Open Letter to Congressman Alex Mooney on his Bill to Define the Dollar as a Fixed Weight of Gold
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Dear Congressman Mooney:
I am writing to you about something of great importance, the path to the gold standard. Thank you for introducing H.R. 5404. I agree with your findings, especially that inflation undermines jobs and retirement. Yet I must say that the dollar cannot now be defined as a weight of gold.
This would be nothing more than a price-fixing scheme.
Every attempt to fix prices has ended in disaster. Roman Emperor Diocletian set price caps in A.D. 301, which disrupted commerce. The Swiss National Bank lost 13% of Swiss GDP in the instant its currency peg failed in 2015.
The dollar is falling, because the US government is sinking into debt it cannot repay. One dollar was once worth over 1,500 milligrams of gold, but it’s now down to 23.25mg. The Fed might fix the price temporarily, while the government’s gold holds out, but it cannot prop it up indefinitely.
In a working gold standard, people deposit gold and get a piece of paper promising to return it. Paper is credit. And credit is built up, by countless decisions made by people in the market.
Our challenge today is that no dollars are gold receipts. Every dollar began life as an irredeemable promise. They cannot retroactively be declared to be gold receipts. It won’t work to try to impose a monolithic price policy, in lieu of the credit structure of debtors and creditors that evolves in the market.
Further, it would be an unfair change of the rules of the game. Creditors lent and debtors borrowed based on current law. If the gold price is fixed, they must all come to Washington to lobby for their preferred price (or game the price of gold on the critical day it is determined).
Creditors want a low price of gold. Suppose the price was fixed at $20 an ounce (the pre-1933 value). Then a homeowner with a $100,000 mortgage will have to come up with 5,000 ounces to pay the creditor. Debtors want the opposite. At $10,000 an ounce, that same homeowner only has to give 10 ounces and he is out of debt.
To move to a new gold standard, people must be allowed to make the decisions to grant and use gold credit. Here are some simple policies that Congress could immediately enact: