While Paul stops short of pledging to go back completely to the gold standard, his policy changes of making the dollar convertible at a set amount to gold & silver pretty much amounts to the same thing. It's not like this is a revolutionary concept here either - the US was on the gold standard from 1873 to 1933, but was forced to finally abandon it. There are a number of macroeconomic problems though with a monetary system based on the gold standard.

1) The first problem with the gold standard is the lack of power anyone has over the economy, including a central bank (Ron Paul advocates banning this as well, see elsewhere on the list). However, as history shows, an unmanaged economy can have extreme ups and downs, which can lead to panics and depressions that last for years. Take a look at an economic history of the US - all of the worst panics and depressions happened while the US was on the gold standard, including the Great Depression. This is not a coincidence. Everyone needs a little help once in a while, even the economy.

2) A gold standard results in stagnant GDP growth, as the money supply is limited in growth to match the growth in the supply of gold. However, gold supply is only increasing at 1-2% per year, meaning that any economy, in order to maintain the gold standard, can only increase GDP by 1-2% per year. The ramifications of GDP growth this small would wreak havoc on the US - a drastic increase in unemployment and a stock market crash.

3) Just like oil, gold supply is largely outside the control of the US, and we'd be dependent on outside nations for their gold supply. Just like oil, we'd be susceptible to supply side shocks. This time however, it would result from too much gold hitting the market at one time, causing unexpected inflation.

Ultimately, the goal of the gold standard is to create an economy in which prices are stable, hoping that with price stability, economic stability will follow. The lessons learned from 100 years ago should not be lost today though - the gold standard only leads to extreme ups and downs, and the lack of power to deal with them.

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