The end of America's current monetary system is certain, and it is approaching fast. The only question is what will replace it?
The restoration of the American dream demands sound money, so to avoid being victimized by yet another monetary flim-flam when the dollar reserve standard collapses, it is very important that the people understand our monetary history.
In my new book, Red and Blue and Broke All Over: Restoring America's Free Economy, I told the story of our monetary system in a way that even those who would otherwise never think about the nature of money can remember, and can use it to tell others. Our monetary history â€" and perhaps its future â€" can be told in the tale of the three little pigs. Except that this version of the story is in reverse and it comes with a warning…
Once upon a time â€" and for a very long time â€" Americans lived in a solid gold monetary system. They owned gold and used it for money. The dollar was literally as good as gold. It was a monetary system so solid that it was like a house of bricks. And then, in 1933, the state decided it wanted all that gold for itself, and it demanded all the gold bricks from the monetary house. It even threatened the people with 10 years in jail if they didn't turn over all the gold, brick by brick.
So the people were forced from their brick house and moved into something called the gold exchange system. This was a monetary system that pretended to be built of gold. It represented that the dollar was still exchangeable for gold. But it really wasn't, at least for the people who lived in it. In fact, most gold ownership remained a crime. It was a monetary system so flimsy that you could say it was built like a house of sticks. Of course, it couldn't hold up long. It collapsed in 1971.
When the house of sticks collapsed, the people were told that they must now move into a monetary house made of straw â€" the dollar reserve standard. This, they were told by the state, was even better than a house of bricks or sticks. But, of course, it wasn't. And now the winds of economic reckoning have begun to blow. And as the straws of today's dollar reserve system begin to be scattered to the four winds, the people must look for a new monetary home.
Will they be guided by those responsible for their rude and flimsy dwellings, the statists and Keynesians and politicians and bureaucrats who have driven them from home to home, each one more decrepit than the one that preceded it?
Some of the people have begun hoping for a return to a sound monetary system and a move into something built like a brick house, such as the solid gold one they had before.
But this tale must be accompanied by a warning. The monetary and fiscal authorities, sensing the people's unhappiness with their diminishing circumstances and their nostalgia for the permanence of the monetary brick house of gold, are likely to offer them something that purports to be tied to gold. Instead, it will be just another contrivance, but one that is represented as somehow pegged to gold.
Robert Zoellick, the president of the World Bank, referred recently to introducing gold into the monetary system as "an international reference point of market expectations."
But if the currency is not redeemable in real gold that you can take anywhere you go and keep anytime you wish, it is not really a gold house at all, but only another monetary flim-flam by the state. It may be constructed to appear like the brick house made of gold, but it will only be a house of paper, painted to look exactly like bricks of gold.
And remember that a house of paper is even more flimsy than a house of sticks or a house of straw.
Copyright © 2012 Charles Goyette
