What About a Gold Standard?
There were attempts in the past to issue bank notes backed by grain, tobacco (in the south), or by other commodities. As long as the money was backed by something of value, it was not a worthless IOU. But people just plain feel better emotionally about silver and gold, so that generally worked best. Also, gold and silver does not rot and it was mobile, so long ago men came to see these metals as useful and stable “standards” of value or wealth. Unlike food, it could be stored indefinitely, regardless of the weather or hungry rats.
Today, the banking system essentially functions not on a gold or silver standard, nor of grain or tobacco, but by “the faith and credit of the United States.” Essentially, that means money is backed by ALL the goods and services of the country. You can trade a dollar for any of those goods and services offered in the community.
This system would actually work well, were it not for the fact that the Federal Reserve Notes had been borrowed into circulation as a debt when they were first created. Currency that is created in exchange for a bond creates an initial bubble of pseudo-wealth, but in the end it must be returned with interest. The end is worse than the beginning.
Therein lies the core problem—NOT whether or not the money is backed by metal, grain, or tobacco. The amount of money in circulation ought to be as equal as possible to the total value of all the goods and services in the country. That way, money actually retains its value, and the price of goods and services stays the same under normal circumstances. No “inflation” or “deflation” is lawful, because the law of equal weights and measures applies especially to currency.
Of course, fractional banking would also have to be banned, where banks lend ten times the amount of cash on their balance sheets. Fractional banking is a multiplication of money and greatly increases the money supply through private debt, rather than by government debt. Most people are under the impression that banks borrow money from depositors at 3 percent and lend at 5 percent, making a profit of 2 percent by which they must pay their expenses. In reality, by lending the same money ten times, their profits are ten times the public perception.
Banks should not have the power to increase the monetary supply in the nation by fractional banking. To remove this right, however, means that every bank would close its doors, because it would remove most of the profit from issuing loans. In fact, outlawing usury itself already removes such profitability, so the problem of fractional banking is moot. Banks in the Kingdom of God would have to function as mutual funds, capitalizing new enterprises and profiting by the success of those companies. This is, in fact, how Islamic banks work, since usury is prohibited in Islam.
In a growing economy with a growing population, a nation needs a steadily increasing amount of currency to represent the increasing amount of goods (true money) produced by the labor force. This can be accomplished by the government creating money and spending it into circulation—by paying the salaries of government employees and building useful and valuable things such as highways.
If it should need more, taxes are the answer. Taxes should supplement government income when people demand more services. When done properly, taxes remove money from public circulation only temporarily, because the government spends it back into circulation immediately. Thus, the amount of currency always reflects the wealth of the nation.
But if a government’s ability to create currency is limited arbitrarily by the amount of gold or silver in government vaults, then what would happen if we had too little or too much gold being mined? The economy would suffer.
A shortage of gold would mean that we would have to increase its price in order to facilitate normal trade. Without that adjustment, the nation would go into recession or even depression, because people would lack money to buy goods and services.
An oversupply of gold would cheapen gold prices and overvalue the currency. In other words, it would take fewer dollars to buy an ounce of gold. So more currency would have to be printed in order to keep the price of gold steady.
The point is, a gold standard does nothing to prevent inflation, as so many have argued, because no one has found a way to fix the price of gold. No government has just the right amount of gold in its vaults to establish just the right amount of currency needed for a healthy economy. To base an entire economy upon the supply of gold is impractical.
To illustrate, let us say that the government has only 100 oz. of gold, but it needs a billion dollars in circulation to carry on normal trade. If gold was the “standard,” and valued at a set amount of $1000/oz., then the government would be limited to creating just $100,000 of money for commerce. That is obviously far too small. The government would be forced to raise the price of gold (or devalue the dollar) in order to be able to create the proper amount of currency needed in circulation.
The amount of money needed for a healthy economy has more to do with the real production of goods and services than by the amount of gold that is in the national vault. In other words, currency should be backed 100% by money, and money is the entire wealth of the nation—not just its gold supply.
Many insist that a gold standard is the only way to limit the government’s ability to create currency. But as long as men can change the price of gold, it will never be a viable “standard,” nor would the gold supply ever restrict the government's ability to create currency. It is too easy to simply reset the value of gold in order to accommodate the number of dollars being created.
In a time of recession, where there is too little currency in circulation, why should government be limited in its ability to create currency to alleviate the recession? In practice, what would happen is that the government would simply allow the price of gold to rise, which would allow them to print more currency to equal the newly-revised value of its gold reserves.
Conversely, if they create more money without adding gold to their reserves, they dilute the value of the previously-created dollars and thereby cause the price of gold to rise. It then takes more dollars to buy the same amount of gold.
When governments tie the currency supply to the gold supply, it NEVER prevents the government from creating more currency, but instead establishes an artificial price on gold that varies from day to day. This in turn tempts men to speculate on both gold and currency, rather than engage in actual wealth production. Speculators are also tempted to manipulate the price of gold to their advantage.
Under a true gold standard, where all currency is backed by gold, miners would produce gold and then deposit in a government bank. The bank would give them a receipt for their deposit. That receipt is currency, whose value is tied to the amount of gold they have on deposit.
The amount of currency in circulation would depend totally on the amount of gold in the vaults of the national bank. If a nation has no gold to mine, they would have to do without currency at all. If they had an abundance of gold to mine, currency would be plentiful.
Currency is needed to facilitate trade, especially over long distances. It is easier and cheaper to send currency than gold in payment of goods and services. If people were to return to the bank and demand their gold, a gold standard ensures that there would always be enough gold to redeem the currency; but then the people would be reduced to barter once again, because this would remove all currency from the economy.
The gold would then circulate among the people, and there would be no currency at all. Trade would slow down, and we would return to the cumbersome barter system.
There is no need to link currency exclusively with gold. The modern banking idea of currency being based upon the faith and credit of the nation is actually a workable idea, and it would be an honest system if it were not for the fact that currency is a private creation and loaned at usury.
So the bottom line is still the same. A gold standard is no substitute for honesty in government. Elect honest govern-ment officials who will hire honest economists who know how to monitor the precise value of the entire productive wealth of the nation. That is the only true monetary standard that works, providing we federalize the Fed, cancel all debt in a great Jubilee, and replace all Fed Notes with honest United States Notes. The Fed's debt notes should be turned in for U.S. notes at an exchange rate that would bring the amount of money in circulation equal to the goods and services of the nation.
Gold and silver, then, would return to their true value as production from God’s creation. Gold primarily has aesthetic value; silver has great industrial value. Both have antibiotic properties for use in the health industry. Neither should have speculative value that exceeds its practical value. And for this reason, neither should be exclusively monetized.
In a biblical system, that which is of greatest value cannot be sold, because it is owned by God. Creation is priceless. Man can only trade his own labor for the labor of another. Production, then, is all that is marketable. For judicial purposes, it is represented by silver and barley in Scripture. Wealth is increased by men’s labor, not by speculating in real estate or by financial speculation. Currency is merely an aid to facilitate trade. It represents all wealth, for it is not limited to gold, silver, or any particular form of wealth.
When currency is created by honest government on behalf of the people, it will neither inflate nor deflate, even though its supply will increase or decrease to reflect the gross national product. Currency should not be a bank commodity loaned at interest to governments or private citizens. It should reflect positive production, rather than represent debt.
The economic system of the Kingdom of God corrects the injustices on a systemic level. However, to implement such a system still requires honest people in order to maintain this system. Without honest government officials at the helm, even a perfect system will be corrupted in the end. This is clearly seen in the fact that Moses gave Israel a law that was “perfect” (Psalm 19:7), but yet the nation failed because its people and leaders were corruptible.
The Scriptures speak of a Golden Age to come, in which the Kingdom of God will emerge under the anointing of the feast of Tabernacles—that final feast which, when fulfilled, will create a perfected class of overcomers to reign with Christ on the earth. The law of God will be established as the law of the land, and it will be administered with perfect understanding of the mind of Christ and with a perfect balance of justice and mercy.
Meanwhile, however, it is for us to keep that vision alive by studying the divine law and advocating it as the divine standard that defines sin and righteousness in the earth.