undoubtedly has many attractions. Not only does it seem most consistent with the general institution of free enterprise, but Mises and others have shown that free banking would lead not to the infinite supply of money envisioned by such utopian partisans of free banking as Proudhon, Spooner, Green and Mulin, but rather to a much harder and sounder money than exists when banks are controlled by a central bank. In practice, therefore, free banking would come much closer to the 100% ideal than the system we now have. And yet, if free trade in banking is free trade in swindling, then surely the soundest course would be to take the swindling out of banking

21:30all together. Mises' sole argument against 100% gold banking is that this would admit the unfortunate precedent of government control of the banking system. But if fractional reserve banking is fraudulent, then it could be outlawed not as a form of administrative government intervention in the monetary system, but rather as part of the general legal prohibition of of Force and Fraud. Within this general prohibition of fraud, my proposed banking reform would leave the private banks entirely free. 7. Objections to 100% Gold. Certain standard objections have been raised against 100% banking and against 100% gold currency in particular. One generally accepted argument against any form of 100% banking I find particularly and strikingly curious.

22:31That under 100% reserves, banks would not be able to continue profitably in business. I see no reason why banks should not be able to charge their customers for their services, as do all other useful businesses. This argument points to the supposedly enormous benefits of banking. If these benefits were really so powerful, then surely the consumers would be willing to pay a service charge for them, just as they pay for travelers' checks now. If they were not willing to pay the costs of the banking business as they pay the costs of all other industries useful to them, then that would demonstrate the advantages of banking to have been highly overrated. At any rate, there is no reason why banking should not take its chance in the free market with Every Other Industry.

23:20The major objection against 100% gold is that this would allegedly leave the economy with an inadequate money supply. Some economists advocate a secular increase of the supply of money in accordance with some criterion, population growth, growth of volume of trade and the like. Others wish the money supply to be adjusted to provide a stable and fixed price level. In both cases, of course, the adjusting and manipulating could only be done by government. These economists have not fully absorbed the great monetary lesson of classical economics, that the supply of money essentially does not matter. Money performs its function by being a medium of exchange.

24:08Any change in its supply, therefore, will simply adjust itself in the purchasing power Power of the Money Unit, that is, in the amount of other goods that money will be able to buy. An increase in the supply of money means merely that more units of money are doing the social work of exchange and therefore that the purchasing power of each unit will decline. Because of this adjustment, money, in contrast to all other useful commodities employed in and Production or Consumption does not confer a social benefit when its supply increases. The only reason that increased gold mining is useful, in fact, is that the large supply of gold will satisfy more of the non-monetary uses of the gold commodity.

24:57There is therefore never any need for a larger supply of money, aside from the non-monetary uses of gold or silver. An increased supply of money can only benefit one set of people at the expense of another set, and, as we have seen, that is precisely what happens when government or the banks inflate the money supply, and that is precisely what my proposed reform is designed to eliminate. There can, incidentally, never be an actual monetary shortage, since the very fact that The market has established and continues to use gold or silver as a monetary commodity shows that enough of it exists to be useful as a medium of exchange.

25:43The number of people, the volume of trade and all other alleged criteria are therefore merely arbitrary and irrelevant with respect to the supply of money. And as for the ideal of the stable price level, apart from the grave flaws of deciding on On a proper index, there are two points that are generally overlooked. In the first place, the very ideal of a stable price level is open to challenge. Hoarding, as we have indicated, is always attacked. And yet, it is the freely expressed and desired action on the market. People often wish to increase the real value of their cash balances, or to raise the purchasing power of each dollar. There are many reasons why they might wish to do so.

26:31Why should they not have this right as they have other rights on the free market? And yet, only by their hoarding taking effect through lower prices can they bring about this result. Only by demanding more cash balances and thus lowering prices can the dollars assume a higher real value. I see no reason why government manipulators should be able to deprive the consuming public of this right. Second, if people really had an overwhelming desire for a stable price level, they would negotiate all their contracts in some agreed-upon price index. The fact that such a voluntary tabular standard has rarely been adopted isn't apt enough commentary on those stable price-level enthusiasts who would impose their ambitions by government Coercion. Money, it is often said, should function as a yardstick, and therefore its value should be stabilized and fixed. Not its value, however, but its weight should be eternally fixed, as are all other weights. Its value, like all other values, should be left to the judgment, estimation, and ultimate decision of every individual consumer.

27:498. Professor Yeager and 100% Gold One of the most important discussions of the 100% gold standard in recent years is by Professor Leland Yeager. Professor Yeager, while actually at the opposite pole as an advocate of freely fluctuating fiat monies, recognizes the great superiority of 100% gold over the usual pre-1933 of Gold Standard. The main objections to the gold standard are its vulnerability to great and sudden deflations and the difficulties that national authorities face when a specie drain abroad threatens domestic bank reserves and forces contraction.

28:34With 100% gold, Jaeger recognizes, none of these problems would exist. Under a 100% hard money international gold standard, the currency of each country would would consist exclusively of gold, or of gold plus fully backed warehouse receipts for gold in the form of paper money and token coins. The government and its agencies would not have to worry about any drain on their reserves. The gold warehouses would never be embarrassed by requests to redeem paper money in gold, since each dollar of paper money in circulation would represent a dollar of gold actually in a warehouse. There would be no such thing as independent national monetary policies.

29:21The volume of money in each country would be determined by market forces. The world's gold supply would be distributed among the various countries according to the demands for cash balances of the individuals in the various countries. There would be no danger of gold deserting some countries and piling up excessively and others, for each individual would take care not to let his cash balance shrink or expand to a size which he considered inappropriate in view of his own income and wealth. Under a 100% gold standard, the various countries would have a common monetary system, just as the various states of the United States now have a common monetary system. There would be no more reason to worry about disequilibrium in the balance of payments If there is a balance of any particular country, then there is now reason to worry about disequilibrium in the balance of payments of New York City.

30:17If each individual and institution took care to avoid persistent disequilibrium in his personal balance of payments, that would be enough. The actions of individuals in maintaining their cash balances at appropriate levels would automatically take care of the adequacy of each country's money supply. The problems of national reserves, deflation and so forth, Jaeger points out, are due to the fractional reserve nature of the gold standard, not to gold itself. National fractional reserve systems are the real source of most of the difficulties blamed on the gold standard. With fractional reserves, individual actions no longer suffice to assure automatically the proper distribution of the supply of gold.

31:07The difficulties arise because the mixed national currencies, currencies which are largely paper and only partly gold, are insufficiently international. The main defect of the historical gold standard is the necessity of protecting national gold reserves. Central banking and its management only make things worse. In short, whether a central The Federal Bank amplifies the effects of gold flows, remains passive in the face of gold flows, or offsets gold flows. Its behavior is incompatible with the principles of the full-fledged gold standard. Indeed, any kind of monetary management runs counter to the principles of the pure gold standard.

31:54In view of this eloquent depiction of the 100% gold standard, Why does Yeager flatly reject it and call instead for freely fluctuating fiat money? Largely because only with fiat money can each governmental unit stabilize the price level in its own area in times of depression. Now, I cannot pause to discuss further the policy of stabilization, which I believe to be both fallacious and disastrous. I can only point out that contrary to Professor Yeager, price declines and exchange rate depreciation are not simple alternatives. To believe this is to succumb to a fatal methodological holism and to abandon the sound path of methodological individualism.

32:43If, for example, a steel union in a certain area is causing unemployment in steel by insisting on keeping its wage rates up though prices have fallen, have fallen. I consider it at once unjust, a cause of misallocations and distortions of production, and positively futile to try to remedy the problem by forcing all the consumers in the area to suffer by paying higher prices for their imports through a fall in the area's exchange rate. One problem that every monetary statist and nationalist has failed to face is the geographical boundary of each money. If there should be national fluctuating fiat money, what should be the boundaries of the nation?

33:30Surely political frontiers have little or no economic meaning. Professor Yeager is courageous enough to recognize this and to push fiat money almost to a reductio by advocating, or at least considering, entirely separate monies for each region or even locality in a Nation. Yeager has not pushed the reductio far enough, however. Logically, the ultimate in freely fluctuating fiat monies is a different money issued by each and every individual. We have seen that this could not come about on the free market. But suppose that this came about by momentum from the present system or through some other method. What then? Then we would have a world chaos indeed, with Rothbards, Yeagers, Joneses and billions of other individual currencies freely fluctuating on the market.

34:25I think it would be instructive if some economist devoted himself to an intensive analysis of what such a world would look like. I think it's safe to say that the world would be back to an enormously complex and chaotic and the trade would be reduced to a virtual standstill, for there would no longer be any sort of monetary medium for exchanges. Each separate exchange would require a different money. In fact, since money means a general medium of exchanges, it is doubtful if the very concept of money would any longer apply. or apply. Certainly the indispensable economic calculation provided by the money and price system would have to cease, since there would no longer be a common unit of account. This is a serious and not far-fetched criticism of fiat money proposals, because all of them introduce some of this chaotic element into the world economy. In short, fluctuating fiat Monies are disintegrative of the very function of money itself.

35:33If every individual had his own money, the disintegration of the very existence of money would be complete. But national and still more regional and local fiat monies already partially disintegrate the money medium. They contradict the essence of the monetary function. Finally, Professor Yeager wonders why such orthodox liberals as Mises, Hayek and Robbins should have insisted on the monetary internationalism of the gold standard. Without presuming to speak for them, I think the answer can be put in two parts. One, because they favor monetary freedom rather than government management and manipulation of Money, and two, because they favored the existence of money as compared to barter, because they believed that money is one of the greatest and most significant features of the modern market economy and, indeed, of civilization itself.

36:33The more general the money, the greater the scope for division of labor and for the inter-regional exchange of goods and services that stem from the market economy. A monetary medium is therefore critical to the free market, and the wider the use of this money, the more extensive the market and the better it can function. In short, true freedom of trade does require an international commodity money, as the history of the market economy of recent centuries has shown, gold and silver. Any break-up of such an international medium by statist fiat paper inevitably cripples and disintegrates the free market and robs the world of the fruits of that market. Ultimately, the issue is a stark one. We can either return to gold or we can pursue the fiat path and return to barter. It is perhaps not hyperbole to say that civilization itself is at stake in our decision. Other criticisms by Yeager are really, as he recognizes at one point, Criticisms of any plan for 100% banking, fiat or gold.

37:46There is, for example, the problem of how to suppress new forms of demand liabilities that might well arise to evade the legal restrictions. I do not think this an important argument. Fraud is always difficult to combat, and indeed continues in numerous forms to this day, as does all manner of crime. Time. Does this mean that we should give up outlawing and punishing fraud and other crimes against person and property? Second, I am sure that the practical problems of law enforcement would be greatly reduced if the public were to receive a thorough education in the fundamentals of banking. If, in short, 100% money advocates were allowed to form anti-bank vigilante leagues to point out the shakiness and immorality of fractional reserve of Banking, the public would be much less inclined to evade such restrictions than it is now.

38:439. The 100% Gold Tradition I therefore advocate as the soundest monetary system, and the only one fully compatible with the free market and with the absence of force or fraud from any source, a 100% gold standard. This is the only system compatible with the fullest preservation of the rights of property. It is the only system that assures the end of inflation, and with it, of the business cycle. And it is the only form of gold standard that fully meets the following argument of the Douglas Subcommittee against a return to gold. An overriding reason against making gold coin freely available is that no government or banks should make promises which it would not be able to keep if the demand should arise.

39:36Monetary systems for over a century have expanded more rapidly than would be permitted by accretions of gold. While this is undoubtedly a radical program for this day and age, it is important to note briefly that this program is squarely in a great tradition, not only in the economic tradition of the classical economists and the currency school, but also in the American political tradition of the Jeffersonians and the Jacksonians. In essence, this was their program. In passing, it should be noted that almost all historians, with the notable exceptions of William Graham Sumner and Joseph Dorfman, have misinterpreted the Jeffersonians and Jacksonians as economically ignorant and anti-capitalist agrarians lashing out at a credit system they failed to understand.

40:30Whether one agrees with their position or not, they wrote in full and sophisticated knowledge of classical economics and were fully devoted to capitalism and the free market, which they believed were hampered and not aided by the institution of fractional reserve banking. The conservative economic historians of the late 19th century saw Jackson as an ignorant agrarian trying to destroy capitalism and calling for inflation against the central bank. The progressives of the Beard School took much the same approach, except that they applauded the Jacksonians for their alleged anti-capitalist stand. The most recent Bray Hammond Thomas Govan School have again shifted their praise to the Whigs and the Bank of the United States, which they view as essential to a modern credit system, as against the absurdly hard-money views of the Jacksonians.

41:27In fact, it might almost be said that these Americans were un-terrified members of the currency school, lacking the almost blind devotion to the Bank of England of their more pragmatic British cousins. Indeed, the currency principle was enunciated in America several years before it made its appearance in England, and such founders of the currency principle in America as Condi Ragge realized what the more eminent British tragically failed to see. That bank deposits are just as fully money substitutes as bank notes, and are therefore part of the broad money supply. After the Civil War, hard money economists were preoccupied with battling the new greenback and free silver problems, and the idea of 100% gold virtually faded from view.

42:19General Amasa Walker, however, wrote into the 1860s, and even he was surpassed in acumen by the brilliant and neglected writings of the Boston merchant Charles H. Carroll, who advocated 100% gold reserves against bank deposits as well as notes, and also urged the replacement of the name dollar by gold ounce or gold gram. And an official of the United States Assay Office, Isaiah W. Sylvester, who has been completely neglected by historians, advocated a 100% dollar and parallel standards. In the present century, the only economist to advocate a 100% gold standard, to my knowledge, has been Dr. Elgin Grossclose.

43:0710. The Road Ahead Having decided to return to a 100% 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% gold.

43:58Either to force a deflation of the supply of dollars down to the currently valued gold 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 roots. Professor Spahr and his associates wish to return to the gold standard, though not to and 100% 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.

44:46The 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 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.

45:34At 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.

46:28As 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% of total dollars would require a 10 to 20 fold 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 As the manufacturers of harps and angels' wings would enjoy a windfall gain.

47:20But 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% 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.

48:091. Arrival of a 100% 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% of the present supply of dollars, or a blend of these two roots. 2. Getting the gold stock out of the hands of the government and into the hands of the of the Banks and the People, with the concomitant liquidation of the Federal Reserve System and a legal 100% 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.

49:064. 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 monies, with gold dollars is 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. The ultimate goal would be the return to gold by every nation at 100% of its particular currency and the subsequent blending of all these national currencies into One Unified World Gold Gram Unit.

50:03This was one of the considered goals at the Abortive International Monetary Conferences of the late 19th century. 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.

50:54In 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.

51:47And finally, since the dollar is merely a weight of gold, properly speaking, it is not It is not at all appropriate to establish a market between dollars and gold any more than there should be a market between $1 bills and $5 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.

52:38As Professor Philbrook pointed out in a brilliant article some years ago, we must frame our are 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. 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 Because of what they believe the correct course to be, they are abandoning truth, and therefore abandoning their very raison d'etre. 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.