Found this on Digg.
You and many other people are confused about how Ron Paul's Honest Money works:
The subject is abstract and often clouded by academic jargon and obscure technical details. This is one reason why there has been no significant public discussion of it since at least the early 1980s. And yet, we see consistent testimony that Ron's position on money is one of the main pillars of his popular support.
Another way you can know a position is gaining traction is when people take the trouble to attack it. For instance, the neo-conservative David Frum has written that Ron Paul's call for a revived gold standard would cause painful economic downturns. Frum maintains that we need the Fed's monetary inflation to counter such slumps.
Of course, the exact opposite is true. Painful economic downturns are caused by monetary inflation, not cured by it.
I don't know about you, but I can't imagine anything more painful than the Great Depression, which was the first inflationary bust caused by the Federal Reserve System. And the inflationary recessions of the 1970s were pretty bad too. Of course . . .
David Frum is really attacking a straw man of his own creation. Ron Paul doesn't want the old gold standard that was managed by the government. Instead, he simply wants free market money. He wants the free market to determine what we will be use for money, and he naturally assumes that the market would gravitate toward gold, just as it has throughout recorded history.
This would be a free market gold standard, which is very different from the old gold standard under which the government pegged the dollar to gold at $20 an ounce. You can readily see how such a fixed rate of exchange would cause problems.
When the Fed increased the number of dollars under the old gold standard the price of gold should have risen to account for this monetary inflation, but it couldn't. The price was legally stuck at $20 an ounce. This caused people to want to trade their dollars for gold, creating an economic loss for banks and the government.
I know, it sounds like a stupid system, and it was, but isn't that exactly how government operates most of the time?
Strangely, Frum praises the system of floating exchange rates between dollars and, for instance, Euros, but pointedly ignores that this is exactly what Ron wants to happen for gold (and other commodities) when they are used as money. Ron Paul doesn't want a gold standard in the sense of having a standard government price for gold. Ron specifically opposes monopoly government price fixing, such as the old $20 fixed price for gold. That's the whole point.
Ron wants the price of gold in terms of dollars to rise and fall freely, depending on supply and demand. Thus, if the Fed inflated the supply of FRNs (Federal Reserve Notes, aka dollars) the price of gold would rise and people would fly from dollars to the safety of gold.
This would force the Fed to stop inflating the supply of FRNs.
This is the heart of Ron Paul's simple but powerful plan for curing inflation, and the recessions that result from it.
