I will say this for Ron Paul: With no other presidential candidate, Democratic or Republican, do the arguments about the proper role of government in managing the economy reach anywhere near the same level of first-principle fundamentalism. Conventional Democrats and Republicans argue about tax cuts and health care and regulation. Ron Paul says flat out: Let's abolish the Federal Reserve and return to a currency based on some "stable commodity," like gold or silver.
Some of Ron Paul's indefatigable defenders will challenge this, arguing that he doesn't really want to abolish the Federal Reserve, that his actual goal is to end the government "monopoly" over currency and allow other, private, currencies to compete as legal tender. But it's difficult to dispute the record. On September 10, 2002, Ron Paul delivered a speech introducing legislation explicitly calling for the abolition of the Federal Reserve.
The title of the speech was "Abolish the Federal Reserve."
The first sentence:
Mr. Speaker, I rise to introduce legislation to restore financial stability to America's economy by abolishing the Federal Reserve.
That link comes courtesy of econoblogger Megan McArdle, who has been waging a one-woman war with a legion of Ron-Paulistas on the topic of monetary policy for some months now. Her refutation of the points brought up in Ron Paul's 2002 speech can be found here. A longer post critiquing the idea of returning to the gold standard is here. (Thanks to Tyler Cowen at Marginal Revolution for the McArdle tip.)
Ron Paul's basic argument:
From the Great Depression, to the stagflation of the seventies, to the burst of the dotcom bubble last year, every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and an artificial "boom" followed by a recession or depression when the Fed-created bubble bursts.
Mainstream economists will be happy to argue about whether, at any particular point in time, the Fed is too eager to ease interest rates and prop up speculative bubbles. But few would suggest that the solution is getting rid of the Fed altogether, and even fewer that returning to the gold standard is a workable option. But defending that point of view requires taking some fundamental positions. Has the Fed done a good job of containing inflation since the disastrous years of Presidents Ford and Carter? Is gold really more stable than so-called "fiat" currency, or is the critical issue how well the government manages the economy? And were things really better before the creation of the Federal Reserve in 1913?
Was the U.S. economy more stable in the 19th century than the 20th? It's not easy, given the lack of good financial data, to compare the 19th century U.S. economy to the 20th century's, although McArdle makes a yeoman stab at it here. Ron Paul supporters claim there were fewer recessions and faster economic growth. McArdle says that the recessions might have been shorter, but the busts were far more severe. Ron Paul supporters argue that the Federal Reserve was created as a way of giving a small group of financiers control over the money supply. The historical record suggests that President Woodrow Wilson saw it as a way of reducing the power of the handful of men who dominated the U.S. financial system at the time.
Again, these are not the kind of arguments you have when discussing Mitt Romney's economic platform, such that it can be distinguished from warmed-over Reaganism.
McArdle's own philosophical stance falls towards the libertarian/conservative end of the political spectrum, although she is unafraid to buck right-wing orthodoxy, and her engagement with the details of Ron Paul's monetary policy surpasses nearly everything else available on the Internet, so, naturally, she has attracted an enormous amount of attention from Ron Paul supporters. The reader reactions to McArdle range across the board, from the well- reasoned to the stark, raving insane. And while submerging oneself in these voluminous comments may not settle, once and for all, whether we should return to the gold standard, the exercise does shed some light on where Paul's popularity comes from.
Putting aside such questions as to whether most of the gold in the world has already been mined, (which would make it more "stable" than it has proved in the past) or whether the private ownership of the 20 or so banks that form the core of the Federal Reserve contravenes the Constitution's stipulation that Congress cannot delegate its authority "to coin money and regulate the value of the currency," a core viewpoint fueling Ron Paul support is well represented by here:
Now, here's the main reason Ron Paul is in favor of the Gold Standard, which you have failed to mention: The Gold Standard serves as a checks-and-balances measure between the people and the federal government, allowing the people to keep their government in check and honest about the money supply in the economy. Without this standard, there is no way to know for sure if the government is printing money or not, and one is left to trust the politician, an oxymoron in itself.
But then, there's also this:
The simple case for the Gold Standard is as follows:
-- Gold is God's money, he created it and all can access it freely. And he is not making any more.
-- Currently there is a dividing line. On one side, "us" people must work for money. On the other side a government created Elite Banking Cartel (the Fed) has a monopoly on the creation of money out of "THIN AIR" that they then loan to the rest of us and collect the fruits of our labors through interest (and inflation). The immorality of this system is absolute. There are slaves and masters.
--The penalty for inflation (debasement of the currency) contained in the Currency Act of 1792 was DEATH. Now inflation is considered normal. I say death to the FED, and Ron Paul is just the man to do it!!!!!!!!!
UPDATE: A reader suggests that the "stark, raving insane" comment I linked to was actually an automatically generated complaint letter. If true, which seems more than likely, I apologize.
SECOND UPDATE: Further insights on Woodrow Wilson and the founding of the Federal Reserve can be found here.