Is Gold an Outmoded Currency?
In a world of paper money, ATM machines, debit cards, and cryptocurrencies, it is difficult to imagine a time when all money was based on a precious metal, either gold or silver. But only a few generations ago, all paper money was fully backed by gold or silver — meaning that paper notes could be redeemed on demand for gold or silver — and both gold and silver coins were in daily circulation. What has changed, and is there any reason to believe our modern system of “fiat” currencies is superior to precious metals?
Under the Constitution, a precious metal or “specie” monetary standard is implied by the clause in Article I, Section 8 giving Congress the power to “coin [not “print”!] money, and regulate the value thereof.” That this turn of phrase refers specifically to a gold and silver (or “bimetallic”) monetary system is reinforced by a clause in Article I, Section 10 expressly prohibiting the states from coining money, issuing “bills of credit” (i.e., promissory notes), or making “anything but gold and silver coin a legal tender in payment of debts.”
The Founders, be it noted, were well acquainted with the theory and practice of fiat currency, having endured a lengthy episode of hyperinflation during the Revolutionary War, thanks to the issuance of paper Continental dollars by Congress to fund the war effort. Printing money had been an American pastime since the Massachusetts Bay Colony first began doing it in the early colonial period, and financial disruption had been the inevitable result.
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