I still remember my parents commenting during the 1964 presidential election about the silliness of Barry Goldwater's recommending that we go back on the silver and gold standard for our nation's monetary system. But now I know that Sen. Goldwater was right, and had we followed his recommendations, we would be the most economically healthy country in the world today.
The problem is that as soon as a country goes away from securing its currency with gold or silver — which it actually pledges to redeem to anyone who bears its paper currency — that country can almost never resist the temptation simply to print more money to pay its obligations. The rationale is, of course, that "we are only borrowing money from ourselves," but this immediately reduces the value of the currency. And, as I read from economist Mark Skousen's book "A Tale of Two Dollars" (Investment Rarities Inc., 2010), this is what we have starkly seen in our country since the middle 1960s.
During the Revolutionary War, our fledgling government printed lots of "Continental" dollars, which resulted it them losing more than 90% of their initial value. This also gave rise to the phrase "Not worth a Continental." Having experienced this result, the Founding Fathers responded by mandating in Article I Section 10 of our Constitution that no state could "make any thing but gold and silver coin a tender in payment of debts."
From about 1815 until the beginning of World War I, all of the world's major currencies were on the gold and silver standard. Thus the British "pound" was literally the equivalent value of a pound of sterling silver. That also meant that inflation simply was not a problem, because before a country could print more of its currency, it had to obtain and store the equivalent amount of gold or silver to back it up.
Other than during the Civil War years when the federal government issued inflated "greenbacks" that were based only upon the "good faith and credit of the United States," our country was also on the gold and silver standard during that time. We mostly used Spanish silver coins that were called "thalers," which over time with our lax pronunciation we eventually called dollars. We also formed the practice of cutting those silver dollars into eight parts, which were soon called "pieces of eight." That is also the derivation of the term "two bits," which was what we colloquially called a quarter of a dollar.
But in 1933, President Franklin D. Roosevelt took us off the gold standard, devalued the dollar from $20 per ounce to $35 per ounce, and forced Americans to turn in their gold coins in exchange for Federal Reserve Notes of denominations of $5 and above. But we stayed on the silver standard until 1965, when the value of $1 in silver coins actually rose to about $1.29. This was caused by the inflation that resulted from the insistence of President Lyndon Johnson that we could pay for both "guns and butter" at the same time — to wit, both the "Great Society" and also the Vietnam War.
At this point many people took advantage of the disparity between the price of silver and the value of the Silver Certificate dollars by melting down the silver coins and selling the metal for a profit. In response, the federal government withdrew the Silver Certificate $1 bills, which promised they could be converted to silver, and replaced them with Federal Reserve Notes. The government also recalled all silver coins, and replaced them with coins made from nickel and other metals. Later it did the same thing when the copper in our pennies became worth more than 1 cent.
What did all of this do for the purchasing power of our money? For a comparison, in 1960 the value of a paper dollar and a silver dollar was the same. But by 2010, the purchasing power of that same paper dollar was down to 10 cents, while the purchasing power of the silver dollar had increased to $18. That means that, for example, the real price of a gallon of gasoline has actually decreased in the last 50 years, because in 1960 a dollar bought about five gallons of gas, and a silver dollar can buy more than that today!
Thus it is the irresponsibility of government in not resisting the temptation of printing more money to pay for its spending that has directly contributed to our financial instability. So yet again, and as Ronald Reagan used to say, "Government is not the answer to the problem, government is the problem."
In fairness it must be understood that no country today is still on the gold standard. Instead, like us, each one is on the "fiat" system, which basically means that businesses and private individuals are required to accept the government's currency for all transactions and the payment of debts and taxes. But, fortunately, since 1975 Americans again have been "allowed" by the government to own and invest in gold and silver coins and bullion. Thus in this time of economic uncertainty, many people have converted a large part of their investments into these precious metals.
So now our currency is once again just backed by the "full faith and credit" of the United States government, whatever that means, and it is up to each of us to do what we can to bring back the saying "sound as the dollar" to mean confidence, instead of a wry joke like with the "Continental." This is critical, because the most important way to keep our country safe and secure is to have a strong economy — and the best way for that to occur is for no spending initiatives or legislation to be passed unless they also set forth their source of funding.
For years we have pontificated to other countries that, due to the weakness of their currencies, they should "tighten their belts" and reign in their spending. Well now it is time, for the security of our country, children and grandchildren, that we take our own advice. Please remember that Libertarian thought when casting your vote Tuesday, and in all future elections.
JAMES P. GRAY is a retired judge of the Orange County Superior Court, the author of "Wearing the Robe: the Art and Responsibility of Judging in Today's Courts" (Square One Publishers, 2010), Why Our Drug Laws Have Failed and What We Can Do About It, A Voter's Handbook, Effective Solutions To America's Problems and can be reached at email@example.com or http://www.judgejimgray.com. Judge Jim Gray is also currently offering his 25 years of experience on the bench to ADR Services in Orange County for Arbitration and Mediation services.