The Case for Gold

By Rep. Ron Paul and Lewis Lehrman

ABOUT THE BOOK

by Mark Calabria, Director of Financial Regulation Studies, Cato Institute

The economic crisis of the past several years — including unchecked government growth and spiraling debt — illustrates the danger we face from living beyond our means and building upon unsupportable economic foundations. Warning signals were already being sounded nearly 30 years ago. In 1982, Rep. Ron Paul and Lewis Lehrman served on the U.S. Gold Commission, commissioned by Congress to evaluate the role of gold in the monetary system. Paul and Lehrman produced a landmark minority report: The Case for Gold. Published in book form by the Cato Institute that year, the report covers the history of gold in the United States, explains how the breakdown in its use as a financial standard was caused by government, and details the critical need for sound money — where prices reflect market realities, government stays in check, and people retain their freedom.

Working with a team of economists, Paul and Lehrman produced a work that is as sound and prescient today as when first published. With Paul’s ascendancy to chairman of the House Subcommittee on Domestic Monetary Policy — which oversees the Federal Reserve as well as the currency and the valuation of the dollar — we are pleased to make this classic work widely available again in electronic form, with its thoughtful analyses and prescriptions for how we can move into an era of sound money and economic stability.

While many of its most dramatic predictions did not come to pass, these predictions helped to create the case for Paul Volcker’s battle against inflation. With easy money and inflation again in the headlines, but without a Paul Volcker at the Fed’s helm, Paul and Lehrman’s analysis and arguments are again timely and will hopefully be heeded this time.

The revival of Austrian Business Cycle theory, which served as the theoretical basis of The Case for Gold, makes this re‐​issue particularly timely. Its authors argued that while persistent and high inflation, a weak economy, and high unemployment were the direct result of misguided Keynesian policies, the answer was not monetarism. For the basis of monetarism is still allowing a government monopoly on the issue of money. We have again found ourselves in an environment where both Keynesian and monetarist policies have failed us. The necessity for alternate options is pressing.

The Case for Gold is not simply an argument for returning to the gold standard, but more importantly, an argument for choice and competition. Preserving the ability to choose which currencies to accept, with whom to trade and on what terms, is a hallmark of a free society. Sadly these freedoms are among the many that have been compromised, if not lost completely. Paul and Lehrman remind us that when government has the ability to abuse our trust, as in the case of purchasing its own debt or debasing its currency, it will inevitably betray that trust. In a more general sense, The Case for Gold is the case for limited government, a case for applying the rule of law to our monetary arrangements, as opposed to the highly discretionary rule of man which now governs our monetary system. With the public’s renewed interest in constitutional government, it is only fitting that such an interest extends to money.

Murray Rothbard’s superb history of money and banking constitutes chapters two and three of The Case for Gold. This history reminds us that the citizens of the United States have been subjected to repeated inflations and debasements, most often in the cause of war but also to the benefit of Wall Street. Today, we again we find ourselves burdened with war debts and Wall Street bailouts. As Santayana said, “those who cannot learn from history are doomed to repeat it.” If we are to avoid future debasements, and perhaps even wars and financial bailouts, an understanding of our monetary history is essential. I can think of no better place to begin one’s study of that history than Rothbard’s contributions contained here.

Paul and Lehrman remind us that the ultimate purpose of a monetary standard is not price stability, but “trust and honesty.” A gold standard is an avenue, among others, to restore our trust in government, by appropriately constraining the discretionary power of government. In an era when five unelected bureaucrats on the Federal Reserve Board can spend over $2 trillion, and deny the rights of the people and their representatives to audit such spending, we know we are again in a time where “trust and honesty” in government is in short supply. It is my hope that re‐​releasing The Case for Gold will help to bring public accountability back to monetary policy. Its re‐​release will also expand and raise the level of public debate surrounding monetary policy.