Debt Ceiling Debate Bolsters Ron Paul and the Gold Standard

Politicians like Ron Paul could benefit politically from the weakened dollar.

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For Paul, allowing gold as a currency is a constitutional issue. He has argued that the legal tender law, which declares U.S. minted coins and paper legal tender, was outside of Congress' power to legislate. While Article One, Section 10 of the Constitution does in fact forbid states from making “anything but gold and silver coin a tender in payment of debts,” it doesn’t explicitly give Congress the authority to decide what constitutes legal tender. But, as law experts note, it doesn’t prevent Congress from doing so either. So, one argument against Paul's is that without an outright prohibition, Congress's authority may be covered under its powers under the Constitution's "necessary and proper" clause.

Paul also has a problem with federal tax laws that disincentivize the use of gold as currency. There's a 28 to 35 percent federal capital gains tax on gold and silver coins, which essentially demonetizes them by making them taxable collectibles rather than currency to be freely exchanged. It's also a matter of governmental control. He and many Tea Party conservatives argue that there should be a competition of currencies, in which gold could be included, in order to strip central banks of their power over exchange.

[See a collection of political cartoons on the GOP hopefuls.]

To fix those issues, he has introduced the Free Competition in Currency Act in the House of Representatives, which would eliminate legal tender laws and the taxes related to gold and silver coins. While not as comprehensive, several states, like Georgia and Idaho, have also introduced similar legislation to promote the use of other currencies; Utah even passed such a law earlier this year, called the Legal Tender Act. Also, conservative Republicans in the Senate, like South Carolina Sen. Jim DeMint, Utah Sen. Mike Lee, and Kentucky Sen. Rand Paul, are trying to nationalize the cause by backing the Sound Money Promotion Act, which eliminates taxes on gold and silver legal tender.

Ettlinger argues that regardless of these attempts, the concepts of backing dollars with gold or using gold as a currency remain in the fringe of the GOP and aren't taken seriously by most economists. "If they haven't put it in a bill that they're attaching to the debt limit, then it's really fringe," he says.

Fringe or not, these types of ideas on currency, which are largely supported by the Tea Party, could have influence in the future if the dollar takes a dive. And as the debt debate in Washington drags on, in part due to the demands of the conservative right themselves, that's looking more likely by the day.

  • Read more about the deficit and national debt.
  • See a collection of political cartoons on the economy.
  • See a collection of political cartoons on the GOP hopefuls.

  • Corrected on 07/27/11: A previous version of this article has been updated.