This March 2003 text is a short, single-author monetary essay. Its scope is tight: it moves from the economic nature of gold, to its historical monetary role, to a diagnosis of the post-1971 dollar standard. Sennholz’s central thesis is that gold becomes newly relevant when confidence in government paper money weakens. He does not defend gold by mysticism, but by marketability, durability, and political contrast: gold cannot be fabricated by central banks.
The value of gold is determined by the same considerations as that of all other economic goods.
This opening conceptual move is important. Sennholz rejects the “goldphile” claim that gold has an eternal, fixed value. Gold is valuable because people value it under conditions of utility and scarcity; in extremity, bread or shelter may matter more. His defense of gold therefore begins as a correction of bad pro-gold theory.
This must be emphasized because there are many goldphiles who wax eloquent about the eternal, immovable value of gold.
From there he explains why gold nevertheless has special monetary fitness. Its accumulated stock is large relative to annual production, so sudden supply changes matter less than with other metals. Its physical and social properties—durability, storability, portability, concealability, and universal saleability—make it unusually suited to exchange.
Existing supplies in the form of coins, jewelry, decoration, and plated coating are greater by far than current production.
Sennholz’s decisive move is from commodity to money: gold’s monetary role is not imposed by theory but emerges from its marketability across time and place.
The special characteristics which man ascribes to gold have made it the most marketable economic good of all, the popular medium of exchange and unit of economic calculation and account; they have made it man’s money.
The essay then turns political. Governments, in Sennholz’s telling, both desire gold and fear its discipline. They hoard it, monopolize minting, and at times criminalize its private use, because gold limits fiscal and monetary discretion.
Throughout the ages governments have had a love-hate relationship with gold.
The modern rupture comes in 1971, when gold payments were suspended and the U.S. dollar displaced gold as the world monetary standard.
The world has been on a dollar standard ever since.
For Sennholz, that dollar standard is the central object of critique. It freed the Federal Reserve from gold discipline and allowed deficits, federal debt, credit expansion, and depreciation to reinforce one another.
For the federal government, the dollar standard has been a magical guide to cheerful spending and soaring debt.
He grants that Americans benefited temporarily: foreign demand for dollars and Treasury debt helped sustain consumption and trade deficits. But this “boon” is also an affliction, because it transfers the costs into inflation, lost purchasing power, government expansion, and future instability.
The dollar standard also has been a dreaded affliction as it allowed the Fed to depreciate the American dollar every year and finance a frightful expansion of government functions and powers.
The essay’s relevance lies in this diagnosis of fiat money as a confidence regime. Sennholz does not predict a precise date for collapse; he argues that chronic deficits and credit creation endanger the trust on which the dollar standard rests. Gold matters because it remains the implicit alternative when political currencies lose credibility.
Whatever we may think of gold, it always looms in the background, beckoning to be used as money, as it has been since the dawn of civilization.
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