How Gold Was Money--How Gold Could Be Money Again

The Treasury Should Return the Gold to the People......

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               Gold and Silver: The Money of the Constitution

       Students, scholars, and some curious people who occasionally stray into the text of the U.S. Constitution are properly puzzled by what seems to be that document’s “plain language” and some of the things they see around them in the world today. One such thing is the paper money and checks everyone uses to make ordinary transactions. The Constitution stipulates that, “No state shall . . . coin money, . . . or make anything but gold and silver coin a tender in payment of debts . . .” (Article I, section 10). Yet on every unit of paper money the U.S. government asserts without apology: “This note is legal tender for all debts public and private.” By what political alchemy has gold and silver become paper?

       Not only is the paper money legal tender, meaning that it must be accepted as payment for any debt owed by any person to another person or to a government, but the gold and silver specified in the Constitution are nowhere to be seen. Gold and silver coins rarely appear, and then only as collectible artifacts not as money.

This seeming contradiction between the fundamental monetary law of the constitution and real life conditions might suggest to a thinking person that gold and silver had somehow disappeared from the face of the earth in the 200-plus years since the Framers included that simple clause. However, such is not the case.

      The world’s governments own more than 35,000 tons of gold as bullion and coin, and private persons own another (estimated) 50,000 tons. Silver is even more plentiful. Its current market price, reflecting its abundance, is only about one-eightieth the price of gold.1

The absence of gold money correlates with the accumulation of gold hoards in the possession of government central banks and treasuries. If it’s there, it obviously cannot be out in markets transacting business dealings, or in banks serving as a base for bank-issued notes and checks.

It was not always this way. Until the time of the Civil War in the United States, banks routinely held gold and silver as redemption reserves for their outstanding notes and deposits while the federal government held just enough to expedite its minting operations. Congress had the constitutional power to “coin money,” but that power did not presuppose that it keep any stock of gold and silver beyond the inventory requirements of its mints. Indeed, even though Congress had the power it was not required to coin money at all. Private mints flourished until the Civil War, often minting coins of slightly greater gold content than government mints.