The Role of Gold as Currency: Part 6 of 10

In George Reisman’s “Capitalism: A Treatise on Economics,” particularly in chapter 20, titled “Toward The Establishment of Laissez-Faire Capitalism,” the author emphasizes the fundamental role of gold as money for the establishment of a capitalist society. He argues that adopting a strict gold standard—specifically, a 100-percent-reserve system where all monetary assets are fully backed by gold or silver—is crucial for halting inflation and preventing its detrimental effects on the economy. Reisman extends this principle to silver as well, underscoring that the monetary system should include both precious metals fully backed by physical reserves. The establishment of such a monetary system is seen as a precondition for achieving the benefits of capitalism.

Reisman articulates that a gold-backed monetary system is essential to remove the government’s ability to inflate the currency, thus reclaiming the financial sovereignty of the citizens. Inflation erodes purchasing power, destabilizes economic conditions, and creates uncertainty. This destabilization has far-reaching consequences, including arbitrary wealth redistribution and obstacles to capital accumulation. By returning to a gold standard, Reisman contends that citizens will become more acutely aware of governmental costs and expenditures, ultimately leading to a more responsible and accountable government. This restoration of monetary discipline would entail a more resilient economy and a diminished risk of extreme economic downturns characterized by depressions and mass unemployment.

Moreover, Reisman posits that a gold standard would facilitate the swift dismantling of the welfare state. He argues that the current welfare system often engenders economic crises that can lead to adverse outcomes like deflation and depression. By securing the currency with gold, the inevitable economic turmoil associated with drastic governmental changes—such as welfare state removal—can be mitigated. Reisman believes that the fear of the devastating effects of such changes is largely tied to the current monetary system’s volatility, where unchecked inflation can create conditions for economic collapse.

The chapter takes a constructive stance, suggesting that mechanisms to achieve the gold standard have been previously discussed in the preceding chapter of the book. Hence, while the focus here remains primarily on the rationale behind endorsing a gold-backed monetary system, Reisman refrains from delving into the specific methods of implementation. His central thesis rests on the historical and theoretical implications of gold as a stable currency. He reinforces his notion that a properly structured monetary system grounded in gold would ensure long-term economic stability and growth.

In summarizing Reisman’s arguments, it is clear that he envisions a future capitalist society characterized by financial stability, where the fundamentals of a gold standard combat the fluctuations associated with fiat currencies. The proposal advocates for a transformative approach to monetary policy and emphasizes the decentralized nature of individual financial control. The concept that sound money—money that is backed by tangible value—can restore trust and enhance economic productivity is a recurring theme in the chapter, fostering a critical view of government intervention in the currency system.

Ultimately, Reisman’s discourse on the necessity of establishing gold as the principal form of currency lays the groundwork for his broader thesis on capitalism. His advocacy for a gold standard encapsulates a vision of economic freedom where individuals are empowered to control their financial destinies. By prioritizing a 100-percent-reserve system featuring gold and silver, Reisman seeks to advance the principles of laissez-faire capitalism, fostering a socio-economic environment where government is limited, inflation is contained, and productive enterprise can flourish without undue interference. Through this lens, the establishment of sound money emerges as a cornerstone of a thriving capitalist society.