Last Week’s RNC Get’s it Right – Goes for the Gold

The inclusion of a Gold Commission into the Republican Party Platform was one of the smarter moves by the RNC this past week. (Certainly the worst was the rules change debacle with “delayed” state delegations and tele-prompted vote results.) To understand the importance of this, one must first understand the role of gold both currently and historically in the US economy and the value of the dollar.

First, an ounce of gold is an ounce of gold, always has been and always will be. At one point, the dollar was pegged to the price of gold. One dollar was worth a set amount of gold and was redeemable for such. The price of goods and services fluctuated based on this standard with a downward trend as more goods and services were created within a slowly expanding pool of asset backed currency. In this system, a static income actually increased in purchasing power as the price of goods and services decreased in an essentially closed economic system.

One of the benefits of this was that the Federal Reserve had fairly minimal impact on the economy and the value of the dollar. Further, this prevented the government from extreme intrusions into the market via monetary policy changes.

UCLA economists released a very detailed report in 2009 showing that FDR’s policies actually extended the Great Depression in 1929 for an extra seven years. How was this possible? Well, not only was some of it tied in with his work programs, but a large part of it had to do with gold seizures and a dramatic money supply contraction by the Federal Reserve between 1929 and 1933.

The general argument for why FDR’s policies were necessary goes something along the lines of, “There had never been an economic crash so severe, thus unprecedented reactions were necessary.” This is patently untrue.

The two most recognized schools of economic thought revolve around John Maynard Keynes (Keynesians) and Milton Friedman. The Keynesians propose massive fiscal stimulus (i.e. spending to promote spending) while those following Friedman’s line of thought typically propose increasing the money supply to promote stability. The problem is, one creates debt, the other creates inflation, and together it’s a disaster waiting to happen – as the United States is about to find out barring any course corrections.

The worst crash you’ve never heard of occurred in 1920. It’s largely unknown because the market completely recovered inside of 18 months, despite the fact that the market lost 33 percent of it’s value.

At the end of World War One consumer inflation was at roughly 20 percent. The federal government slashed its budget and the Federal Reserve raised interest rates to 7 percent. Besides this, the market was essentially free to take its course. In 1921 the unemployment rate peaked at 11.7 percent. By 1922 it was at 6.7 percent and at 2.3 percent by the year after that. The market only took a few months to correct itself and eliminate toxic assets in the system.

The Great Depression was quite a different story as unemployment hit 25 percent and took 15 years to recover. The reason was a manipulation of the money supply and a constant stream of policies designed to “fix” the economy. As money was pumped into the economy it took longer for the market to remove the influences affecting it. This devaluation of the dollar was done by way of reducing the amount of gold that each dollar was able to be exchanged for. The effects stretched on for years, but were only enabled by the increase in paper dollars unbacked by hard assets.

In current terms, an ounce of gold is still an ounce of gold but the devaluation of the dollar has increased from only $315 per ounce in the first week of September 2002 to over $1700 an ounce now. This is a direct result of the Federal Reserve pumping unbacked dollars into the monetary system directly from it’s printing presses. 10 years ago a dollar was 1/315 of an ounce of gold, today it’s 1/1700.

What does the proposed RNC Gold Commission have to do with this? Simple. By looking at ways to re-establish a gold standard, the country can stop the fiat currency-enabled free fall of the dollar. In short, tying the dollar directly to hard assets severely restricts the amount of manipulation a government can place on the economy, allowing the market to correct itself much faster, a la 1920, as opposed to 1930. The proposed Gold Commission will be a good first step towards this and shoring up the dollar, as well as giving the market a solid platform from which to regain its footing.

George Washington was right in 1787, “Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.” It has been shown true yet again 225 years later. Almost all of the problems we face currently monetarily are tied directly to a non-asset backed currency. The proposal of a Gold Commission was one of the few long term fixes that either party has gotten right in recent history regarding the economy. Here’s hoping they follow through with it.

Image: California Diamond Jubilee Half Dollar Commemorative

About the author: Mike Troxel

Mike Troxel is a right-wing, rabble rousing, Constitution loving, Tea Party starting trouble maker. He threw his locality's first ever Tea Party event, helped start and served as his local Tea Party's Vice-President. He is currently the Communications Chair for the Virginia Tea Party Patriots Federation and was accidentally elected to public office, by write-in, on election day. His interests include kayaking, rock climbing, chess, assassinating large woodland creatures with his bow, and over a decade of mixed martial arts. He holds an undergraduate degree in Print Journalism and a graduate degree in Business Administration.

View all articles by Mike Troxel

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