There Cannot Be, Ought Not to Be, and Never Has Been a Gold Standard

(Or Silver)

Fiat money is a bugaboo of some “conservative” American political thinking. The term, means “…a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it.”¹ The sound alternative, according to some “conservative” dogma, is “real” money – gold and/or silver coins (specie)². The supposed benefits of specie are two-fold: 1) They ostensibly have intrinsic value (they do not) and 2) Their limited supply prevents the circulation of excess currency (inflation); the government cannot manufacture more money because there is no more gold or silver. That the supply of these commodities is limited is true, but that fact, ironically, is one of several reasons a gold/silver standard cannot work.

1.       There isn’t enough - All the gold found to date would make a cube of about seventy-six feet on a side;³ all the silver, a cube of about 180 feet.⁴ Daily personal expenditures in the USA amount to about $56 billion.⁵ Business and government (all levels) spending skyrockets the number. There is not enough gold and silver in the world to facilitate the volume and frequency of transactions in the USA. Besides, it is unlikely the rest of the world would take kindly to our keeping it all.

2.       Even less is available for coinage - Although gold and silver are nearly indestructible, and therefore, most that has been mined is still in the world, tons of both metals are not in a monetarily usable form.  Loss to various causes, permanent use for non-monetary purposes, retention as reserves by world governments, hoarding by individuals combine to reduce the amount of gold or silver that could be minted into coins.

3.       Insufficient quantity to back paper - If there is not enough gold or silver to serve directly as a medium of exchange, there is not enough to act as “backing” for paper notes serving the same purpose. It ought to be evident, then, that a paper currency backed by gold or silver is a fantasy. There never was a time when any nation claiming to be on a gold or silver standard possessed enough of the metals to redeem all the paper currency in circulation.

4.       Pure gold and silver are unsuitable - Gold and silver are very malleable; neither is suitable for use as coinage unless alloyed with harder metals. A government that can manipulate and over-produce paper money can manipulate specie with excess base metal alloys.  History proves this assertion true.

5.       Abrasion decreases weight and value –The matter of abrasion ought not to be ignored. An estimate by William Jacob was that a British gold coin of the early 19^th century would lose about half its weight within 100 years.  C.C. Patterson estimated that later better alloyed silver coins would lose weight (value) at about half that rate.⁶ The point is that with each transaction the coin weighs, and therefore is worth less; each recipient of a coin is cheated of value. Hardly a plan for a conservative monetary policy.

6.       Deficiencies – Specie coins are not easily divisible, conveniently portable, or sufficiently durable.

              All money ought to be “fiat” money.  Fiat money ought to be valued according to the transactional requirements of society; it should be manufactured, and its value set by just and moral government, with the cooperation of the people of the nation, and it should fulfill the six requirements of a sound currency.⁷

^{1 https://www.investopedia.com/terms/f/fiatmoney.asp}

^{2 https://mises.org/power-market/specie-money-forgotten-currency}

^{3 https://www.usgs.gov/faqs/how-much-gold-has-been-found-world}

^{4 https://www.usgs.gov/faqs/how-much-silver-has-been-found-world}

^{5 https://ycharts.com/indicators/us_personal_spending}

^{6 “Triumph of the Bankers”, pg.11, William F. Hixson, 1993}

^{7 “What Is Money?”, William W. O’Donnell, Substack, August 18, 2023}