Washington's elites are quietly preparing a post-election fiscal compromise that will fund much of President Barack Obama's domestic spending agenda with huge tax increases. They aim to create a value-added tax and will argue that there is no alternative even though doing so will leave the United States resembling the stagnant, bureaucratic nations of Western Europe.

But there is an alternative. The U.S. could return to a gold standard, a system that would not only prevent the government from running chronic budget deficits but would also curb attempts to manipulate the value of the dollar for political reasons.

The value of a gold standard was proven in the 19th century. Following the English parliament's passage of the Coinage Act in 1816, which created a gold standard in England in collaboration with the semi-private Bank of England, gold gradually displaced copper and silver to become the world's sole final currency. In doing so, gold established ground rules for international trade and integrated the world's economy. Countries that adopted the international gold standard prospered. This remarkably successful monetary system only blew apart with the outbreak of World War I in 1914.

The reason it came apart then—and not at other times when countries abandoned the gold standard to finance wars with deficit spending—was that World War I was the first conflict to affect every major economically advanced country in the world. The U.S. suspended dollar convertibility to gold to finance the Civil War in the 1860s, but because Britain and other major economies did not suspend convertibility of their currencies there was an existing standard for post-Civil War America to rejoin. This wasn't the case after World War I.