by Louis Golino for CoinWeek
For the first time since the early 1980's gold and a possible return to the gold standard have emerged as issues in American politics.
One GOP presidential candidate, Ron Paul, has made it a centerpiece of his campaign; another, Newt Gingrich is interested in exploring the idea; a third, Mitt Romney, opposes the idea as inflationary; and Rick Santorum also supports returning to the gold standard.
1981 gold commission
During the presidency of Ronald Reagan, a gold commission was created in 1981 that included Lewis Lehrman, a longtime advocate of returning to the gold standard.
The 1981 commission was marked by strong disagreement among its members on the idea of once again linking our currency to gold. The idea basically went nowhere, and in the view of many gold proponents it was just a sop to the gold bugs.
Mr. Lehrman was one of only two members of the seventeen-member commission who actually backed the idea of a new gold standard. He helped write the minority report of the commission, The Case for Gold, that was published in 1982. He frequently makes the case for a gold standard in interviews and articles.
Last year he published a book called The True Gold Standard that explains how to go about implementing it. He also has a web site, www.thegoldstandardnow.org, which is a project of the Lehrman Institute.
The gold standard started in 1853, became official in 1900, and ended in 1971, when another Republican president, Richard Nixon, ended the convertibility of the dollar into gold.
The gold standard was replaced with a system of floating, paper-based, or fiat, currencies that many conservative economists have argued over the years is at the root of inflationary pressures.
Price inflation was almost non-existent when the U.S. was on the gold standard, but the amount of gold that was pegged to the dollar has changed numerous times in U.S. history. For example, as Alan Herbert explained recently in Numismatic News, in 1792 a dollar was worth 1.604 grams of gold, but by 1971 it was only half that amount (0.8016 grams).
2012 GOP race
Of the candidates still in the 2012 GOP primary race, four have raised or been asked about the gold issue, and several of those who dropped out earlier also support the gold standard. Only Mitt Romney opposes the idea.
Rep. Ron Paul (TX) strongly endorses the idea of returning to a gold standard. Congressman Paul is widely known a gold bug and a supporter of backing the dollar with gold because it is the only sound form of money in his view.
He is also a former coin dealer, and his personal portfolio, as revealed last year in Barron’s, includes major investments in gold company stocks.
Last year he held a hearing on this issue in his position as chairman of the monetary policy subcommittee of the House Financial Services Committee.
Rep. Paul was also a member of Reagan’s 1981 gold commission, and he was the other commission member besides Mr. Lehrman who supported a new gold standard. He also favors abolishing the Federal Reserve.
Newt Gingrich, the former House speaker from GA, has expressed an interest in exploring the idea and has also backed a proposal to form a new gold commission that would evaluate the feasibility of returning to a gold-backed dollar.
During a January policy forum, Mr. Gingrich called for a return to hard money and said “Part of our approach ought to be to reestablish something Ronald Reagan did in 1981 and that is to have a Commission on Gold to look at the concept of how to get back to hard money.”
He also said he thinks the Federal Reserve’s mandate should be limited to maintaining the stability of the dollar.
Mitt Romney, former governor of MA, was asked about the idea in a recent interview with CNBC’s Larry Kudlow, who is a proponent of a strong dollar that he calls King Dollar. Mr. Kudlow often comes across as a sceptic about gold’s bull run in his CNBC appearances. He served in the Reagan administration.
Gov. Romney, whose front runner status in the GOP primary race is under siege by Speaker Gingrich, gave the following response to Mr. Kudlow when asked on January 25 about Gingrich’s proposal: “I know that in the past when we had a gold standard, the idea that somehow it was detached from or free from any interference by Congress was simply wrong because even with the gold standard someone has to decide what is the conversion rate between the gold and the dollar.”
He added that “And Congress can inflate the dollar simply by changing the exchange rate, as was done in the past. So I don't think there's any, if you will, magic bullet substitute for economic restraint, for not spending more money than you take in, for having the nation that's the most productive in the entire world.”
Former Sen. Rick Santorum of PA also supports the idea. Last June he participated, along with some of the candidates who are no longer in the race, in a tea-party bus tour that was focused on support for returning to the gold standard.
A new gold standard?
It has been estimated that based on current U.S. gold reserves a price of $10,000 per ounce would be required to return to a gold-backed dollar. Others have put the figure as high as $45,000.
Many mainstream economists say such a system would be totally unfeasible because there simply is not enough gold in the world to make it workable. That may well be true, but it goes back to the idea of the amount of gold that would be linked to a dollar, which would not be permanently fixed.
But if that were the case, a new gold-backed currency might face many of the same problems the current dollar faces, especially devaluation, or reflation, through increases in the money supply.
A more widely accepted idea is the notion that the U.S. dollar, which is currently the world’s global reserve currency, will before long be replaced by a new system that would include a number of different currencies as well as gold.
Finally, any discussion of a new gold standard raises the issue of possible confiscation of privately owned gold.
I personally do not believe it is likely that we will see another U.S. government effort at confiscation in part because the wealthiest Americans are believed to store a lot of their gold offshore in locations like the Perth Mint of Western Australia and other locations that provide secure storage.
It would be very difficult for this and other reasons to achieve anywhere near the compliance level that was achieved when President Franklin Roosevelt declared it illegal for Americans to own all but a limited amount of gold in 1933. He did so to expand the money supply during the Great Depression.
Louis Golino is a coin collector and numismatic writer, whose articles on coins have appeared in Coin World, Numismatic News, and a number of different coin web sites. His column for CoinWeek, “The Coin Analyst,” covers U.S. and world coins and precious metals. He collects U.S. and European coins and is a member of the ANA, PCGS, NGC, and CAC. He has also worked for the U.S. Library of Congress and has been a syndicated columnist and news analyst on international affairs for a wide variety of newspapers and web sites.