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Ron Paul: "Sell the Gold in Ft. Knox"

Gary North
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May 19, 2011

Ask a gold bug if he thinks that Franklin Roosevelt did the right thing in 1933 when he unilaterally confiscated the gold coins of all Americans. He will tell you "no." Why not? "Because it was a violation of property rights. The Federal government had no legal authority to do this."

But the Supreme Court authorized it, 5 to 4. The gold bug will tell you that the Supreme Court cannot be trusted.

Fast forward almost 70 years. Ron Paul announces at the Heritage Foundation that the government should sell its gold to reduce the national debt.

No one comes to his defense.

Understandably, the Treasury Department got one of its staffers to write a critique. The government should sell no assets, she insists. Congress must raise the debt ceiling. There are not enough assets to sell. She ridiculed the suggestion of a balanced budget through asset sales. With a deficit of $125 billion a month, she said, a fire sale would do no good.

Then, amazingly, she admitted that gold is central to the perception if the U.S. government as solvent.

A "fire sale" of the Nation's gold to meet payment obligations would undercut confidence in the United States both here and abroad, and would be extremely destabilizing to the world financial system.

Treasury Secretaries from both parties have made it clear that they would not sell gold in order to buy time in a debt limit impasse. As then-Treasury Secretary James A. Baker said: "President [Reagan] and I are not prepared to take that step because it would undercut confidence here and abroad based on the widespread belief that the gold reserve is the foundation of our financial system, and because the Congress clearly has the power to prevent a default by assuming its responsibility with respect to the debt limit." When President Reagan was asked whether he would consider selling gold, he told his Budget Director, James Miller, "absolutely not." Similarly, Treasury Secretary Robert E. Rubin said, "We will not sell the nation's gold supply."

In short, gold is not a barbarous relic. Gold in the vault at Fort Knox and in the Federal Reserve Bank of New York (a private corporation) is basic to the world's confidence.

But what about gold in the hands of Americans? She did not say. The Treasury has had contempt for that idea ever since 1933.

That a salaried government bureaucrat would oppose the sale is understandable. But equally incensed are gold bugs. Only one came to his defense: the #1 scholar of the American gold standard, Dr. Edwin Vieira, author of Pieces of Eight, a 1600-page history of the gold standard in America. "Redeemable currency is an oxymoron." The government has no plans to restore a gold standard of any kind. "They don't need the gold. They've just been sitting on it since Roosevelt stole it."

Everyone else was critical of Paul's suggestion to restore gold to the private sector.

What's going on here? If it was immoral and illegal for the government to confiscate the gold at $20 an ounce in 1933, why is it a bad idea for the government to sell back the gold to the public at a market price today?

We see once again that people who say they believe that gold is the basis of freedom do not believe it. They believe in the United States government. They believe that the government has the right to hang onto its stolen gold. Why? Because the government will someday establish a gold standard. The gold belongs to the government.

But what is a gold standard? It is a system in which the government buys and sells gold at a foxed price. We have not had that system since 1933. The government did make the promise to foreign governments and central banks, but Nixon unilaterally broke the promise on August 15, 1971.

The gold bugs have now converted to Franklin Roosevelt's idea of a gold standard: a system in which the government has the right to steal property at one price, hike the price later, and sit on the wealth. The gold bugs honestly trust the Federal government to restore a gold standard someday. There has not been one since since 1933 that any government on earth will do this, but somehow, the gold bugs believe, it will do it in the future.

Fine. If the government sold all of its gold today, this would deplete the Federal Reserve of part of its monetary base. The public would have the gold. The FED could buy assets to replace the gold. That would restore the monetary base. The FED would have worthless IOUs, and the public would have the gold.

My preference would be for the gold to be sold as tenth-ounce American eagles. Sell it to American citizens, not foreign central banks. Get Americans used to holding small gold coins. The government stole the gold from Americans. It should sell it back to Americans.

But gold bugs see what is at stake. The price of gold would fall. They bought gold as an investment. They worry that they would lose money if the stolen gold were sold. Better to let the Federal government hang onto stolen goods than to let the public get its gold back.

They do not believe in the free market. They believe in a rigged market, one in which the government gets the right to hold onto stolen gold forever, or what is the equivalent of forever: the restoration of a gold standard.

But what kind of gold standard? The kind that existed under Bretton Woods system (1946-71)? One in which there is no legal right for common people to buy gold at a fixed price? That transferred power to Richard Nixon. How good a gold standard was that?

What kind of gold standard is a government-guaranteed gold standard? "Turn over your gold to us. You can get it back at any time." That was what banks around the world promised until August 1914. Then the central banks confiscated the gold held on deposit at commercial banks. The gold was never returned.

A government-guaranteed gold standard is not a gold standard. It is a government promise standard. It will be broken whenever politicians deem it convenient.

There are two kinds of gold standards. One is a government-guaranteed gold standard, which is preliminary to gold confiscation. The other is a gold coin standard. The difference is clear: the first is statist; the second is free market. As I wrote in 2003:

The State's gold standard is a preliminary to eventual confiscation or debasement. The State's promise of redemption on demand should not be trusted.

A gold coin standard by profit-seeking storage organizations can be trusted with less risk, but not if the storage is offered for free. There are no free lunches. Someone will eventually pay for free services. When it comes to fractional reserve banking, that someone is always the late-coming depositors.

This is why any call by conservatives for the State to adopt a gold standard is futile. No one will listen. Even if voters understood the case for a limited State, they would not be able to limit the State by a State-run gold standard. A State-run monetary system, with the exception only of Byzantium, becomes a debased standard.

This is why the free market is the only reliable source for the re-establishment of a gold standard. Honest money begins with these steps: (1) the revocation of legal tender laws that require people to accept the State's money; (2) the enforcement of contracts; (3) laws against fraud, which fractional reserve banking is. The free market can do the rest.

Ron Paul is correct. The government should sell the gold. I would add only this: the form of the gold should be in the form of American eagles, and sold only to Americans -- heirs of the victims of Roosevelt's confiscation. I want Americans to get used to seeing and owning gold coins again.

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