Ye Olde Specie 

Idaho silver-based currency bills might have failed, but the 'sound money' movement marches on

On a sunny Monday in January, Reps. Phil Hart and Lenore Hardy Barrett stood on the Idaho Capitol steps and introduced a crowd of Tea Partiers to two pieces of legislation that would have remade the state's economic landscape.

The Idaho Silver Gem Act, fronted by Hart, an Athol Republican, proposed that Idaho citizens ought to be able to pay their taxes with special medallions or bars struck from silver mined in North Idaho's Silver Valley--part of Hart's home district.

The Idaho Constitutional Tender Act, introduced by Barrett, a Republican from Challis, went even further. It sought to make silver and gold--both in physical coins and electronic ounces drawn from an online exchange--just as valid as Federal Reserve notes for the purchase of everything from groceries to new cars to property.

With similar bills floated in at least seven states, Tea Partiers chanting "end the fed" and the Idaho Republican Party adding "sound money" to its platform in 2008, the gold (or silver) standard may be making a comeback.

"This is the time when we're going to see a lot of inflation, and I think that more and more people are going to become aware of the problems with paper money," Hart said. "I think there's a few mainline Republicans who are starting to recognize that we need to do something."

Chief among the benefits of a precious metals-backed currency, according to sound monetarists, would be an end to deficit spending. In other words: you couldn't make new money without new sources of gold and silver, and you can't spend money you don't have.

Because of that, Hart and Barrett said, Idahoans would be protected from the vicissitudes of currency devaluation, and the state's historically lucrative silver industry would enjoy a massive boost. (Fun facts: Barrett's profession is "mining/investments" and Hart sits on the Revenue and Taxation Committee.)

If you think that sounds like a plan to send the economy back to a day when the mercantile had to weigh your ingots before you bought a sack of flour, you'd be right. The United States hasn't been on a true gold or silver standard since the beginning of the 20th century, and the sound money movement doesn't go in for all this new-fangled Federal Reserve business, with its variable interest rates and fractional reserve banking.

Hitting the reset button on the world's most sophisticated economy might seem like an atavistic--and hopelessly wonky--proposition, but Hart said we'd be better off hearkening to a time when Americans could trust the their dollar and the government kept its economic meddling to a minimum.

"If you turn the clock back 100 years or 150 years ... things were priced in terms of the quantity of gold, not in terms of the value of paper currency," Hart said. "Some people may say we're being old-fashioned, or that today we're advanced enough that we don't need to base the currency on anything but the 'full faith and credit' of the federal government, but the greatest periods of growth and economic expansion in our history has been with a commodity currency."

So much talk about economic policy from bygone centuries might seem befuddling, but you don't have to look very far to figure out where this gust of bimetalism is coming from. The 2008 presidential campaign of Ron Paul, libertarian gadfly, Texas Congressman and abashed gold bug, spurred the first modern "tea party" in 2007 and helped pave the way for legions of apolitical grumblers to transform themselves into the army of tricorn-wearing, Gadsden flag wavers we've come to know as Tea Partiers.

A key plank in Paul's platform is the abolition of the Federal Reserve and a return to sound money, and Hart, a 2008 Ron Paul delegate to the National Republican Convention, sees the return of hard currency as inevitable.

"As a society, we have a debt capacity, and we can only handle so much in the way of interest payments," he said. "When we exceed that debt capacity, then the money supply stops unless we print that money out of thin air. That's where we're at today. We don't have much capacity to take on more debt, and it's caused our economic expansion to stop."

Hart echoes calls to "end the fed"--the title of Paul's 2009 book--because the Federal Reserve manipulates the money supply to raise or lower interest rates, inflate or deflate the the dollar and otherwise play fast and loose with the citizenry's treasure. Bringing back precious metals as a valid currency would break the bank's monopoly, sound monetarists claim.

"You can't manipulate gold, but you can manipulate paper currency," Hart said.

Hart's bill, which ultimately died in the Senate, was long on language supporting the redevelopment of Idaho's mining industry, but back in January, Barrett, clad in a fiery red blazer, pitched her legislation directly to the Tea'd off crowd's fierce constitutionalism.

"We talk about Congressional corruption, but talk is cheap. We talk about sovereignty, but talk is cheap. We have over-developed the political mouth, but underdeveloped the political spine," she said. "Just remember, it took over 200 years of indolence, apathy and unconstitutional government on everybody's part to serve up the Machiavellian meatloaf that we are choking on today."

Barrett's bill died in the House, and Hart said his effort failed because some committee members didn't want to burden the treasurer with the project. Others were concerned that tax breaks for mining companies would have to be extended to others.

Still, he plans to bring something similar to the 2011 Legislature. Barrett's plans are unclear; calls to her home in Challis went unanswered.

Regardless of recent legislative defeats, anti-Fed sentiment and calls for sound money aren't going away anytime soon, say experts like Peter Crabb, an economics and finance professor at Northwest Nazarene University. The roots of the movement go deep--back to the "Austrian School of Economics," which Crabb said was pioneered in the early-20th century by Austrian-born economist Ludwig von Mises and his pupil, Friedrich von Hayek. (Ron Paul, a die-hard Austrian disciple, hangs a portrait of Mises in his congressional office, and serves as a distinguished counselor at the Ludwig von Mises Institute in eastern Alabama.)

In its most basic terms, Austrian economics contends that no government intervention is the best government intervention. Any attempt to collectivize economics will inevitably collectivize society, resulting in tyrannies like the Third Reich or Soviet Russia--both potent symbols for the Austrians as they were formulating their views in the 1920s and 1930s.

The Austrian school developed as a challenge to the prevailing economic model of the day, which was based on the work of British economist John Maynard Keynes, who advocated government involvement in the economy to spur growth. President Franklin Delano Roosevelt's New Deal is often regarded as the greatest American example of Keynesian economics. The Bush and Obama bailouts are also prime examples.

"The Austrian School of economics was a direct intellectual response to the acceptance of Keynesian economics," Crabb said. "It was an academic response, meaning, 'Here's where Keynes is wrong' ... It's more of a backlash against Keynesian economics than it is an argument as to why this philosophy or this economic model is better. It's simply: 'This system is better.'"

For a school of economic thought, Austrianism certainly does talk a lot of smack (see: "Machiavellian meatloaf"). But Jim Angresano, an economics professor at the College of Idaho, said it's mostly bluster.

"Partly, I'm sympathetic; they want to roll back the clock," he said. "I'm also sympathetic to getting some sense of [fiscal] discipline. But people don't want to live by market rules. There's so much rhetoric about this ... Our country wants to keep getting more from the government and pay less--the worst offenders are the corporate end of it."

Crabb said Austrian economics is so enamored of historical and logical proofs because it's been given short shrift ever since Western democracies like Britain and the United States opted to go the way of Keynes.

As Keynesian policies have been tested and studied, hard data is scant to support Austrian theory in practice. Because of that, Austrian proponents find themselves having to defend their positions by pointing out Keynesian failings with rhetoric, rather than their own school's real-world results.

"Would it be successful at having a stable economy? Yes. It can be just as successful as the Keynesian model. Would it be successful socially? Probably not," Crabb said. "You would have the potential for an unlimited degree of income inequality, and that's socially unacceptable ...

"It's still a sound economic theory and an economic model just as the Keynesian model is. It's simply that it hasn't been tested," he added. "It's more philosophy than a science."

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