I have always been puzzled by the exact mechanisms through which the government keeps us from using gold as money, and my recent inquiries on a private email list of economists only confirmed my view that it is not legal tender laws per se. If I understand the laws correctly, then it seems the only thing preventing a bunch of gold bugs from moving to some place like Montana and starting up their own community that uses gold as money, is the sheer inconvenience of it. I.e. there must not be enough gold bugs to make the transition worth it; fiat money isn’t so bad that it justifies moving to Montana.
Specifically, a merchant can effectively refuse payment in US dollars and insist on gold. He can post a price such as “1 oz. of gold or 1 billion US dollars,” or if that seems too explicit, he can post a ridiculously high nominal price in US dollars, and then offer a discount to anyone who pays with gold certificates (issued by Joe Smith down the street, another gold bug). Now it’s true, legal tender laws would force such people to accept US dollars as payment for any debts, but so what? The gold bugs would just sell the dollars on the market for gold. They wouldn’t lose out, since (I think) the legal tender laws would still apply the prevailing market price of gold when deciding how many US dollar bills pay off a debt that is transacted as “100 grams of gold” or whatever.
If this seems fanciful, consider this: Suppose that tomorrow the US gov’t said it would only accept taxes that were paid in Mexican pesos. Does anyone think this alone would cause the US to stop using dollar bills and switch to pesos? Or would dollars still be our money, and people would just buy pesos (with dollars) when it came time to pay their taxes? Now how could the government make the switch to pesos? Well, if it made it literally illegal to hold dollars, and forced everyone to turn in their dollars (in exchange for pesos) to Fort Knox, then that might do the trick. And that’s of course exactly how the government got the US off gold.
But my point is that right now, I think it’s more inertia rather than outright legal prohibition that makes a return impractical. By all means, someone please correct me if I’m wrong. And if I’m not wrong...why aren’t we all moving to Montana? Why doesn’t the Mises Institute start insisting on payment in gold? Etc. (One reason is that, just because it’s not technically illegal, if such a movement ever did catch on, the government would crush it somehow.)
