“Libertarians are Republicans who smoke pot.” So goes the saying. And most Americans know little else about the Libertarian Party, America’s third largest, or the libertarian political philosophy. So when former Republican congressman Bob Barr announced his candidacy for the LP’s presidential nomination on May 12, the mainstream media assumed he was a shoo-in. After all, he was a Republican and now lobbies for the Marijuana Policy Project—how could someone better fit the popular definition?

But what the media failed to recognize is that many party members don’t consider libertarianism to be a branch of conservatism but, instead, its diametric opposite. These libertarians refused to embrace Barr and, instead, rallied behind the candidacy of party stalwart Mary Ruwart during the Libertarian National Convention on May 25. It took six ballots before Barr was finally able to win the party’s nomination with just over 51% of the vote, and the rift now between the “reformers” who backed Barr and the “radicals” who supported Ruwart is bitter—and largely economics related.

In Brian Doherty’s 2007 book Radicals for Capitalism, which chronicles the history of the libertarian movement, five figures are cited as essential: Ludwig von Mises, Friedrich Hayek, Milton Friedman, Murray Rothbard and Ayn Rand. All but Rand were economists. And if we eliminate Rand, who was a philosopher, from the discussion (both Barr and Ruwart said she was their favorite philosopher during a debate), the four economists can be easily divided among the “reform” and “radical” camps—Hayek and Friedman to the reformers, Mises and Rothbard to the radicals. Monetary theory was the key difference between Hayek/Friedman and Mises/Rothbard, and this difference is a microcosm for the larger ideological divide within the Libertarian Party.

Two Different Sides…of the Same Coin?

Friedman, a hero to the reformers, was critical of the Federal Reserve System but not of fiat currency in general. Fiat currency is money that’s given value by government decree and “legal-tender” status—meaning people must accept it by law. The most popular alternative, commodity-backed currency, has usually been based on gold. Under a gold standard, paper notes may be redeemed for gold coins or bullion, and thus money is valued for the gold it represents. Friedman saw monetary gold as unproductive since resources were expended to mine gold out of the ground in one part of the world only to have it stored in underground bank vaults in another part of the world.

Rothbard, a disciple of von Mises and an early LP “radicalizer,” strongly disagreed. He supported the Austrian economist Carl Menger’s theory of the origin of money which stipulated that money came into being “organically” in the course of prehistoric barter. For example, a shoemaker and a butcher who wanted to make a trade would have a need for money if the butcher already had enough shoes. The butcher would be willing to accept an “exchange commodity” even if he didn’t want the particular commodity for himself because he knew he could trade it to someone else for something he did need.

Gold, in Menger’s theory, became the “most commonly accepted means of exchange” (i.e., money) due to its durability, divisibility, portability and homogeneity or sameness. Butter, by contrast, would not have been a good form of money since it is perishable and significant values of it would be hard to carry in one’s wallet. Diamonds would also make bad money since they aren’t easily divisible and vary widely in quality.

Closing the “Gold Window”

To Rothbard and others who believe in this origin theory, the governments of the world have played a sinister trick on their citizens. People only accept U.S. dollars because they had value yesterday. Trace things back far enough, and you’ll get to August 15, 1971. The day before that, the dollar was convertible into gold. But on that day, President Nixon closed the “gold window,” making the U.S. dollar a purely fiat currency.

People still accept the dollar, according to Rothbard, because they’ve been conditioned to do so. But a fiat currency could never arise naturally in the marketplace. Thus, the U.S. monetary system, based on the fiat dollar, is fraudulent and, according to Rothbard and his followers, designed to redistribute wealth from the poor and working people to the rich and politically connected. This “principled populism” is a far cry from right-wing conservatism which is often labeled as being for Big Business and against the poor and laboring classes.

Ron Paul, the maverick Republican congressman and former 2008 presidential candidate, was a disciple of Rothbard and Mises and was himself the Libertarian Party’s presidential nominee in 1988. Both the reformers and the radicals of the LP claim Paul as one of their own. But he has made a career of criticizing the Federal Reserve and advocating a return to gold as money. With the reform wing’s victory over the radicals this election year, the LP’s presidential ticket will likely be silent on this issue.

Reformers wish to deal with the “practical,” just as Friedman and Hayek, both Nobel laureates, did. The radicals hold fast to principles no matter the political cost, much like Mises and Rothbard. But as the U.S. dollar continues on a seemingly perpetual slide, the radical position of abolishing the Fed and restoring the gold standard is looking more and more like a practical reform.