So long as the conversion agency performed its role, it would also be impossible for the Federal Reserve System to produce a monetary inflation because the conversion agency, which would be completely separate from the government's banking activities, would be engaged in the process of absorbing excess dollars from circulation, in exchange for the troy-ounce coins that it issues. If the Federal Reserve made the opposite mistake, as it has often done in the past, of overly restricting the money supply, the market could always sell coins to the conversion agency to obtain any dollars demanded. A precise balance would be achieved between the general public's demand for money in the form of coin and its demand in the form of bank notes or deposit accounts with banks by the existence of the conversion agency as something separate from the Federal Reserve.
Agenda for Monetary Reform
The genius of Ludwig von Mises was his profound insight into the free-market process, the science of catallactics. The most important thing I have learned from his work is that the achievement of a new gold standard in our society will have to come from the free market itself. This is why I believe the first step must be a new troy-ounce gold coinage, even without any legal tender qualities or special tax treatment. As we have found in recent banking deregulation, the market develops new procedures and techniques in the monetary and financial system, and Congress follows with repeal of old, restrictive laws. This is the political and economic dynamic process that we also can harness to restore gold to its proper monetary role.
All the government needs to do is to get out of the way. The political and economic agenda for monetary reform, therefore, consists of the following steps:
Congress must adopt the legislation recommended by the Gold Commission to bring a new US gold coinage into circulation, denominated only in troy-ounce units and fractions thereof.
Advocates of the remonetization of gold must work both in the political arena and in the marketplace to get as many of these new coins into the possession of the public as possible. Politically, this means resisting taxation or any regulations on the utility of the new gold coins for purposes of exchange either for other goods and services or for dollars. As Ludwig von Mises demonstrated in his Theory of Money and Credit,[10] it is the marketability of a good that gives it a monetary character. The more easily recognized and marketable the new gold coinage becomes, the more it will be recognized as genuine pieces of money.
The fact that the troy ounce of gold is well defined and the paper dollar has no fixed referent at all should be made the focus of continued education and debate, just as we are now doing. The continuing academic work by students of Carl Menger and Ludwig von Mises in monetary and financial theory is vitally important, particularly to expose the fallacies of centralized macroeconomic planning and the failure of "managed money." The acquiescence of the economics profession, which is today disdainful of gold, will have to be secured. Serious academic work will stimulate interest in a new Gold Commission, which would be able to focus this research in economic theory on the political issue of monetary reform. It is essential to move the center of monetary debate from the question of how the central bank should perform monetary management to the more general question of managed money versus market-process money.
The objective would remain to persuade a majority of Congress to enact a new par value for the US dollar in terms of gold. When every American family is familiar with gold coins and understands the intrinsic defects in a managed paper standard, a majority in Congress can be persuaded by the demands of voters to enact a new par value for the US dollar and to establish the conversion agency described by Mises.
Except for random shocks in the financial markets, due to Federal Reserve central-planning mistakes, and occasional political disturbances, such as a Middle East war or troubles in South Africa, the dollar value of the troy-ounce coins should stabilize, just as we saw in 1984. The old myth that "gold is too unstable to serve as money" will be disproven by the common popular experience.
The strategy set forth in these four steps, I believe, is the only politically feasible way it can be done. All of the wishful thinking about restoring the gold standard by electing the "right person" to be president, or by attempting to educate the general public, will fail without first making available a tangible gold coinage as something they can see, touch, use for a portion of their savings, and become accustomed to using for many kinds of transactions. Public opinion polls have shown strong support for monetary stability. There is substantial support for a gold standard among the American public, yet the various proposals for enacting a par value for the dollar are dismissed by congressmen, the financial and business press, and "experts" of all stripes.
The task at hand, therefore, is to remove every roadblock to the realization of the will of the majority. The sentiment for gold must be mobilized. The question is no longer "Why do we need a gold standard?" but "How do we get it enacted?" To restore the gold standard to its central role in our system of constitutional government, we must lead a second kind of American revolution, a popular movement for honest money.
As Mises wrote, "Without such a check all other constitutional safeguards can be rendered vain."[11]
The gold standard as a constitutional restraint on our government was abolished in the United States, not in 1934 nor in 1971, but in 1819 with the US Supreme Court case of McCulloch v. Maryland.[12] With this famous Supreme Court interpretation of the Constitution, the federal government acquired the sovereign power to manipulate the nation's money, from which the legal tender laws of the Civil War, the central-banking powers of the Federal Reserve System, and the ultimate prohibition on any private use of gold as money in 1934 derived. This link between sovereignty and currency manipulation has been ably argued by Henry Mark Holzer.[13]
The key to the government's power to manipulate money is its control over the definition of the word "dollar." A troy ounce coinage in widespread circulation would significantly alter the public's perception of the government's monetary role. If the Congress should ever attempt to change the par value of the dollar in terms of the gold coinage, the holders of coins would be fully protected. Financial promises to pay coins would be protected, in a way that promises to pay dollars would not be. Best of all, as a result of the separation of currency and coin denominations, there would be no public purpose served by asking citizens to turn in old coins for new ones; the crime of January 1934 would not be repeated.
Restoring a gold coinage is also the highest duty we now face, as citizens of this country. We no longer live in a world where the free market is taken for granted. On the contrary, most people assume government must control and guide the economic system for the benefit of all. Ludwig von Mises suffered during most of his career because he understood too well the stakes of this ideological conflict:
"Cynics dispose of the advocacy of the restitution of the gold standard by