During the time we were on a gold standard federal deficits were very small or nonexistent. Money that the government did not have, it could not spend nor could it create. Taxing the people the full amount for extravagant expenditures would prove too unpopular and a liability in the next election.
Justifiably, the people would rebel against such an outrage. Under the gold standard, inflation for the purpose of monetizing debt is prohibited, thus holding government size and power in check and preventing significant deficits from occurring. The gold standard is the enemy of big government. In time of war, in particular those wars unpopular with the people, governments suspend the beneficial restraints placed on the politicians in order to inflate the currency to finance the deficit. Strict adherence to the gold standard would prompt a balanced budget, yet it would still allow for “legitimate” borrowing when the people were willing to loan to the government for popular struggles. This would be a good test of the wisdom of the government’s policy.
Finally, the inflationary climate has encouraged huge deficits to be run up by governments at all levels, as well as by consumers and corporations. The unbelievably large federal contingent liabilities of over $11 trillion are a result of inflationary policies, pervasive government planning, and unwise tax policies.
—Ron Paul and Lewis Lehrman, The Case for Gold: A Minority Report of the U.S. Gold Commission (Auburn, AL: Ludwig von Mises Institute, 2007), 155.
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