The Classical Gold Standard: The Key Economic Policy For The People
This is adapted from the material first provided to the 2016 Trump transition team under the auspices of the Heartland Institute as authored by Ralph Benko and Peter Ferrara, as now adapted for Policies for the People by Ralph Benko.
Introduction
This paper lays out how the gold standard made America great … and why it is essential to making America great again. This dispels the myth that restoring to the gold standard would be difficult to do, explain why the gold standard is great policy and great politics, and describe specifically how to present the gold standard, how to defend it against misguided hostility, how to implement it, and why it would be great to lead with it in the new president’s first 100 days.
Trump Loves Gold
Donald Trump showed an exceptional grasp of the benefits of the gold standard in two off-the-cuff comments. Michelle Jamrisko reported for Bloomberg News, “‘We used to have a very, very solid country because it was based on a gold standard,’ [Trump] told WMUR television in New Hampshire in March last year. But he said it would be tough to bring it back because ‘we don’t have the gold. Other places have the gold.’”
Trump also told GQ: “Bringing back the gold standard would be very hard to do, but boy, would it be wonderful. We’d have a standard on which to base our money.” And as Bloomberg reminds, us: “Trump loves gold, and don’t you forget it.”
The Gold Standard Is Great Policy
For almost 180 years the American economy benefitted from a variant of the gold standard. The gold standard economy fostered what came to be known as the American Dream: equitable prosperity, which is to say rapid economic growth conjoined with economic justice, abundant opportunity for “the little guy,” including plentiful jobs and upward income mobility.
As Peter Ferrara, one of the original authors of the 2016 transition paper pointed out in 2014, “the Gold Standard is the foundation for restoring booming economic growth.”
Making the dollar legally convertible to gold, which has proved to maintain its value for thousands of years of recorded civilization, meant that the dollar maintained its stable value, without inflation, as well.
The U.S. price level was almost exactly the same in 1913, when the Federal Reserve Board was established, as it was in 1792, when Congress passed the Coinage Act defining the value of the dollar under the Constitution. That value of the dollar was the same as well in 1934, when Franklin Roosevelt correctly (to adjust for changes in the world price level due to the adoption of the gold-exchange standard in 1922) adjusted the amount of gold defining a dollar from $20.67 to $35/ounce, lifting the Great Depression (albeit temporarily due to ensuing policy errors).
Since President Nixon “temporarily” closed America’s gold window in1971, the purchasing power of the dollar has declined by 87 percent. A dollar saved in 1971 was worth only 13 cents by 2024.
Gold cost $20 an ounce in March, 1910, the same as in 1792, by April 15, 2012, it cost $1,658. At the time of this writing: $2,669. A dollar, worth one twentieth of an ounce of gold when the Federal Reserve was established in 1913, was worth less than 3 cents by 2024.
It’s not only the price of groceries. No wonder working families are alarmed.
America’s Founders understood economics much better than most 20th Century academic economists. When America was on the gold standard, the real rate of economic growth averaged nearly 4% a year. Since President Nixon closed the gold window, real annual growth has stagnated.
As Steve Forbes has pointed out several years ago:
Look at it this way. In the 40 years that we have been off a gold standard our average growth rate is less than it was the previous 180 years when we were on a gold standard. … If we had maintained gold standard growth rates do you realize the American economy today would be 50% larger than it is now? Ponder that: $8 trillion bigger. Life would be a lot better. … There’s a reason why people feel we are not moving ahead. And society turns on itself when it feels that mobility and opportunity is being corrupted. And they don’t understand why. So we have to tell people why this is happening and what we can do about it. …
A 2011 study by the Bank of England, Financial Stability Paper No. 13, proves economic growth and stability under the Federal Reserve Note Standard is vastly inferior to that under the gold standard. The full paper was capably summarized by Charles Kadlec (a protégé́ of Arthur Laffer) at Forbes:
Now, a Bank of England study with the ambitious title, “Reform of the International Monetary and Financial System,” shows that the entire world economy has suffered a similar fate.
The paper’s authors, Oliver Bush, Katie Farrant and Michelle Wright break new ground by documenting the extraordinary short fall of the world economy under the now 40-year old mix of floating, pegged and fixed exchange rates.
When compared to the Bretton Woods system, in which countries defined their currencies by a fixed rate of exchange to the dollar, and the U.S. in turn defined the dollar as 1/35th of an ounce of gold:
• Economic growth is a full percentage point slower, with an average annual increase in real per-capita GDP of only 1.8%
• World inflation of 4.8% a year is 1.5 percentage point higher;
• Downturns for the median countries have more than tripled to 13% of the total period;
• The number of banking crises per year has soared to 2.6 per year, compared to only one every ten years under Bretton Woods;
Moreover, abandoning the gold standard in favor of free floating currencies was supposed to eliminate currency crises and lead to an automatic adjustment in trade imbalances. Instead:
• The number of currency crises has increased to 3.7 per year from 1.7 per year;
• Current account deficits have nearly tripled to 2.2% of world GDP from only 0.8% of GDP under Bretton Woods.These results demonstrate beyond a reasonable doubt that the experiment with floating paper currencies has been a disaster for the people of the world. Had the trends under Bretton Woods continued, the average person’s real income would be nearly 50% higher, the increase in prices would be nearly 50% lower, trade imbalances would be nearly one-third smaller and the world economy over the past four decades would have suffered through 4 instead of 104 banking crises.
Let it also be noted that Prof. Robert Mundell, the prime architect, with Arthur Laffer, of Reaganomics, devoted most of his 1999 Nobel Prize lecture to an appreciative retrospective of the gold standard.
Prof. Mundell, in his speech accepting this distinguished award, stated:
The international gold standard at the beginning of the 20th century operated smoothly to facilitate trade, payments and capital movements. Balance of payments were kept in equilibrium at fixed exchange rates by an adjustment mechanism that had a high degree of automaticity. The world price level may have been subject to long-terms trends but annual inflation or deflation rates were low, tended to cancel out, and preserve the value of money in the long run. The system gave the world a high degree of monetary integration and stability.
Mundell concluded his remarks:
The century closes with an international monetary system inferior to that with which it began, but much improved from the situation that existed only two-and-a-half decades ago. It remains to be seen where leadership will come from and whether a restoration of the international monetary system will be compatible with the power configuration of the world economy. It would certainly make a contribution to world harmony.
It also bears noting, as I did at Forbes, that in the speech as delivered Mundell observed (around minute 9’30") that it “did not require a great theoretical genius to run gold standards. … It was automatic. All that mattered is that countries would export or import gold, they’d fix their currencies to gold, and their exports or imports automatically changed the money supply, and the changes in the money supply brought about changes in expenditure which brought balance of payments into equilibrium.” Mundell departed from his prepared text to observe (at 9’45"), “A monkey could run the gold standard because … it was automatic.”
It is worthwhile noting that in 2011 Mundell made a public and unequivocal recommendation for adopting the gold standard:
[T]here could be a kind of Bretton Woods type of gold standard where the price of gold was fixed for central banks and they could use gold as an asset to trade ….
The great advantage of that was that gold is nobody’s liability and it can’t be printed. So it has a strength and confidence that people trust.
An American Economic Miracle
As I wrote at the Lehrman Institute’s The Gold Standard Now website:
As summarized in an exceptionally lucid article, the German Economic Miracle, by economist (and editor) David R. Henderson – a research fellow with Stanford University’s [affiliated] Hoover Institution and an associate professor of economics at the Naval Postgraduate School in Monterey, California – and published in the estimable Library of Economics and Liberty:
After World War II the German economy lay in shambles. The war, along with Hitler’s scorched-earth policy, had destroyed 20 percent of all HOUSING. Food production per capita in 1947 was only 51 percent of its level in 1938. … Industrial output in 1947 was only one-third its 1938 level. Moreover, a large percentage of Germany’s working-age men were dead. At the time, observers thought that West Germany would have to be the biggest client of the U.S. WELFARE state; yet, twenty years later its economy was envied by most of the world. And less than ten years after the war people already were talking about the German economic miracle.
“What caused the so-called miracle? The two main factors were currency reform and the elimination of PRICE CONTROLS, both of which happened over a period of weeks in 1948. A further factor was the reduction of MARGINAL TAX RATES later in 1948 and in 1949.’
And as I wrote at Forbes:
'Good money was key to the Erhard German “Economic Miracle” of 1948, the Wirtschaftswunder – which started out from a much more dire baseline than America confronts. Ludwig Erhard took an utterly destroyed, destitute, and demoralized Germany from ruin to riches in stunning fashion. It is a forgotten story, but… Erhard, in his memoir Prosperity Through Competition, wrote:
The big chance for Germany came in 1948: it depended on linking the currency reform with an equally resolute economic reform, so as to end once and for all the whole complex of State controls of the economy-from production to the final consumer-which, following in the wake of the people’s nonsensical demands, had lost all touch with reality. Today few can realize how much courage and sense of responsibility were needed for such a step. Some time later two Frenchmen, Jacques Rueff and Andre Piettre, summed up the combination of economic and currency reform thus:
‘The black market suddenly disappeared. Shop windows were full of goods; factory chimneys were smoking; and the streets swarmed with lorries. Everywhere the noise of new buildings going up replaced the deathly silence of the ruins. If the state of recovery was a surprise, its swiftness was even more so. In all sectors of economic life it began as the clocks struck on the day of currency reform. Only an eye-witness can give an account of the sudden effect which currency reform had on the size of stocks and the wealth of goods on display. Shops filled up with goods from one day to the next; the factories began to work. On the eve of currency reform the Germans were aimlessly wandering about their towns in search of a few additional items of food. A day later they thought of nothing but producing them. One day apathy was mirrored on their faces while on the next a whole nation looked hopefully into the future.’”
The “Experts”
Experts tend to misunderstand and detest the simplicity and performance of high integrity money (of which the classical gold standard is the gold standard.) To again cite Henderson:
Journalist Edwin Hartrich tells the following story about Erhard and Clay.
In July 1948, after Erhard, on his own initiative, abolished rationing of food and ended all price controls, Clay confronted him: >
'Clay: “Herr Erhard, my advisers tell me what you have done is a terrible mistake. What do you say to that?”
'Erhard: “Herr General, pay no attention to them! My advisers tell me the same thing.”
"Hartrich also tells of Erhard’s confrontation with a U.S. Army colonel the same month:
"Colonel: “How dare you relax our rationing system, when there is a widespread food shortage?”
"Erhard: “But, Herr Oberst. I have not relaxed rationing; I have abolished it! Henceforth, the only rationing ticket the people will need will be the deutschemark. And they will work hard to get these deutschemarks, just wait and see.”
"Of course, Erhard’s prediction was on target. …
“The effect on the West German economy was electric. Wallich wrote: “The spirit of the country changed overnight. The gray, hungry, dead-looking figures wandering about the *streets in their everlasting search for food came to life .”
"Circumstances forced Erhard to rely on a proxy the gold standard in his currency reform. A proxy, such as Fed targeting commodities prices, is no longer necessary and would be suboptimal. Let it be noted that the Frenchman cited by Erhard, Jacques Rueff, was the premier gold standard economist and advocate of the late twentieth century. In addition to bearing witness to the dramatic rapidity of the results of the German economic miracle Rueff (with Pinay) is credited as co-author of the French Economic Miracle.
Output continued to grow by leaps and bounds after 1948. By 1958 industrial production was more than four times its annual rate for the six months in 1948 preceding currency reform. Industrial production per capita was more than three times as high. East Germany’s communist economy, by contrast, stagnated.
Gold Goes Mainstream
Per Bloomberg News, June 20, 2106, over the past five years the gold standard has moved from fringe to mainstream. >
"A report by Michelle Jamrisko in Bloomberg News on May 17th, headlined “Make America Gold Again: Calls for Everyone’s Favorite Standard Are Back,” suggests that the headline may have outrun its pass coverage.
…
"Jamrisko points out that both Donald Trump, the presumptive Republican presidential nominee, and Ted Cruz, the runner up, have unflinchingly praised the gold standard:Then there was Donald Trump. “We used to have a very, very solid country because it was based on a gold standard,” he told WMUR television in New Hampshire in March last year. But he said it would be tough to bring it back because “we don’t have the gold. Other places have the gold.”
How To Do It
How to return to the gold standard?
Simple. Enact legislation identical to the Jack Kemp Gold Standard Act of 1984, which was cosponsored by Reps. Newt Gingrich, Vin Weber, Connie Mack, and others. The bill is easy to understand, easy to defend, and worth investing the political capital to enact. This draft legislation is the sine qua non of restoring sizzling growth and job creation to the American economy across the board, from workers to investors, while permanently eliminating inflation.
The Kemp Gold Standard Act of 1984 can be directly adapted to become the Trump Gold Standard Act of 2025. It provides that:
By one year after enactment of this Act, to establish a permanent definition of the dollar, expressed as a fixed weight of gold, nine- tenths fine. Declares that the dollar so defined shall be the standard and unit of value of the United States. Permits any person, after such time, to redeem for gold at any Federal Reserve bank any currency or coin of the United States or any demand note or demand liability of a Federal Reserve bank. Requires the Secretary to mint gold coins in such weights, denominations, and forms as will best serve the maintenance of gold payments and the needs of commerce. Makes such gold coins legal tender for all debts, public charges, taxes, and dues. Permits the exchange of gold bullion for gold coins which contain an equal weight of fine gold minus a charge which shall not exceed mint costs and related expenses. Requires the Secretary and the Board of Governors of the Federal Reserve System to prescribe rules and regulations to carry out this Act. Repeals restrictions on gold payments and gold ownership.
The Gold Standard Is Great Politics
The gold standard is excellent politics. According to a 2011 Rasmussen poll summarized, the gold standard had dominating plurality support in most demographics. It holds majority support in the blue collar and African-American demographics. As an electoral matter the gold standard unites the right and center while it splits the left.
In 2012, Rasmussen’s “October Surprise” contained ia recent poll showing 44% of likely voters favor returning to the gold standard, 28% opposed. That intensifies. If the public knew that it would “dramatically reduce the powers of bankers and the political class to steer the economy” support goes up to 57%. Opposition drops to 19%. "
"Reducing the power of bankers and the political class — along with gold’s empirical record of turbo-charging job-creation and economic growth — is core for many of gold’s proponents. Thus, that inevitably will become public knowledge and make gold a potentially huge electoral asset.
And there’s more. Rasmussen’s results show that 79% of Tea Party voters (and 69% of simply self-described Republicans) would favor such an elitism-constraining gold standard. The only solid majority opposition comes, unsurprisingly, from self-described members of the political class.”
Dispelling the Myths and Misinformation
"Some misinformation has surrounded the gold standard. Some say there isn’t enough gold, or that America doesn’t have enough gold. Others say restoring the classical gold standard would be difficult to do, or that the gold standard would constrain rather than unleash economic growth, leading to recessions, depressions, and panics. Still others claim the gold standard caused the Great Depression.
These claims are simply untrue.
America, the International Monetary Fund, and Germany hold about as much gold as the entire rest of the world, and America holds more than the IMF and Germany combined. America possesses vastly more gold than did the Bank of England during its two centuries of prime stewardship of the classical gold standard. As Nathan Lewis wrote for Forbes, “In 1941, when the U.S. ran the world gold standard, the government held 52% of all the gold in the world. However, in 1910, when Britain ran the world gold standard, the Bank of England had only about 1.2% of all the gold in the world.
The gold standard simply maintains the integrity of the value of the currency; it does not constrain the currency’s issuance. To maintain otherwise would be akin to saying the National Institute of Standards and Technology’s meticulous definition of the length of an inch would lead to a shortage of yardsticks. Nonsense. From 1775 to 1900 the amount of gold in the world increased by 3.4 times while the U.S. base money supply increased by a factor of 163 times without inducing inflation."
Nor did the gold standard have anything to do with the Great Depression. The international gold standard had ceased to function in 1914, 15 years before the onset of the Great Depression. It was replaced by a defective and dishonest “interwar gold standard” that indeed played a major role in causing the Great Depression.
The classical gold standard is a perfectly sound recipe for eliminating inflation while fostering equitable prosperity.
Some Proponents and Opponents
Among those who firmly understand and endorse the classical gold standard as crucial to equitable prosperity can be counted Lewis E. Lehrman (the author of the definitive plan on how to restore the gold standard, Paper Money or The True Gold Standard: A Monetary Reform Plan Without Official Reserve Currencies, How We Get From Here To There: From World Financial Crisis To Monetary Order, The Lehrman Institute 2012), Steve Forbes, George Gilder (author of the “bible” of Reaganomics), Dr. Arthur B. Laffer, Dr. Kurt Schuler, Prof. Lawrence White and Dr. Brian Domitrovic.
Among gold standard antagonists, former Fed Vice Chairman Stanley Fischer, when chief economist for the IMF, stated in a 1999 interview:
It’s hard to quarrel with nostalgia for what the 19th century must have been like. But there is no good reason to tie the growth of the world’s money supply, and global inflation, to the vagaries of gold production. Nor is there good reason to waste real resources to produce gold for use as money. And there is reason to think we can do better than the gold standard: The United States has certainly done so recently, and the development of the inflation targeting approach to monetary policy suggests most countries will do so in future too. It may be hubris to believe that human beings can do better than depend on the supply of gold, but we certainly should be able to do so, and are doing so now.
Of course, the economy soon thereafter came a cropper, furnishing further evidence for the hubris displayed. (Moreover, let it be noted that the gold standard in no way ties the growth of the world’s money supply, or global inflation, to the vagaries of gold production, and there is no evidence that “we can do better than the gold standard.”)
The Federal Reserve’s Management of the Dollar Has Proved Mediocre in Practice
The Federal Reserve System’s economic predictions are the laughingstock of both Washington and Wall Street. If its predictions are always wrong, its policies simply cannot be right. As I wrote for Forbes:
One of the most curiously persistent surrealisms of Washington, DC is the reflexive deference given the Federal Reserve System. The Washington elite tends to accord more infallibility to the Fed than do Catholics the Pope.
"As Ylan Q. Mui, at the Washington Post’s Wonkblog, in Why nobody believes the Federal Reserve’s forecasts, wrote:
The market recognizes that the Fed has repeatedly erred on the optimistic side,” said Eric Lascelles, chief economist at RBC Global Asset Management. “Fool me 50 times, but not 51 times.”
Even the government’s official budget forecasters are dubious of the Fed’s own forecast. This is a theme that Mui has touched on before. In 2013, she wrote Is the Fed’s crystal ball rose-colored?
The big question is whether Fed officials can get it right after years in which they have regularly predicted a stronger economy than the one that materialized. In January 2011, Fed officials predicted that GDP would grow around 3.7 percent that year. It clocked in at 2 percent. In January 2012, they anticipated growth of about 2.5 percent. We ended up with 1.6 percent.
'> What’s going on here?
‘A good bet would be that there’s a problem with the Fed’s reliance on an arcane art. This art is designated “Dynamic Stochastic General Equilibrium” modeling.
‘Sound scientific? Well.
'With admirable intellectual honesty an assistant vice president in the Federal Reserve Bank of New York’s Research and Statistics Group, Marco Del Negro, Wharton Ph.D. student Raiden Hasegawa and University of Pennsylvania professor of economics Frank Schorfheide (speaking for themselves and not the Fed) open a two part analysis at the NY Fed’s own excellent Liberty Street Economics, Choosing the Right Policy in Real Time (Why That’s Not Easy):
'Model uncertainty is pervasive. Economists, bloggers, policymakers all have different views of how the world works and what economic policies would make it better. These views are, like it or not, models. Some people spell them out in their entirety, equations and all. Others refuse to use the word altogether, possibly out of fear of being falsified. No model is “right,” of course, but some models are worse than others, and we can have an idea of which is which by comparing their predictions with what actually happened.
'The authors go on to conclude in the second part of their analysis:
'In the end, we have shown that policy analysis in the very oversimplified world of DSGE models is a pretty difficult business. Contrary to what it may sometimes appear from listening to talking heads, deciding which policy is best is very rarely a slam dunk.
'Dynamic Stochastic General Equilibrium modeling sure sounds amazing. And the New York Fed recently detailed how its research group goes about compiling its Whitebook, Blackbook, contributing to the full FOMC’s Tealbook, in The Monetary Policy Advice Process at the New York Fed. It is a very methodical process.
'That said let’s be blunt. If NASA suffered from comparable inaccuracy the manned spaceflight program would have been shut down by an endless series of Challenger-type catastrophes many years ago. With forecasts this bad is it any wonder the American economy continually crashes and burns? "
The Gold Standard Is Constitutional Money
James Madison’s Notes on the Debates in the Federal Convention and abundant other sources make it clear the framers of the U.S. Constitution contemplated gold (and silver, eventually supplanted in practice by gold) as money. They were deeply averse to paper money based on their extensive bad experience.
'On August 16, 1787, Madison records, the delegates to the Constitutional Convention gathered and discussed the powers to be included in what became Article I section 8 clause 2 of the Constitution of the United States.
'The delegates squarely addressed the issue of whether to give the federal government the power to issue inconvertible paper money. The power was debated and went down to defeat by the resounding margin of nine states opposed to paper money, only two in support.
'One also takes note of Madison’s Federalist Paper No. 44, directed to the revocation of state power to issue paper money with logic equally applicable to the federal government:
The extension of the prohibition to bills of credit [inconvertible paper money] must give pleasure to every citizen, in proportion to his love of justice and his knowledge of the true springs of public prosperity. The loss which America has sustained since the peace, from the pestilent effects of paper money on the necessary confidence between man and man, on the necessary confidence in the public councils, on the industry and morals of the people, and on the character of republican government, constitutes an enormous debt against the States chargeable with this unadvised measure, which must long remain unsatisfied; or rather an accumulation of guilt, which can be expiated no otherwise than by a voluntary sacrifice on the altar of justice, of the power which has been the instrument of it.
George Washington is on record as anti-paper money, as were his cabinet members (who agreed on little else) Alexander Hamilton and Thomas Jefferson, second Treasury Secretary Albert Gallatin, Thomas Paine, Chief Justice John Marshall, and virtually all of the other founders who addressed the issue, with the exception of printer Ben Franklin.
Next Steps
Restoring the classical gold standard as a key vector in making America great again would be a straightforward proposition. On day one, the newly inaugurated president should direct his treasury secretary to propound the Donald Trump Gold Standard Act of 2025, modeled meticulously on the Jack Kemp Gold Standard Act of 1984. The treasury secretary in concert with the White House’s National Economic Council should seek prime plus co-sponsors for this legislation in both the House and the Senate and have such legislation promptly introduced in the 119th Congress, and to push hard to make enactment a priority to put an end to inflation and to reignite a climate of equitable prosperity.
In addition, candidates for treasury secretary, under secretary for monetary affairs, candidates to succeed Jerome Powell as chair of the Fed, as well as those for the National Economic Council and White House Council of Economic Advisors, and other relevant offices must be carefully vetted for receptivity to the gold standard.
Dr. Arthur Laffer would be a compelling pick for Fed chair, Steve Forbes for treasury secretary, Lawrence White for chair of the Council of Economic Advisors, George Gilder as head of the White House Office of Science and Technology, and so forth.
The new White House would also do well to amplify gold’s responsible advocates in academe and among the various think tanks and help rally support in the media and in social media.
Conclusion
Donald Trump is on record as enthusiastically favoring the gold standard. Transition team honorary co-chair Robert Kennedy, Jr. has shown an exceptional recognition of the role of gold in his speeches.
The gold standard proved crucial to making America great. The gold standard, while imperfect, was much better than any other monetary system ever tried for bringing prosperity and justice for all. Gold is crucial to making America great again.
The classical gold standard is excellent politics and excellent policy. The classical gold standard is mainstream. It has distinguished and articulate proponents.
The Jack Kemp Gold Standard Act of 1984 is the optimal model for drafting the Donald Trump Gold Standard Act of 2025. It would be worthwhile for the new president to invest political capital in enacting an identical measure during his first 100 days.
The assembly of a White House “Gold Team” task force in support of the smooth re-establishment of the classical gold standard in America and, under America’s leadership, the world is also strongly recommended.
The gold standard is essential to making America great again and can be implemented easily, rapidly and safely to restore prosperity to all Americans and to the world.
