Ron Paul and Lewis Lehrman have been right all along, never more so than in this age of massive debt.
The futile search for El Dorado, the city of gold, is the stuff of legends, among them a sardonic poem by Edgar Allen Poe about a knight who wasted his life in that pursuit. At first glance, the quest for something far more substantial, an international gold monetary standard, might seem equally Quixotic in today’s world where those who govern are disdainful of standards of any kind, including those laid down by the United States Constitution.
But first glances can deceive. The popular pressure for serious monetary reform is building as consumers see their buying power eroded by the sinking value of the dollar. Congressman Ron Paul, despite his naïve foreign policy views, is doing well on the presidential campaign trail on the strength of his demand for abolition of the Federal Reserve Board and a return to sound money. His message is getting a surprisingly receptive response from young audiences on college campuses.
The November 2011 Cato Institute monetary conference in Washington assembled a number of first-rate economists even more critical of fiat currencies than Congressman Paul, if that is possible. Kevin Dowd, a monetary specialist currently teaching at London’s City University, warned that, “if the Fed persists along its declared path, the prognosis is accelerating inflation leading ultimately to hyperinflation and economic meltdown.” That path, which Fed Chairman Ben Bernanke has taken few pains to conceal, is toward inflating away the debt and deficits the Obama administration and congressional Democrats have racked up over the last three years as they have pursued their goal of putting the federal government in charge of all economic behavior.
Speakers at the conference used words like “immoral” to describe an inflationary policy that robs the poor, destroys the savings of the elderly, erodes the middle class as living standards fall even for people with jobs, and accommodates government profligacy that enriches the politically connected (think Solyndra).
The conference marked a change from many past monetary discussions in that the conferees had lost all fear of uttering that naughty word, “gold.” Indeed, the consensus view seemed to be that in these parlous times a return to the gold standard might very well be the only way to restore order in the bawdy house Washington has become.
PAST SHYNESS ABOUT mentioning gold in polite company was a result of what might be called the disinformation campaign, highly successful, that the political left has conducted since FDR nationalized monetary gold and launched the New Deal in 1933. The left has blamed the “gold standard”—with breathtaking over-simplification—for the 1929 Crash, saying it starved the economy of money. The causes of the Crash were far more complex, and if anything, quite the opposite. First of all, the classical gold standard didn’t exist in the 1920s, but had been replaced by a far looser “gold exchange” standard, which allowed greater manipulation of monetary policy by the Fed. The central bank at that time had been in business only 16 years and badly mismanaged its new experiments in controlling the money supply.
At any rate, the subsequent Depression wasn’t caused by the Crash—the market actually was recovering nicely in 1930. Rather, it was caused by the muddle-headed federal policies that followed the Crash. Herbert Hoover raised taxes and tariffs, bless his heart. FDR, after winning election in 1932 with some reasonable ideas, declared war on private business. Private investment plummeted.
The left’s clamor for tax increases and its traditional business baiting—now taking the form of stifling over-regulation—is once again much in vogue among the political classmates of Barack Obama. And it is having effects not unlike those of the Great Depression as both business and consumer confidence is dampened by uncertainty.
As part of the gold standard disinformation campaign, left-wing “progressives” liked to quote their favorite economist, John Maynard Keynes, in his description of gold as a “barbarous relic.” In fact, the prolix Keynes had many opinions, and frequently reversed himself, actually praising the gold standard long after his “barbarous relic” remark uttered just after World War I as he argued, quite correctly, against the harsh reparations forced on Germany by the allies. In April 1922, in the Manchester Guardian, he argued that a reintroduction of the gold standard “would promote trade and production like nothing else,” and lead to more efficient capital allocation.
That doesn’t sound like he thought gold “barbarous.” Quite the contrary. But leftists and statists are marvelously selective in choosing only those Keynesianisms that fit well with their agenda of expanding the power and scope of government. The gold standard, when it existed, was a barrier to such aims, which is why advocacy of a return sends them into such hysterics.
IN FACT, gold has served as a reliable form of money through most of history. The Spanish conquistadors in the 16th century stole what they could from American aborigines to turn Spain into perhaps the wealthiest and most powerful colonial power of that era. Throughout monetary history, it is not gold that has been the exception to the rule, but the absence of gold. Totally “fiat” currencies, having no backing other than limited credibility of political regimes, are strictly a modern creation, if you exclude periods like the Revolutionary and Civil wars, when paper was used to pay the troops and suppliers. The old expression “not worth a continental” was derived from the short half-life of the paper issued by the colonies to finance the Revolution.
The return to those dubious greenback experiments occurred in August 1971, when President Richard M. Nixon “closed the gold window” and put paid to the post-World War II Bretton Woods international monetary system. Prior to then, gold had had some role in lending credibility to the U.S. dollar for most of the country’s history. Under Bretton Woods, the link was somewhat tenuous—too tenuous to keep the system alive, as it turned out—but it was there. The system specified that the U.S. dollar would be the international standard to which other currencies would be fixed. The dollar, in turn, would be exchangeable for gold among national central banks at a fixed rate. It wasn’t exactly iron discipline imposed on the world’s politicians, but it functioned reasonably well for 27 years until it was scuttled by the U.S. itself.
The downfall of Bretton Woods began when the administration of Lyndon Baines Johnson indulged in spending excesses trying to launch a big social program (Medicare, etc.) at the same time the U.S. was spending heavily to try to contain Communist expansionism in Vietnam. Nixon, acting on political advice not much better than Johnson’s, administered the coup de grâce.
The real gold standard was far more durable. Great Britain operated a true gold standard, meaning that the pound was freely exchangeable for gold by anyone, for 200 years. It was blown apart, along with much of Europe, by the huge costs in lives and treasure of World War I. The British standard was established by the famous scientist, Sir Isaac Newton, when he was director of the mint, and carried forward by the Bank of England, which started life as a private bank with a government charter to supply legal tender. The British Empire, one might say, was built on the solidity and reliability of the British pound sterling. As its reputation for soundness spread to all corners of the globe, willing trade partners signed up. And the empire was built on trade, not military conquest.
The U.S. adopted a true gold standard in 1879, and it lasted until 1914 as well, when it too fell victim to the cataclysm in Europe. Prices during that 25-year period were the most stable of any sustained period in U.S. history and the U.S. prospered. Far from being a restriction on real economic growth, the gold standard was a boon. Confidence in the future value of money spurs long-term investment.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
The debacle of this president’s administration is both a cause and a symptom of the decline of American values. Unless Congress impeaches him, that decline will go on unchecked. An eminent jurist surveys the damage and assesses the chances for the recovery of our culture.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
The American Christmas, like the songs that celebrate it, makes room for everybody under the rainbow. Is that why so many people seem to be hostile to it?
Was the President done in by the economy, or by the politics of the economy?
H/T to National Review Online