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Talk of gold has added some luster to the Republican presidential race. On the campaign trail, Newt Gingrich has suggested it might be a good idea for the U.S. to return to the gold standard. NPR's John Ydstie reports on the long-running debate over linking gold and the value of the dollar.

JOHN YDSTIE, BYLINE: Of course, Newt Gingrich isn't the first of the Republican candidates to suggest a return to the gold standard. That distinction goes to this man.

RON PAUL: Since 1971, since we lost our link to gold, the dollar has lost 85 percent.

YDSTIE: That's Texas Congressman Ron Paul.

PAUL: So if you were a saver and wanted to take care of your kid's education, you put money away in the '70s, even if you made a little interest, you're going to lose money.

YDSTIE: For decades, Congressman Paul has argued for a return to the gold standard, a link most recently broken by President Richard Nixon back in 1971. In fact, Paul was a member of Ronald Reagan's gold commission in 1981. Despite his advocacy, it voted against a return to a monetary system based on gold. Newt Gingrich embraced gold most recently while campaigning in South Carolina.

NEWT GINGRICH: I would appoint a commission to look into gold and to look into hard money, because the truth is, a dollar you save today ought to be worth a dollar 30 years from now.

YDSTIE: Pundits have suggested Gingrich came to appreciate the glitter of gold just to attract Ron Paul supporters. But the former speaker's support for the idea goes back to his days in Congress, when he co-sponsored the 1984 Gold Standard Act. Gingrich has said his commission would be co-chaired by investment banker Lewis Lehrman and Jim Grant, the iconoclastic publisher of "Grant's Interest Rate Observer."

JIM GRANT: I have no idea about what Mr. Gingrich is thinking. So I simply don't know his political calculus in this.

YDSTIE: This is Jim Grant.

GRANT: But I think it's high time that someone in American politics raised the question and helped us form a debate about fundamental monetary change.

YDSTIE: Grant says the argument for gold begins with its role as the original money.

GRANT: People recognize it as such. You don't need a Ph.D. in economics to have it explained to you. Gold is kind of the Muhammad Ali of monetary substances. The world over, you look at it, you know what it is.

YDSTIE: Grant says pegging the dollar to gold would limit inflation and force greater fiscal constraints on governments because they couldn't simply print money to pay their debts or bail out bankers. And, he says, it would bring the kind of stability the monetary system had a hundred years ago.

GRANT: The proof that the monetary system was well served by a gold standard is simply the story of American growth and dynamism and enterprise during the high noon of gold money.

YDSTIE: But economist Simon Johnson, former chief economist at the IMF, reads the history of gold differently.

SIMON JOHNSON: Saying, aha, just go back on gold, that will solve our problem - that's magic, and in the real world, magic doesn't really exist.

YDSTIE: First, says Johnson, there's a fallacy in the idea that your dollar would have a fixed value relative to gold.

JOHNSON: First of all, the supply and demand for gold around the world changes. It changed a lot during the 19th century, so there were big fluctuations in value from that. Secondly, the dollar was convertible into gold at all times, except when it wasn't.

YDSTIE: In the 1800s, before the U.S. greenback became dominant, banks issued currency backed by gold, but in financial panics, that convertibility was often suspended. And, says Johnson, being under the gold standard doesn't necessarily force governments into fiscal rectitude. That was obvious back in 1812, when the British attacked Washington and burned the White House and the U.S. Treasury.

JOHNSON: The only good news for the Americans the day the British burned the Treasury was that there was nothing in the Treasury 'cause the country was completely broke. You could absolutely drive the country into the ground, ruin public finances and face the awful consequences even under the gold standard.

YDSTIE: Still, says Johnson, he welcomes the debate over the country's monetary policy sparked by the call for a return to the gold standard. While he argues gold is not the answer, he says U.S. monetary policy needs to be reformed so powerful interests like the big banks can't take advantage of it.

John Ydstie, NPR News, Washington.

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