Why should Gold Be Separated from Government?

      What should be done with all this gold–the 8,000-plus tons the U.S. Treasury holds as well as the other 27,000 tons that other governments sequester? It seems obvious from the history of the relationship between gold and the state that the more gold there is in the hands of governments the less surely the gold serves as money. Therefore, the only way to restore gold and silver as media of exchange is to get the metals out of the possession and control of governments.

      Certainly, the gold has no current monetary or fiscal function for its government owners. It generates no revenue of any sort. It has no effect whatsoever on central bank monetary policies nor on the credit volume of the private banking system. In its present status as a government-owned “surplus” commodity, it is the “barbarous relic” that John Maynard Keynes characterized it in 1923. It may serve in the minds of Treasury bureaureaucrats as psychological starch for something or other that the government does, but the role it could play and did play in earlier eras, as viable money is completely absent.

      The gold cannot be forced into a monetary role. No government, including especially the U.S. government, is going to re-establish a gold standard by specifying the gold content of gold coins and declaring them legal tender. Treasury spokesmen would claim with some validity that it would be impossible to estimate the gold value of the current Federal Reserve dollar. They would argue that the indeterminacy of gold’s monetary value was a good excuse for doing nothing. So the gold would lie there, a useless heap similar in its non-function to other surplus commodities the government has stockpiled.

      Even if the Treasury went through the formality of giving dollars a fixed gold value, it would insist on keeping the gold in the Treasury’s vaults in order to “back” the existing monetary aggregates that would now be “based” on gold. Central bank policies would continue to operate much as they do today. Rather they would now have an undeserved aura (literally) of respectability behind which Treasury and Federal Reserve managers could conduct business as usual.

      Therefore, sound money advocates should not waste their resources lobbying for a gold standard, which by definition would include the state as overseer and manager of gold currency, specifier of a gold price in terms of dollars, custodian of the gold, and continuing manipulator of central bank-issued paper money.

       The only way to ensure that gold becomes viable money is first to separate the gold from the state and the state from any further role in the operation of gold money. Indeed, the separation of gold and the state would begin as an economizing measure–a form of privatization. Here are all those thousands of tons of gold lying idle and useless. Give them back to the people from whom the gold was unconstitutionally snatched in 1934.

See FEE Foundation for Economic Education



      Redistributing the Treasury Gold to the People


The Treasury Department collects and disburses money for the federal government through its Internal Revenue Service (IRS). In some given taxable year, say 1996, the IRS would note the total number of dependents on the various income tax forms–1040, 1040A, and 1040 E-Z. It would then issue one one-ounce gold certificate for each listed dependent to the heads of households who had filed the returns.


The stored gold is in the form of ingots each of which weighs 400 troy ounces (27-plus pounds), and is worth somewhat more than $15,000 at the current market price of gold. The Treasury would offer to exchange (sell) these bars in the open market for the appropriate number of gold certificates to any private firm or individual tendering them in the proper quantities. It would leave the actual disposition of the gold completely in the hands of private wholesalers and brokers. In order to get the gold bars from the Treasury, a wholesaler would have to collect enough gold certificates to make his effort worthwhile. Very quickly, the gold market would establish a dollar price for the gold certificates. The price would be slightly less than the spot gold price currently posted in markets because the wholesaler-distributor would have to get some return for his services, which would include shipping, handling, storing, and packaging the gold.


Taxpayers who received the gold certificates would be elated. After all these decades of paying taxes, they were finally getting something in return. True, it would be far less than what they had paid in, but at least the gesture would reflect a disposition on the part of a grateful government to reward its supporters by returning to them some real wealth that the government cannot use and that cost it nothing in the first place.


The new gold owners–virtually all of us–would next ponder what to do with their windfalls. Some would at first want to deposit their gold certificates in banks as gold demand accounts until they were more certain of its value and utility to them. Because many people might want this option, banks would cater to their wishes by offering gold-deposit accounts distinct from conventional checking accounts. The banks would use the gold certificates to claim the gold bars from the U.S. Treasury and the gold would then become a true reserve backing the gold demand deposits.


Industrial users would also want the gold to make art objects as well as other gold items. And some amount of gold would probably be used in medical technology and the physical sciences.

Finally, some certificate holders might want to exchange their certificates for gold coins that would be something like the half-eagles, eagles, and double eagles of the pre-1914 era. (The double eagle was a “twenty-dollar gold piece” and contained slightly less than one ounce of gold.) To satisfy the demand for coins, private coin-smiths would buy bunches of one-ounce certificates from the taxpayers who had received them and exchange them at Treasury offices for ingots. The coinage specialists would then produce coins in convenient denominations and sell them to their numismatic clients.