Pushing for a return to the gold standard
Mike Pitts is no economist, but that hasn’t kept the retired small-town cop from taking a prominent role in a quixotic campaign to push the U.S. monetary system back to another century.
Pitts, a South Carolina statehouse representative, introduced a bill in April that would make gold and silver coins legal tender in the state. Similar efforts are underway in more than a dozen state capitals, fueled by Tea Party support and antipathy toward the federal government.
The ultimate goal is to return the nation to the gold standard, in which every dollar would be backed by a fixed amount of the precious metal. Economists of all stripes say the plan would be ruinous, but that view is of scant concern to Pitts.
“Quite frankly, I think that economists from universities are thinking within the confines of their own little world,” Pitts said. “They don’t deal with the real issues.”
Proponents of the laws believe that returning America to the gold standard would force the government to live within its means, curtailing runaway spending and inflation.
Lately, the idea has been gaining currency — and not just among the Tea Party activists who have been pushing the gold standard as part of wider efforts to rein in federal power.
In Utah, gold and silver coins minted by the U.S. government have been considered legal tender since last month under a law that Gov. Gary Herbert promoted Thursday with a ceremonial signing. The law also exempts purchases of the coins from state sales tax and creates a tax credit to partially reimburse state residents who must pay federal capital gains tax on profits from holding gold.
The movement’s supporters recognize that no one is going to be buying groceries with a $50 gold eagle coin, which contains some $1,500 worth of gold, but they say it will send a message.
“The centerpiece of U.S. monetary policy for the last hundred years has been the constantly depreciating dollar,” said Larry Hilton, a businessman credited with first proposing the law enacted in Utah. “Sometimes, just as a citizen, you have to stand up and say this is a problem.”
As befits a movement protesting the federal government, the gold push is decentralized. A Montana measure, voted down by a narrow 52-to-48 margin in March, would have forced all wholesalers to pay tobacco taxes in gold — in electronic transactions backed by bullion held at depositories.
One of the most ambitious proposals, introduced in Georgia, would require the state to accept only gold and silver for all payments, including taxes, and to use the metals exclusively to pay all of the state’s debts. That measure has not made it out of committee.
The various bills have frequently been promoted at Tea Party rallies, which have given activists from different states a chance to link up.
“The rise of the Tea Party has helped,” said Edwin Vieira, a constitutional lawyer who has been promoting the issue for years. “They see the present monetary system is unhinged.”
Most of the action is at the state level, but the gold-standard rush has extended to Washington. Rep. Ron Paul (R-Texas), a presidential candidate in 2008 and possibly 2012, and a longtime proponent of abolishing the Federal Reserve, has proposed exempting gold from the federal tax on capital gains, which would make it easier to use as a currency.
The proposals by Pitts and others can’t change the U.S. monetary system, which is the jurisdiction of the federal government. The state laws are intended instead to create an infrastructure to allow gold and silver to be used as an alternative currency — a setup that would come in handy in the event of economic catastrophe that leaves the dollar without value.
Though the movement may be largely symbolic at this point, observers say the activity underscores the animosity toward the federal government in some corners.
“The impulse for moving to some kind of metallic money comes from the strong sense right now of distrust and anxiety about the financial system and the government’s stability,” said Perry Mehrling, an economics professor and historian of monetary policy at Barnard College in New York.
The United States and most of the rest of the world operated on a full gold standard until the Great Depression. Economists generally agree that the policy helped cause the depression and earlier severe downturns by limiting the amount of money the government could create, constraining its ability to stimulate the economy.
Scholars say moving to a gold standard now would be likely to slow the economy’s already meager growth.
“At some point someone may be crazy enough to try it, but they won’t stay with it anymore than they did in the past,” said Allan Meltzer, a Carnegie Mellon University economics professor and a critic of the Fed’s current monetary policy.
Given the lack of support from mainstream economists, activists have turned a few texts written by outsiders into their bibles, such as “Pieces of Eight,” an out-of-print book by Vieira.
They have also begun to take steps on their own. In Utah, a businessman is setting up a private gold and silver depository that would issue debit cards and allow customers to pay willing merchants in units of precious metal.
In South Carolina, Pitts said he personally has not had enough money to buy gold. But he said he didn’t doubt that the nation is heading toward a situation in which the dollar will be worthless and people will be forced to trade in whatever retains its value.
“I think it will be worse than anything this country has ever seen before,” Pitts said. “If you lost the ability to use currency and were simply using a barter system nationally you would have to look at gold and silver.”
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