The Future of Gold As Money
An Analysis of Antal Fekete's Plan for a
Parallel Gold-Coin Standard
The central banking systems of the world are
in their death throes. In the next two decades, there will
take place a total discrediting of these monstrous blights
on the economic stability and prosperity of our civilization.
For the past 90 years in America (and for many
decades longer in England and Europe), the concept of "centralized
political banking" has ruled the monetary systems that
have prevailed. Central banking's advocates have done this
by dominating the stage of world opinion and the academic
field that lies behind such opinion. They began their quest
for monetary hegemony in America as far back as Alexander
Hamilton's day and finally achieved their goal when the Morgan-Warburg-Jekyll
Island conspiracy successfully smuggled America into the fold
through the establishment of our Federal Reserve in 1913.
Banking was cartelized by government law in the land
of liberty itself. Collectivism with its regimented dream
for mankind now had its Trojan Horse effectively established
throughout all the important nations of the world. Marx's
dictum that capitalism would fall through corruption of the
language and the money was proving to be horrifyingly
prophetic. The rest was only a matter of time. With the power
of paper money as their tool of exploitation, government mega-bankers
swept to dominance over the 20th century like Mafia Godfathers
carving up a great city.
From this dominance have come all the terrible tragedies
of the past century -- the devastating wars and depressions,
the ravaging inflations and stultifications, the relentless
erosion of our rights and our freedom. The pundits of our
time do not as yet realize the horrific meltdown that awaits
us as a result of our prodigal experiment in fiat money. But
they will come to grasp, in the next two decades, that something
has gone hideously wrong with the godfather design of centralized
political banking they have championed so proudly and persistently.
Our great dilemma as a society now lies in what
kind of reform will take place as a result of the discrediting
of central banking and fiat money that is now beginning to
unfold. Will we, as a people, come to our senses and restore
the only REAL money there is? Will our pundits, as blind as
poor Pew, be able to grasp the requisites of genuine reform?
Will we rebuild upon the rock of true wealth -- GOLD? Or will
we succumb to the sirens of one-world banking (such as Richard
Duncan) and reinstate the errors of the past in a grotesque
attempt to extend the evil lure of fiat money via pseudo-reform?
If a restructured world monetary system is to avoid the profligate
sins of this past century, then it must be oriented upon a
commodity based medium of exchange. This is axiomatic to all
champions of freedom and the unfettered market. How to get
this truth across to the world in time, however, is our problem.
How to convince the governments of mankind and the Keynesian
progeny guiding them that without gold as the fulcrum of the
system, all attempts at reform will fail?
If gold is to regain its place in the future
monetary systems of all nations, there is a major misconception
held by today's pundits and academics that must be cleared
up. It is the belief that gold can never provide the necessary
liquidity to function adequately as money in a modern economy.
According to Keynesian doctrine there is not enough physical
gold in the world to act as a medium of exchange for the billions
of sophisticated economic interactions that take place.
This, Keynesians assert, is why government must always control
money. It is why government must establish a centralized system
of banks to provide a generous and continuous supply of paper
notes and credit. It is why the free marketplace and its choice
of gold can never work in a modern world.
Several powerful thinkers over the past century, however,
have contested this claim. Ludwig von Mises and Murray N.
Rothbard of the Austrian School have been the leading examples.
Their scholarly works have insisted that a commodity-based
money is the only viable money that can protect us from the
dangers of price inflation and economic instability that always
accompany fiat paper systems. Gold and silver are the commodities
of choice, and contrary to prevailing doctrine, such a gold/silver
monetary system is quite workable. Government control and
fiat money are not necessary in order to produce "enough
credit" and "sufficient purchasing power."
The Classical 19th Century
As any student of monetary history knows, gold and silver
were used as money throughout the world until the 20th century
fiat systems replaced them. Our own Constitution mandated
that only gold and silver be used as money. But the use of
gold and silver throughout our history was far from perfect,
starting with the flawed Coinage Act of 1792 which attempted
to establish a fixed ratio between gold and silver, which
brought Gresham's law into play to drive coins struck from
the higher valued monetary metal into hiding. The development
of banks throughout the 1800's was equally a checkered affair
with the perversion of notes and credit issuance creating
the boom/bust cycle that has plagued our economy up to the
present day at an ever accelerating rate since the creation
of the Federal Reserve in 1913.
The early banking history of America, however, was primarily
free of central government control. Though its paper note
and credit issuances were based upon fractional reserves,
they were always "redeemable" in gold or silver
upon demand, and thus the system functioned, albeit not perfectly.
It allowed for elasticity of credit to enhance the use of
gold and silver, without which society's division of labor
and specialization would have been severely limited.
Contrary to popular opinion among hard money thinkers, the
evils of the system were not brought about by the policy of
"fractional reserve banking" per se, but by the
intervention of government authorities to convey special legal
privileges to bankers that violated the basic laws of fraud.
Such privileges took the form of allowing banks to suspend
specie redemptions in the face of runs. They created a double
standard in contract law whereby the bank cannot be sued for
non-performance if it fails to pay gold on its sight liabilities.
They permitted banks to illicitly loan out demand deposits
rather than requiring them to warehouse such monies. They
relaxed accounting standards for banks that allowed them to
overstate their assets and understate their liabilities with
impunity. These and other illicit practices were the problem.
As we will soon see if fractional reserve banking
is restricted to short-term, self-liquidating credit -- specifically,
bills of exchange payable in gold coin in 91 days or less,
drawn on marketable consumer goods that move sufficiently
fast from producer to consumer -- such credit is not inflationary
and thus not dangerous.
It is government conveyed privileges (that allow
banks to operate beyond this restriction and indulge in inflationary
loan practices) that are fraudulent and dangerous. It is this
conveyance of special privileges that set the stage
for the exploitation and boom/bust instability that pockmarked
the 19th century. The resultant exploitation and instability
then led to public opinion being stampeded into accepting
the centralization of banking under the Federal Reserve in
1913 as a "solution." But this was an attempt to
fight pus with poison. As we now know, the cure was much worse
than the disease. The boom/bust instability has not been diminished;
it has been horribly exacerbated.
What most of today's pundits miss is that there
are two forms of "fractional reserve banking." There
is a benign form that springs up naturally in a free-market
to extend short-term, self-liquidating credit. And there is
a fraudulent form that is spawned by government intervention
into the free-market to exempt bankers from the contractual
laws of fraud, which allows them to "borrow short to
loan long." This gives banks the ability to loan recklessly
with impunity from bankruptcy. It is this latter form that
needs to be outlawed.
Too many hard money advocates today fail to make this distinction.
For example, Austrian School economists agree with outlawing
the fraudulent form, but unfortunately they are also antagonistic
toward the benign form. They maintain that the only way to
establish a stable banking system is with a 100 percent gold
dollar that prohibits "all bank lending in excess of
capital accounts and vault cash." 1
According to Austrian economist, Murray Rothbard, the only
permissible credit instruments would be those where "every
dollar made available as purchasing power to the borrower
would be the result of abstinence from the exercise of purchasing
power on the part of the lender." 2
This would prohibit any form of credit that adds to the aggregate
of purchasing media as represented by gold reserves -- even
if the credit is short-term and self-liquidating, i.e., benign.
While Austrian economists are not of one mind
on all issues, it appears that they are solidly in favor of
a 100 percent gold reserve system. In other words, no credit
should be allowed that increases the pool of purchasing power
in excess of gold reserves, even temporarily. Only credit
that "would be the transfer of purchasing power"
should be allowed. 3
Austrian theorists thus advocate a very rigid
form of credit issuance, which many thinkers sympathetic
to gold denounce as unworkable if vibrant economic expansion
is our goal. So the great question we face today is how do
we establish a "workable" gold oriented monetary
system that will provide for sufficient "elasticity of
credit" to create vibrant growth, but not plunge our
economy into the nightmare of irredeemable paper currency
and credit lunacy that now plagues us. Is our choice either-or,
either the rigidity of pure gold as the Austrians maintain,
or the profligacy of unbridled credit with which the Keynesians
have cursed us?
Are these our only alternatives? Or is there a way to structure
a gold system (other than the Austrian School's 100 percent
gold dollar) that provides elasticity of credit but avoids
the abuse of fractional reserve banking that created the instability
of the 19th century economies, and which has led to the monster
in Washington that we call the Federal Reserve?
A Gold-Coin Standard for
the 21st Century
Yes, there is such a system providing the necessary
elasticity with self-liquidating credit. It was first recommended
by American economists James Washington Bell and Walter E.
Spahr, along with the Hungarian Melchoir Palyi, among others,
in their book entitled, A Proper Monetary and Banking System
for the United States, containing all the basic principles
Dr. Antal Fekete, who is a Hungarian born economist, and
Hugo Salinas, who is an ardent proselytizer for silver remonetization
in Mexico, have now revived and extended the work of Bell,
Spahr and Palyi. Dr. Fekete, who taught for many years in
Canada, is presently consulting professor at Sapientia University
in Cluj-Napoca, Romania. Hugo Salinas is a director and honorary
president of Mexico's Grupo Elektra from which he retired
as CEO in 1987.
During the nineties, Fekete and Salinas (who
are close friends) collaborated to brainstorm many issues
regarding gold and silver and how precisely to restore them
monetarily to the economies of Mexico and America. It was
Hugo Salinas who first suggested to Fekete that a parallel
monetary system was the answer, and together in Acapulco in
1995 they hammered out how to bring silver back into the system.
Salinas subsequently published his views on a parallel silver
plan for Mexico in 1999. And he has just this past year formally
presented a modified version of the plan [see
it here] via Asociacion Civica Mexicana Pro Plata A.C.,
an organization he founded to promote silver remonetization.
The plan is being widely publicized and is creating considerable
excitement throughout Mexico. Building upon the parallel concept
worked out in their collaboration, Professor Fekete is also
presenting such a plan for America, which is the subject of
Thus, these two esteemed gentlemen have thrown down the gauntlet
to the centralized political establishments of Mexico and
America. They offer two brilliantly conceived plans to restore
sound money to our economies and our lives. The Salinas plan
entails the remonetization of silver for Mexico because of
the unique position of his country as the silver superpower
of the world. The Fekete plan for America entails remonetizing
both gold and silver and incorporates his groundbreaking theoretical
work on Adam Smith's Real Bills Doctrine, refined by Bell,
Spahr and Palyi, into the mix.
The Fekete plan gives to America a solid gold/silver-oriented
monetary system that will avoid the flaws of the 19th century
and purge the evils of the 20th century. It can be phased
in gradually, which will give Americans time to acclimatize
themselves to the use of gold and silver as money again. And
in addition, it solves the flaw of a pure gold standard advocated
by the Austrians, for it provides the economy with elasticity
of credit that is non-inflationary.
The Fekete plan is not a pure 100 percent gold
standard that would restrict credit issuance to a banker's
capital accounts and cash. Yet neither is it a return to the
19th century "fractional reserve" approach in which
banks were allowed special privileges such as loaning out
demand deposits and suspension of specie redemption, which
led to the cardinal sin of borrowing short to loan long. The
Fekete plan employs none of the fraudulent credit instruments
and practices that plague us in America today. But it emphasizes
that a growing economy based upon gold would need extensive
credit, and that there is a natural, benign means to provide
for such credit. It is a means that would spring up spontaneously
if the economy is left free. Such necessary credit provision
would come from what is called market-generated "bills
of exchange" between producers and distributors. And
it would be non-inflationary.
Bills of exchange as a means of credit spontaneously
evolved in Renaissance Italy of the 14th century and became
quite prevalent by Adam Smith's day. They lasted until World
War I and then were discarded with the creation of 20th century
political banking. Dr. Fekete's stand is that they need to
be revived in order to provide the necessary elasticity of
credit in any future gold oriented monetary system. Here is
how he explains them in his Monetary
The Real Bills Doctrine
"Although it may sound preposterous to
21st century ears, according to [Adam Smith] you don't
need banks to extend short-term credit to finance the production
and distribution of consumer goods; real bills will do It.
Adam Smith elevated the Real Bills Doctrine to scientific
status in the Wealth of Nations in 1776. The market economy
comes equipped with a natural, built-in clearing system that
will generate all the credit needed to move goods from producers
to retail outlets, provided only that the consumer wants the
goods urgently enough. This credit is embodied by the real
"A real bill is a bill of exchange drawn by the producer
(the drawer of the bill) on the distributor (the acceptor
of the bill) specifying the kind, quality and quantity of
merchandise shipped by the former to the latter, and specifying
the sum (the face value of the bill) and the date on
which the bill is payable (the maturity date of the
bill, in any event, not more than 91 days after the date of
billing). In order to be valid, the bill has to be accepted
by the acceptor, by writing across its face and over his signature
"The Real Bills Doctrine of Adam Smith states that a
bill of exchange can, before its maturity date, go into spontaneous
circulation as the drawer will use it to pay his own suppliers
by endorsing the bill on the back. Everybody who receives
the bill in payment thereafter can use it in a similar fashion.
Endorsement signifies that the owner of the bill has assigned
the proceeds to the next one. At maturity, the last owner
will mark the bill "paid" and present it to the
acceptor against the payment of the face value in gold coins.
Alternatively, anyone who accepts the real bill in payment
for goods and services, can discount it at the Discount House
at any time. Discounting means selling the bill for cash at
a discount, which depends on the discount rate and the number
of days the bill has to run to maturity. The Discount House
makes a market in real bills and acts as the residual buyer.
Indeed, real bills are the most liquid earning asset that
a financial institution can have. At maturity the Discount
House will collect the face value of the bill from the acceptor.
"The point is that as goods in urgent demand
emerge in production, the credit needed to finance their move
to the consumer also emerges in the form of real bills drawn
by the producer on the distributor. The real bill is a non-inflationary
purchasing medium which the market has endowed with limited
monetary privileges. Non-inflationary because the face value
of the bill is matched by the value of the emerging merchandise.
Limited because upon maturity the purchasing medium expires
as the underlying merchandise is sold to the ultimate cash-paying
"In many ways the circulation of real bills
is a miraculous process. Nobody designed the system of credit
and clearing that makes goods in demand move along from the
producer to the consumer without outside financing. Yet there
it is: the real bill will do the miracle of financing production
and distribution spontaneously, without taking one penny
out of the piggy-banks of the savers, and without legal tender
"I hasten to add that the circulation of
real bills assumes the underlying circulation of gold coins.
To understand the concept a little better, I want you to look
at a simple essential consumer good, bread, and assume that
its production/distribution involves three stages: from wheat
to flour to bread; handled by four tradesmen: the grain farmer,
the miller, the baker, and the grocer. In the absence of clearing,
the pool of circulating gold coins would have to be invaded
four times to finance the production and distribution
of bread as the grain farmer, the miller, the baker, and the
grocer, all four of them, would be trying to raise credit
to finance their operations. But as it is, the pool of circulating
gold coins need not be invaded even once. The consumer's single
gold coin suffices to finance efficiently the journey of bread
from the corn-fields to the dinner-table, even in the complete
absence of banks. The movement of the "maturing bread"
from the grain farmer to the grocer is matched by the parallel
but opposite movement of the real bill from the grocer to
the grain farmer. The three payments are made, not with gold
coins, but with real bills. When finally the grocer gets paid,
the single gold coin of the consumer will liquidate all four
credits to which the journey of the bread has given occasion.
"For this reason, the real bill is said to be 'self-liquidating'.
The ultimate sale of the underlying merchandise in exchange
for the gold coin of the consumer liquidates all the credit
that was needed to move it forward to the consumer, whether
there were four, fourteen, or forty merchants along the pipeline
to handle the maturing good. We might say that as wheat "matures
into" bread, so the real bill "matures into"
the gold coin for which bread is ultimately exchanged. There
is no need to divert gold coins to move the wheat or the flour.
They will move under the steam that moves the bread, generated
by the single gold coin of the consumer. Real bills are flying,
as it were, on their own wings and under their own steam.
That is, provided that you do have a gold coin standard. If
you don't, then forget it. Irredeemable paper currency in
the hands of the consumer has no steam-generating power, nor
can it lend wings to real bills representing maturing merchandise.
Bills will no longer fly. They no longer mature into gold
coins. There are simply no real bills under a regime of irredeemable
currency. They have been replaced by a bloated money supply.
The nature-ordained dynamics of monetary circulation has been
destroyed. Now paper is shuffled against paper, and you need
an army of parasitic bankers to do the shuffling. Credit is
no longer self-liquidating.
"Real bills do work. Prior to the outbreak of World
War I in 1914 world trade was financed through real bill circulation
with London acting as the discount house on a remarkably small
gold base. The system worked smoothly and efficiently, showing
that there is no limit on the amount of credit that could
be built on a given gold basis. World trade was completely
self-financing, and producers as well as consumers prospered.
The volume of world trade before 1914 was so great that it
took more than 75 years before it was surpassed in the 1990's,
in spite of a much faster population-growth. We may conjecture
that if the international gold standard and the trading system
of the world financed by real bills had not been destroyed
by World War I, then the volume of world trade would have
increased to a level several times higher than what it is
today, and the resulting prosperity would have by and large
eliminated poverty from the face of the earth." 5
Elasticity of Credit
Thus the wonderful aspect of these bills of exchange is that
as they become extensively used, they don't just sit in a
desk drawer or remain locked in a safe waiting to be paid
off. They circulate as actual short-term money to be used
by their holders. They are given "temporary monetary
privileges." They are endorsed over to another merchant
for purchases, and then by that merchant to other merchants
for more purchases. They act as money until they come due,
at which point they are paid off in gold. It is this means
that allows the gold supply to expand and contract to provide
the conveyance of goods from farmers and manufacturers, to
processors and wholesalers, to retailers and consumers.
However, as Fekete points out, "real bills are also
the most liquid earning assets of the commercial bank. They
can be kept in the portfolio as an earning asset, or they
can be liquidated (rediscounted) on the shortest notice without
any loss of value." 6
What too many hard money advocates overlook
is that the reason why the gold standard worked for over two
hundred years (1700-1913) was because "bills of exchange"
were prevalent throughout the economies of the era.
This then is a crucial feature that must accompany
any attempt to revive a gold monetary system. Without also
a revival of Adam Smith's Real Bills Doctrine, to provide
self-liquidating credit, a healthy expanding economy
will not develop.
This is a most important point to grasp. As
Fekete tells us, "The new gold coin standard can succeed
only if it is implemented in conjunction with real bill circulation.
Only in this way can we ensure the needed elasticity of purchasing
media to follow the seasonal and secular fluctuations in the
demand for it. It is unrealistic to expect that the gold coin
standard, unaided by real bills circulation, can meet these
fluctuations. Indeed, the payments system would seize up during
every Christmas shopping season, or whenever division of labor
is refined by implementing new inventions, for reasons of
dearth in the supply of purchasing media. We should remember
that the supply of gold is highly inelastic (which is, paradoxically,
the main reason for gold to have become the monetary metal
par excellence). So the choice is between (1) retaining
the banking system which is liable to issue unsound credit
thereby undermining the monetary system as it has done in
the past, or (2) replacing the banking system by real bills
circulation, which will not only provide the needed purchasing
media, but will do it with transparency, satisfying the requirement
of full disclosure." 7
Outline of the Fekete Plan
What follows is a brief outline of the proposed
Gold-Coin Standard that Professor Fekete has published. I
have paraphrased the basics of the plan from the complete
version that appears in my book, Breaking
the Demopublican Monopoly. 8
The plan's most important purpose is to eliminate
the monopoly that the Federal Government and its central bank
have over what constitutes money in our economy. It will do
this by repealing the "legal tender laws" that mandate
our acceptance of Federal Reserve paper dollars for business
transactions and purchases. The plan establishes a parallel
monetary system to operate alongside our present Federal
Reserve System, and thus it allows the people to reject the
Fed's paper money if they wish. It does this by:
1. Opening the U.S. Mint to all citizens, miners, jewelers,
processors, etc. to bring whatever gold and silver they wish
to be minted into standardized gold and silver coins to circulate
2. Putting all the gold that the Federal Government and its
various agencies presently possess (gold that they stole from
the American people in 1933) into a Rehabilitation Fund that
will then be minted into gold eagle coins and apportioned
out to state chartered Credit Unions according to the capital
of their various subscribers.
3. The gold coins will then form the basis of the new parallel
monetary system. With this gold as their reserves, the Credit
Unions will then issue paper certificates to be used as money
in society by their subscribers. The certificates will be
REDEEMABLE at any time in gold and/or silver to whoever presents
them to the Credit Union.
4. The Credit Unions shall have reserves of
gold for no less than forty percent of their note and deposit
liabilities. The remainder shall be covered by reserves in
the form of gold-based short-term commercial credit, i.e.,
self-liquidating bills of exchange that mature in 91
days or less. Paper instruments such as Treasury bonds, notes
and bills will not be eligible.
5. The Credit Unions' primary function will
be to supply gold and silver redeemable currency for
the payment of salaries and wages to employees and workers
who choose (through collective bargaining agreements) to be
paid in gold backed currency instead of irredeemable
Federal Reserve notes.
6. These three factors (opening the U.S. Mint
for all gold and silver to be minted into standardized coins,
the chartering of Credit Unions to issue currency redeemable
in gold and silver, and the revival of "bills of exchange"
to provide the necessary elasticity of credit) will effectively
establish a parallel monetary system to the present
one we have now. No longer will the Federal Government and
its central bank cartel be able to dictate that we only deal
in its paper money that is relentlessly being debased every
year by inflation.
7. The Federal Reserve's fiat paper money will now have to
compete with legitimate redeemable gold and silver backed
currency of the Credit Unions. Gradually over the years, gold
and silver as money will become used more and more, and the
various Federal Reserve banks will either have to convert
to its usage or go out of business.
8. The greatest beneficiaries of the plan will be those workers
and employees who opt to be paid in Credit Union currency
rather than Federal Reserve notes. This can be done through
union-negotiated contracts. Their wages and salaries will
then hold their value. One's savings will not be worth 25%
less ten years down the road, and then 50% less ten years
9. The plan is meant to get American citizens
acclimated to using and saving gold and silver as money again.
It will start out small, but should grow into a viable circulating
money throughout society. But even if it remains small in
its use, it will be immense in its effect because it
will act as a competing form of money to the Federal Reserve's
money. This will break the government's mega-bank monopoly,
which will force the Federal Reserve to stop debasing the
As the country's libertarian,
conservative, and independent academics become more acquainted
with the plan, some will no doubt offer refinements along
the way. Once sufficient support among academics and pundits
has been achieved, there will come a day in the future when
the plan will be presented to Congress. The plan can be implemented
right now. Yet it is not set in stone; it can be altered if
needed. We should think of it as a grand prototype, an ideal
blueprint of what needs to be done.
The Choices We Have
These then are the basic choices we have for monetary reform
in the upcoming years:
1) We can retain our present paper money system by pasting
over its evils with sophistry and pseudo-reform along the
lines of what Richard Duncan and other statists espouse, which
would plague us with the continuation of monetary/price inflation
and ultimately a world central bank.
2) We can put into place Murray Rothbard's 100 percent gold
dollar that would end the scourge of inflation, but with its
rigid credit prescriptions surely hamper economic growth and
3) We can revive the flawed 19th century gold
standard that gave us the needed elasticity of credit, but
did so in an inflationary form that employed illicit
4) We can adopt the parallel Gold-Coin Standard
of Antal Fekete that will give us the needed elasticity of
credit in a non-inflationary form that does not engage
in illicit lending.
It should be clear that the Fekete plan is the most desirable
of the four because it solves the problem of credit in a non-inflationary
way, and it comports with the requisites of a free and just
society. The 19th century gold/silver monetary system created
sufficient credit, but it did so with fraudulent policies
derived from privileges conveyed by government to the bankers.
It was based upon arbitrary law, it was inflationary, and
it was unstable.
Retaining the centralized banking systems that
prevail worldwide today with their monstrously prodigal paper
instruments is no answer. Such illicit systems have merely
compounded the sins of the 19th century. They are the source
of our monetary evils, not their solution. Richard
Duncan's analysis of why our situation is so dire in his book
The Dollar Crisis is brilliantly formulated, but his
answer to how to solve the crisis is disastrously conceived.
It lays the groundwork for a massive neo-Keynesian assault
on free enterprise and American sovereignty.
We need a gold dollar as the Austrian School economists have
long advocated, which is the only way to eliminate the horrible
evils of our present system. But we must avoid throwing the
baby (elasticity of credit) out with the bathwater (illicit
loan procedures and privileges). This, the Fekete plan will
The Austrian School's 100 percent gold dollar
would restrict the pool of purchasing media too rigidly because
it would sanction only credit originating in savings, that
is, abstinence from spending on consumption. This would deny
the vital use of non-inflationary bills of exchange,
i.e., Adam Smith's Real Bills.
As Fekete tells us, Rothbard's "100 percent gold banking....would
never work. It would be unable to supply the elastic currency
that the economy needs. It would open the gold standard to
even more violent attacks for being 'contractionist' and anti-labor."
Rothbardians, of course, disagree with this
assessment. In The
Case for a 100 Percent Gold Dollar, Murray Rothbard contends
that a pure gold monetary system would be quite adequate to
finance a growing economy in a stable manner. In answer to
those who claim the contrary, Rothbard writes:
"These economists have not fully absorbed
the great monetary lesson of classical economics: that the
supply of money essentially does not matter. Money performs
its function by using a medium of exchange; any change in
its supply, therefore, will simply adjust itself in the
purchasing power of the money unit, that is, in the amount
of other goods that money will be able to buy. An increase
in the supply of money means merely that more units of money
are doing the social work of exchange and therefore that the
purchasing power of each unit will decline. Because of this
adjustment, money, in contrast to all other useful commodities
employed in production or consumption, does not confer a social
benefit when its supply increases....
"There is therefore never any need for
a larger supply of money...An increased supply of money
can only benefit one set of people at the expense of another
But is this true? If there is "never any
need for a larger supply of money," why does the marketplace
(when left free) naturally expand the purchasing power via
bills of exchange and extend temporary monetary privileges
to them? This "larger supply of money" is not the
result of government manipulation of interest rates, nor the
conveyance of special privileges to banks, nor winking at
the laws of fraud, nor any other of today's illicit government-supported
banking policies. It is, as Fekete shows us, simply the free-market
at work clearing the goods that are being produced.
And it is doing so in a non-inflationary manner.
So is it rational to maintain, as Rothbard does, that there
is "never any need for a larger supply of money?"
The marketplace itself is telling us just the opposite --
that there is often a definite need for a larger supply of
money! If there was no need for a larger supply, why did demand
for it spring up so abundantly to create the miracle of bills
of exchange from the Renaissance era to the end of the 19th
According to Rothbard, a 100 percent gold dollar would "simply
adjust itself in the purchasing power of the money unit."
Gold (and silver) would become elastic and would suffice to
clear the market of goods being produced. But if this is true,
why didn't they? History shows us no proof of gold and silver
on their own making such an adjustment easily and prosperously.
In fact history shows us proof of just the opposite.
Gold and silver alone can clear goods, yes, but they do so
in a primitive manner, which is what they did from ancient
times up until the flowering of the Renaissance in the 14th
century. But gold/silver money systems throughout the West
began circa 1400 to make use of bills of exchange, and they
did so up until 1913. Why? Precisely because there was a need
for credit elasticity to complement the use of gold and silver.
Such bills created a "larger supply of money" because
it was necessary to move goods from production to consumption
more abundantly and sophisticatedly. This was one of the important
reasons for the explosion of commerce during the Renaissance,
which paved the way for our modern day economies.
So would a 100 percent gold dollar work? A reading of history
demonstrates rather conclusively that any gold monetary system
requires wiggle room to handle the fluctuations and innovations
of an expanding economy. Here is an example from Fekete to
demonstrate why Rothbard's 100 percent gold dollar would be
unworkable, in other words why gold and silver could not make
the adjustment in the purchasing power of money adequately
enough to clear goods along the complex production-distribution
"To throw the adjustment mechanism squarely
on the value (or the purchasing power) of gold and silver
is....an invitation to disaster. Rothbard is forgetting completely
about speculation. How would speculators act when anticipating
a rise in the value of gold, for example, after the adoption
of a new technological procedure that would lengthen the production
of computer chips from fourteen to forty stages along the
pipeline? Such a development, in the 'roundabout' nature of
production (to use Böhm-Bawerk terminology), would cause
a near-revolution in the division of labor, requiring massive
new investments in production facilities, which would have
to be financed. That part is the job of savers, which is all
right. But once the new production line is in place, the actual
movement from the producers to the consumers of chips will
have to be financed by short-term credit. That part creates
a problem that must not be ignored. Since the job of moving
the maturing computer chip from the producer to the consumer
calls for the invasion of the pool of circulating gold coins
forty times (instead of fourteen times, as previously) speculators
would correctly anticipate a rise in the value of gold and
they would start hoarding gold coins. This would make the
rise in the value of gold much greater than need be, and speculators
would be rewarded for their greed where they did not perform
any useful service to society. A vicious anti-gold agitation
would result, and it may wreck the fledgling gold standard."
This is just one of many examples of why, in a highly sophisticated
innovative economy, gold alone could not, as Rothbard maintains,
"adjust itself in the purchasing power of the money unit"
so as to adequately clear goods in a stable manner.
A highly sophisticated, innovative economy needs
a gold monetary system with short-term, self-limiting elasticity.
It needs room to breathe, so to speak, to expand and contract
in response to the contingencies of growth, which is what
bills of exchange provide for it. What such an economy does
not need is the "fraudulent, unlimited elasticity"
that Keynesian fiat money has given us.
And as the reader should now realize, neither does it need
the "rigid inelasticity" that a Rothbardian 100
percent gold dollar would give us.
In conclusion, the revival of Adam Smith's Real
Bills Doctrine is the answer to how to make a gold monetary
system workable and acceptable as the world's fiat systems
collapse in the upcoming years. I urge all truth-seeking men
and women in the freedom movement to put aside their egos
and thoroughly investigate Antal Fekete's proposed Parallel
Gold-Coin Standard. He explains his plan clearly and concisely
in my recent book, Breaking
the Demopublican Monopoly.
Once you have perused the Fekete plan, then
all who wish to get a deeper understanding of how "bills
of exchange" fit into it, can do so by taking Professor
Economics 101 course. It is comprised of 13 lectures that
will astound you with their prescient insights and wise portrayal
of fundamental truths.
What would be of great benefit at this time
to the future of freedom is a healthy debate on the Real Bills
Doctrine. All pundits and scholars at Cato Institute, Mises
Institute, FEE, AIER, FAME, Heritage Foundation, The Independent
Institute, Reason Foundation, etc. are invited to weigh in
on this great issue. Professor Fekete will be glad to answer
any and all disputes, refutations and questions regarding
the necessity to include a revival of Adam Smith's Real Bills
Doctrine in laying the groundwork for a gold monetary system
in the upcoming years. Send any responses to email@example.com
they will be forwarded to him. Or post your views of rebuttal
or agreement wherever your work is carried and send a notice
of such to firstname.lastname@example.org.
An open forum on all questions is the lifeblood of freedom
and civilization. To ignore or suppress these two issues of
"real bills" and gold money cannot help the cause
of mankind; it can only further the forces of despotism.
We have a chance to take the freedom movement
into the mainstream of America in the next two decades.
We have a chance to break the public's perception of constitutionalists
and libertarians as hopeless reactionaries not living in the
real world. But to do so, we must offer the world a rational
and workable proposal to replace the monster of central banking.
If a free society is to be restored to America,
then gold and silver must become the fulcrum of our monetary
reform. Dr. Antal Fekete has given us a brilliant means to
achieve such a monetary system with his new theory of the
gold standard incorporated with the Real Bills Doctrine. It
is incumbent upon each and every one of us to objectively
investigate his plan and his marvelous works. If Jefferson
and Jackson were alive today, they would be seeking this man's
counsel. All contemporary patriots, pundits, and freedom advocates
should do likewise.
1. Antal Fekete, Monetary Economics 101,
2. Elgin Groseclose, Money: The Human Conflict, 1934,
cited by Murray Rothbard, The Case for
a 100 Percent Gold Dollar, (Meriden, CT: Cobden Press,
1984), p. 37.
3. Ibid, p. 37. Emphasis added.
4. James Washington Bell and Walter Earl Spahr (eds.), A
Proper Monetary and Banking System
for the United States, New York: The Ronald Press Co.,
5. Monetary Economics 101, Lecture 2.
6. Antal Fekete, email to this writer, January 21, 2005.
7. Monetary Economics 101, Lecture 2.
8. Nelson Hultberg, Breaking the Demopublican Monopoly,
(Dallas, TX: Americans for a Free
Republic, 2004), Appendix A, pp. 81-90.
9. Monetary Economics 101, Lecture 6.
10. Rothbard, op. cit., p. 28. Emphasis added.
11. Antal Fekete, email to this writer, January 25, 2005.
Americans for a Free Republic
January 31, 2005
Nelson Hultberg is a freelance writer in Dallas,
Texas and the Executive Director of Americans for a Free Republic
www.afr.org. His articles have appeared in such publications
as The Dallas Morning News, Insight, The Freeman, Liberty,
and The Social Critic, as well as numerous Internet sites.
He is the author of Why We Must Abolish The Income Tax And
The IRS (1997) and Breaking the Demopublican Monopoly (2004).
He is presently finishing a book on political-economic philosophy
entitled Reality's Golden Mean: The Case for Libertarian Politics
and Conservative Values.