Government and Money

By Gary North

In the era of the gold coin standard, when citizens could bring in paper money and demand gold coins from a local bank, this transferred tremendous authority into the hands of the general public. The public could participate in a run on a local bank's gold. If this took place nationally, this would cause a run on the central bank's gold. This would force the central bank to stop inflating through fiat money. That was the great advantage of the gold coin standard. It transferred power into the hands of the general public. The general public could veto central bank policies of monetary inflation.

This is why all the governments of Western Europe outlawed the gold coin standard soon after World War I began in August 1914. Commercial bank runs began almost immediately. So, central banks and governments allowed commercial banks to break their gold contracts with their depositors. Then the central banks confiscated the gold in the commercial banks. They wound up with the public's gold. It was a gigantic act of theft. It was the end of the gold coin standard. There was a huge loss of liberty.

This happened in the United States on Monday, March 6, 1933, at 1 AM. President Roosevelt unilaterally allowed the federal government to steal the public's gold at $20 an ounce. Then, when the government had a lot of the gold, Congress hiked the price to $35 an ounce, thereby enriching the federal government by 75% on the stolen gold. This was a gigantic act of theft. The public did not care. Most of the economists did not care.

The only logical case for having government ownership of gold was under a gold standard. The government had to sell its gold at a fixed price. Because the government always asserts a monopoly over the monetary system, and because the gold coin standard did allow a veto of central bank policies, there was a case -- weak -- for a central bank's vault full of gold.

It would have been far better if the governments of the world had never been allowed to exercise any control at all over the monetary systems. Money is like anything else of value. It is best managed under liberty. It is best managed by private ownership of the means of production. Government monopolies over money always lead to inflation, and the inflation creates the boom bust business cycle. But economists, other than Austrian School economists, do not believe this.

Posted by ΛΕΟΝΙΔΑΣ