In the new Congress, Ron Paul (R-Texas) will head the House committee that oversees the Federal Reserve. Thanks to the title of his book, we know he wants to end the Fed and paper money. But what will he replace it with? The short answer: metal-based currencies.

I recently participated in a hour-long radio debate on the Progressive Radio Network's Freedom News Hour with two Paul supporters who wanted to take me up on the challenge of being proven wrong in my disagreements with seven of Paul's points about the Fed. I really enjoyed this debate and learned some important things.

Of these, none is more significant than what my debate partners believe Paul would do if he could end the Fed. According to them, Paul isn't ready to go directly back to the gold standard. Instead, he wants to keep the dollar and add three more currencies. Those would be based on gold, silver and copper.

A Collapsed Standard of Living?

They believe Paul wants these four currencies to compete with each other in the marketplace, and hopefully, the metals-based currencies would ultimately replace the dollar. Paul acolytes seem to derive almost religious satisfaction from repeating the following phrase: "Austrian economics reveals that fiat currencies debase the dollar."

The argument goes that if we replace our so-called fiat paper currency with one based vaguely on metals, the U.S. will be able to eliminate the tax associated with paper currency, although it never seemed quite clear from the Paul disciples just what the magnitude of that fiat-currency tax is.

But they argued that America's standard of living has collapsed since 1960 because of this tax. I disagree. Thanks to the advent of a whole host of technologies, I pointed out that Americans' standard of living is much higher now than it was 50 years ago. We enjoy safer and more fuel-efficient vehicles, better TVs and home appliances, far better health care and a variety of wonderful computing and communications products that weren't even imagined back then.

Sure, things cost more now than they did then. But family incomes have mostly kept up with those higher prices.

Gasoline Bought With Gold

Also, the Fed that Paul hates so much has largely served its purpose since it was created in 1913. It helps smooth out some of the natural boom-and-bust cycles of capitalism by keeping price and production volatility down. According to economist Michael Bordo, between 1874 and 1913, price volatility averaged 17 but from 1946 to 1990, it fell to 0.8. The comparable figures for output volatility were 3.5 and 1.5. Moreover, the average unemployment rates were much lower post-Fed: 5% vs. 6.8% before it.

If we went to Paul's four currencies, the complications would be endless. If I wanted to pay for gasoline in dollars, but the only gas station available would accept only gold, I might run out of gas even though fuel was available.

This doesn't even take into account the complexity of people trying to figure out the exchange rates among the four currencies. Nor does it get over the difficulty of trying to buy anything electronically. As I understand the Paul system, nobody could borrow money in the three metal-based currencies unless more of that metal was deposited in a vault somewhere to make sure that the money was "sound."

From an entertainment perspective, it's a shame that Delaware's Christine "I am not a witch" O'Donnell will recede from the public eye this year. But I'm guessing that Paul will provide a pretty good spectacle as he uses his new platform to push for his unique ideas.

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daltonustynik

Ron Paul is an anachronism, a throwback to the stone age, a delusion a snare. He represent a world on teh gold standard,a world devoid of credit . teh world of warrent G. Harding. The world when plutocrats adn Monarchies reigned. I doubt whether he conducts his medical practice like this. the world has moved on. The days of bartering are gone with feudilism

April 22 2011 at 11:23 AM Report abuse rate up rate down Reply
Mark Compton

Fiat Currency Tax - is not a literal tax from the government, it is the equivalent to one. When the government issues/prints money that is in greater excess to the commodities in the market, the prices on those commodities goes up. (The added money inflates market prices). That's the tax. It means that each dollar one had saved buys less.
There is nothing "so called" regarding our Fiat Currency. We are absolutely using a fiat currency.
The boom-busts that come with any market were not smoothed out by the Fed. ...The Great Depression happened after the Fed's inception and was the worst financial bust in our history.
While technology has vastly improved production means and therefore dropped prices and made luxuries more accessible, the purchasing power of the dollar has vastly decreased.
Read: Ron Paul's The Revolution and End the Fed. It explains this all in greater detail.

April 21 2011 at 2:03 PM Report abuse rate up rate down Reply
Jo

Why are so many people's comment speak of actually using metals to pay for things? The article clearly says R. Paul wants "metals based currencies". Jeez sheeple, READ before you jump on this biased bandwagon!

January 06 2011 at 9:55 AM Report abuse rate up rate down Reply
vcgh2000

The tax associated with paper currencies....That's easy....The US Treasury borrowes money from the Fed, and the Fed charges interest on the money it loans to the treasury....a regressive tax on the American people....Ron Paul realizes the Fed is squeezing the lifeblood out of the American people, and the ones who profit are a cabal of banksters who control the American Economy.

January 05 2011 at 11:09 PM Report abuse +2 rate up rate down Reply
1 reply to vcgh2000's comment
Jo

Thank you for the simple explaination which this (I think) biased writer refused to provide.

January 06 2011 at 9:58 AM Report abuse +2 rate up rate down Reply
erf4638

Go paul/ put metal behind the currency, GOLD, Silver, Platinum , DIAMONDS, any thing other than paper. toilet paper that is. ED

January 05 2011 at 9:32 PM Report abuse +2 rate up rate down Reply
ciceropolo

Please research Clifford Douglas and Social Credit. May make more sense than our current system or Ron Paul's idea. Current system is an old Ponzi scheme coming to an end. The 'financial industry' has continued to 'create' new monetary mechanisms to hide the problem of a debt based system. We are at 62 trillion plus debt obligation as a nation and trillions more in 'debt' worldwide as the system flushes at an accelerated rate to the bottom of the commode. The massive debt through financial mechanisms (Credit Derivatives, Credit Default swaps etc...)has reached the end of its shelf life.
Social Credit at least addresses the inherent problem of technological increases in productivity rendering human labor unnecessary (hence our jobless recovery).

January 05 2011 at 7:32 PM Report abuse +2 rate up rate down Reply
In God's faith

Wow this is propaganda.
You say "Ron Paul Hates" and things like that.

Talk about slander.
The writer of this is engaged in propaganda.

Also, we wound not pay with gold and silver, it would be "backed" by gold and silver among other metals.
Come on people, think for yoursleves, dont let the globalist-mass-propaganda machine form your thoughts for you.
They are always lieing to everyone.

January 05 2011 at 7:17 PM Report abuse +4 rate up rate down Reply
jackdoran

I believe this would cause more problems than it solves. Paying in gold, silver and copper would be quite cumbersome. Also with the volatility of metals would come the unpredictable volatility of our own currency. While market manipulation is bad now, it would likely get worse with the heavy players manipulating the currency. Also I believe that the US would loose a lot of credibility in world markets. This could easily precipitate a change of the US dollar (which is now the world reserve currency) being replaced by another currency or consortium of countries hostile to the US. In the process of doing this we could have massive inflation or our currency not being accepted by many other countries. Most countries have accepted or currency in the past. Lately some countries don't want to deal in dollars. Try using the dollar in Mexico as legal tender--and they are more friendly than venezuela, some of the Middle Eastern countries and even some of the European countries.

A recipe for disaster.

January 05 2011 at 5:47 PM Report abuse -2 rate up rate down Reply
daltonustynik

It doesnt appear t hat Pauls proposals would add anything to the current program. Precious metals really dont have much practical value o ther than scarcity. Perhaps oneof the necessities of life would be better foodstuffs as corn, rice or wheat would be better but todays floating cur r ency seems to serve the pur pose.

January 05 2011 at 11:02 AM Report abuse -4 rate up rate down Reply
2 replies to daltonustynik's comment
vcgh2000

Silver has literally thousands of applications....it is used in water purification, conductivity, solar panels, etc....Look it up and learn!!!

January 05 2011 at 9:49 PM Report abuse +2 rate up rate down Reply
Jo

Every metal has hundreds if not thousands of applications, tons of which you touch, use or partake in every day without ever realizing it and visions of a future based on food-based currency, which rots by the way, and the world filled with land grabs and wars large and small, the overnight millionaires springing up each harvest time, and on and on. Unless you are talking about "futures" and then my visions of the future get worse.

January 06 2011 at 10:09 AM Report abuse rate up rate down Reply
President Skurn

It is definitely sad that most of the comments about this article have better research behind them than this article. "Gasoline Bought with Gold"... what an idiot. His bio... almost as long as the article... seems to indicate hes a smart guy but he really phoned this one in.

It would be a gradual shift of currencies idealy, but I expect it will not happen until the complete dollar colapse.

How does the author think exchange between currencies works right now? Trillions of dollars per day go through these exchanges withought issue... Some U.S. companies are accepting Euros! It not difficult.

Oh, and the comment on difficulty of buying things online... wow. This guy must pay by putting bills into his floppy disc drive. I have had a silver backed online currency account for almost a decade.

Thanks for all the educated comments. Thanks Peter Cohan for giving us the opportunity to discount most of what you said.

January 05 2011 at 9:50 AM Report abuse +5 rate up rate down Reply