AUSTIN, Texas — Facing double-digit inflation in 1981, Congress created a commission to consider a role for gold in U.S. monetary policy. The 17-member panel rejected the idea of returning America to the gold standard – except for two dissenting members.
One was a little-known congressman from Texas named Ron Paul.
Today, Paul's surprisingly strong race for the Republican presidential nomination is drawing new attention to a notion that long has been a cherished cause for a small group of conservatives but is considered a relic of history by mainstream economists and politicians.
Paul and his supporters would like to set a firm value for the U.S. dollar, much like when it was pegged to a specific amount of gold. They say prices would be stable and inflation controlled because the government couldn't print more money than it had gold to back it up. This approach, Paul maintains, would address many of the economy's problems.
Other Republican candidates haven't joined him, though, and most experts dismiss the scheme as completely unfeasible in the modern global economy. For one thing, it would require most other countries to change their monetary systems. It would also preclude the ways that nations now manage the ups and downs of their economic cycles.
"Is it feasible to go back to something called `the gold standard'? The answer is no," said Edwin Truman, senior fellow at the Peterson Institute for International Economics, who has written about gold and monetary policy. "The United States does not have the capacity to run such a system in the world today."
Still, talk about a gold standard, which the United States used in its early years but largely abandoned in 1933, shows how economic anxiety has fed a growing appeal for unusual remedies.
"People sense that there's something deeply wrong with the economy, so I think economic radicalism is much more popular than it has been in the past," said Jeffrey Bell, a GOP political consultant who helped Ronald Reagan record a campaign ad endorsing the gold standard in 1980. It never aired.
The Federal Reserve, America's central bank, sets interest rates to keep the economy, inflation and employment on a healthy track. Truman said the Fed has been reformed frequently and a key way to overhaul it today would be to restrict the assets it buys and sells.
"The Federal Reserve is not any different in its fundamental operations than any other central bank in the world," he said. "And, at the core, you'd still want what the Fed has, which is humans, policymakers, deciding how to set interest rates." An inability to loosen credit has been blamed by some economists for prolonging the Great Depression in the 1930s.
Paul calls for auditing – and then ending – the Federal Reserve. He argues that with gold backing the value of the dollar, the Fed would be obsolete and thus unable to play a role in creating credit bubbles that cause misery when they burst. He says the Fed made money too easily available in recent years.
"The gold coin standard, although imperfectly adhered to, permitted startling economic growth combined with falling prices in the 19th century," Paul wrote in his 1981 book "Gold, Peace and Prosperity: The Birth of a New Currency." "In the 67 years since the abolition of the gold standard, the Consumer Price Index has gone up 625 percent. In the previous 67 years, under an imperfect gold coin standard, the CPI increased 10 percent."
The United States still allowed foreign nations to convert dollars into gold at a fixed rate of $35 an ounce through August 1971, when Richard Nixon closed the Treasury's "gold window." Paul says that's what inspired him to run for Congress.
Truman said going back is impossible: "It would drain all of our gold and we would go into huge deflation."
Mark Thoma, an economics professor at the University of Oregon who also has written on the gold standard, said there's not enough gold in the world to cover the value of global transactions and thus alleviate the need for paper money – meaning governments would still want to float their currencies' value against gold.
David Schraeder, spokesman for the World Gold Council, an industry group that tracks gold bullion holdings, said the idea of setting a market value for gold can't be done unilaterally by the United States.
"You cannot have a gold standard with only one country participating," he said.
GOP candidates Newt Gingrich and Rick Perry both have called for firing Fed Chairman Ben Bernanke and reining in monetary policy, but neither has endorsed a new gold standard. They and other Republicans have avoided ridiculing the idea, however, and alienating its ardent believers.
"It's like poking a stick at a beehive," said Jonah Goldberg of the conservative American Enterprise Institute. "You're not going to get rid of them. You're just going to get them angry at you."