Wednesday, January 13, 2010
The Texas congressman says gold as currency would render the Federal Reserve obsolete.
Dr. Ron Paul and Steve Forbes discuss why a gold standard would put an end to the Federal Reserve.
Steve Forbes: What are the qualities of gold that you think make it a better regulator than fallible human beings at the Fed?
Dr. Ron Paul: Well, it isn't so much the qualities that I think about as much as what history has said about gold. And the Austrian School of economics, and von Mises in particular, teaches that money, it comes out of the marketplace. Governments can't create money.
If we were stranded on an island and one of us decided, "Well, we need some money. So we're going to take these pieces of paper and I'll write numbers on them and it'll be money," it would be preposterous. Money comes out with real value. So over the many, many centuries, literally thousands of years, gold and silver has been used. And the founders understood this. They had runaway inflation. They explicitly said, "You can't emit bills of credit." And you want to restrain the authorities. So if you want to restrain government, you restrain the power to create money. And that's what gold does. A lot of people think, "Well, that means you're going to have to carry all that gold around in your pocket." No. There's nothing wrong with gold certificates. And it can be electronic gold. It's just that it restrains the power of individuals, especially secret individuals that have no oversight from Congress to create this money.
You would certainly not need a Federal Reserve if you have a gold standard.But people don't like it because it will restrain their ability to spend money and do things that they otherwise couldn't do. So it's the natural fact that money has developed over the many century. And even if you had to, you can have something of real value. For it to work, you should always check on who's promising you something beyond the money, that you can take that coin or your paper in and see if they really have the gold in the bank. And this literally came up after the Civil War. See, we were off the gold standard during the Civil War. And the Resumption Act of 1875, they had a three-year period and they said, "We're going to quit printing money." They withdrew some greenbacks and they said, "The gold's going to be available after three years."
And actually it was a non-event. They didn't want to carry the gold around. But they wanted to know, once they knew the gold was in the bank, they went back to using their paper. The government didn't have deficit financing and they weren't running the world.