Yellow brick road

On Aug. 15, 1971, Richard Nixon took the final steps that removed the U.S. dollar from the gold standard, and economists have been fighting about it ever since.

In one corner are liberal Keynesian economists—and a few conservatives—who think the world has become too large and complicated to use gold as the basis of a currency. In the other corner are conservative, libertarian, and so-called Austrian School economists who say logic and history teach a consistent lesson: Any currency not backed by gold eventually crashes, and the longer it takes to crash, the more catastrophic the effect.

For the past 40 years, the Keynesians have been winning the argument. “Gold bugs,” as Keynesians derisively call advocates of a gold standard, are the same guys who hoard freeze-dried food in bunkers and call late-night talk shows to discuss Area 51. Liberal economist Paul Krugman said of gold standard advocates: “Modern gold bugs are completely crazy. Their belief in gold is … mystical.”

But Krugman said this in the 1990s, before the tech bust of 2000, before the housing bubble of 2007 and the bust of 2008, before the European debt crisis of 2009 and beyond. These events have altered the conversation. “There’s a great deal more energy and enthusiasm for the reconsideration of monetary policy today than just a few years ago,” said Lewis Lehrman, an investment banker and author of 2012’s The True Gold Standard. “That energy is motivated by Greenspan and Bernanke’s bubble-mania.”

Gold advocates have helped their cause with books, conferences, and coalition-building activities that advocate for “sound money” rather than a gold standard, per se. We now even have a bill before Congress, H.R. 1176, that would establish a commission to “evaluate alternative monetary regimes, and recommend a course of monetary policy.”

That’s not to say we’re on the verge of returning to the gold standard. H.R. 1176, introduced by Rep. Kevin Brady, R-Texas, has only about 27 co-sponsors. But Ralph Benko, who edits the Lehrman Institute’s website TheGoldStandardNow.org, believes “the Brady Commission is the pivot. The last two congressionally driven monetary reforms in U.S. history were preceded by such a commission.” In August, more than 40 conservative leaders, including Benko, former Attorney General Edwin Meese, Tony Perkins of the Family Research Council, and former Reagan administration budget director Jim Miller, signed a statement encouraging passage of the Brady Commission resolution.

Even so, if gold advocates get their way, it’s not clear what that way would be. Lewis Lehrman opposes a so-called “basket of commodities” approach that would include silver, platinum, palladium, and other assets as a basis for currency. “A basket of commodities would be as unsteady as the current system,” he said. Some conservatives, however, suggest that a “basket of commodities” approach would break the stranglehold of the current Federal Reserve System. They advocate it as an interim step.

All the gold standard advocates I talked with for this story said even if all the political and legislative hurdles fell today, it would take years to set the price of gold and re-engineer the current banking system, which is wedded to the current Federal Reserve Bank system, to accommodate the gold standard.

Sean Fieler is chairman of the American Principles Project and president of Equinox Partners, a New York–based hedge fund. He thinks some of the steps will likely happen at the state level. “Utah now allows gold as legal tender,” he said. “Other states are considering such a move. This re-monetization of gold is a vital step in the process.” Reclassifying gold as legal tender means owners would not have to sell their gold—convert it to dollars—to use it as a form of payment, thus eliminating capital gain and other taxes.

One thing is clear, according to John Mitnick, former associate counsel to President George W. Bush, “The era in which the dollar is the world’s reserve currency is one that is a historical anomaly. That situation can’t last. The world has always reverted back to gold. In the long run, it’s the only solution that makes sense.”