How We Get from Here to There
This Monetary Reform Plan proposes to establish the framework for an enduring, stable value for the United States dollar; that is, to define the dollar by statute as a certain weight unit of gold to be coined into lawful money.
Long associated with free market prices, mobile factors of production, and free people, a dollar convertible to gold * is warranted by the United States Constitution in Article I, Sections 8 and 10 (see Appendix I). A monetary standard of precious metal (gold and silver) was the institutional monetary foundation, the gyroscope, of the great Industrial Revolution of the western world, giving rise at the birth of the American Republic to a reasonably stable American currency. Wars did interrupt stability and growth. But over the long run, economic productivity and population expansion led to unprecedented prosperity. They were hallmarks of the United States from the Coinage Act of 1792 (see Appendix II) until 1971 when the last vestige of dollar linkage to gold was suspended. Floating paper money exchange rates, mixed with pegged and manipulated exchange rates, have persisted during peace and war to this very day. (Since 1971 average hourly real wages have hardly improved.)
A floating, or pegged paper and credit currency, has proven itself throughout history an unreliable, depreciating store of value. Unlike the paper dollar, a dollar defined in law as a weight unit of gold is the monetary standard which simultaneously provides all the primary functions of true standard money: (1) a stable store of value; (2) a stable measure and unit-of-account; and, (3) a universally accepted means of payment. A gold monetary standard combines, in one monetary article of wealth, the three primary functions of money. Moreover, the true gold standard of history provides the global networking effects of universally acceptable, equitable, ubiquitous, standard money. Through long historical evolution gold became free trade money.
Throughout ancient and modern history it was the unique properties of the gold monetary standard which made it universally acceptable to trading peoples in the market. The test of what The Purpose of The True Gold Standard will endure as honest money can only be studied in the empirical laboratory of human history; mathematical abstractions, drawn from the blackboards of academic economists, will not do. Because trust and universal acceptability are the trademarks of honest money these virtues must be affirmed, in the long run, by the tests of the open market, and then reinforced by wise, limited, and prudent governments which understand and embrace the inductive, tested verdict of the market.
No perfect monetary system can be fashioned in this imperfect world, peopled by imperfect human beings. But the natural monetary properties of the true gold standard developed by supple and subtle institutional mechanisms through centuries of observation and experience provide the world trading system with the least imperfect domestic and international monetary system. Such a system best enables that fragile reed known as civilization to endure.
* The term convertibility is a conventional but misleading usage handed down from time immemorial. I use the term reluctantly. The historic dollar of the American Constitution should be understood as a certain weight unit of precious metal. Paper and credit monies should be no more than rights to redemption in gold dollars at the statutory parity.