The Currency Spectator

William Jennings Obama?

By From the March 2012 issue

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One of the big tests for the Republicans as the presidential race moves into high gear will be whether they can draw out into an open contest the candidate I like to call William Jennings Obama. His name is a contraction (of my own concocting) of Barack Obama and another Demosthenes of the Democrats, William Jennings Bryan. Known as the Great Commoner, Bryan won the party's nomination for president in 1896 with a speech saying he would not be crucified on a cross of gold.

Bryan stood for president on a platform calling for an inflationary program centered on the free coinage of silver. He was defeated by William McKinley, who accepted the Republican nomination with the declaration, "Good money never made times hard." Campaigning from his front porch, McKinley made it clear that he understood the money issue down to the ground. Toward the end of his first term, he signed the Gold Standard Act of 1900. It sustained a span of growth that, with some reversals, lasted until the Great Depression.

Wouldn't it be something were the Republican nominee able to put President Obama into the predi-cament in which McKinley put William Jennings Bryan? Like Obama, Bryan believed not only in easy money but in his own silver tongue. Here we are, 112 years later, going into another campaign in which the Democrats are the party pursuing the inflationary course—that is, they are the party counting on the Federal Reserve to underwrite vast deficits.

To put this into sharp relief, the Republicans are going to have to seize on monetary reform and make an issue of it. Newt Gingrich may be a flawed figure, but I'd like to think it's no coincidence that the Palmetto State primary, where the former speaker's campaign took flight, was the one where he stated specifically that he would make a restoration of sound money and a gold backed-dollar a priority in his administration.

Gingrich went so far as to say he would establish a new Gold Commission chaired by two advocates of sound money, Lewis Lehrman and James Grant. That started to get some attention. Grant, editor of the Interest Rate Observer, is one of the most distinguished financial journalists of his generation. Lehrman is a businessman-scholar who served on the Gold Commission that had been set up in 1982 under President Reagan.

The Reagan-era gold commission, dominated by status-quo members of Congress, recommended sticking with the system of fiat money that had emerged after President Nixon closed the gold window in 1971. Nixon's default ended the era of Bretton Woods, which was centered on America's preparedness to redeem for foreign governments a dollar at a 35th of an ounce of gold. The default opened the era of fiat money. Lehrman, and another Reagan Gold Commission member, Ron Paul, then a new GOP congressman from Texas, understood that fiat money wouldn't work and issued a dissent, making the case for gold.

At the time, their argument was eclipsed by the success of the new chairman of the Federal Reserve, Paul Volcker. He beat back inflation through a campaign of tight money. Volcker was able to do that because President Reagan was cutting taxes and regulations. This provided such incentives for growth that the economy powered forward despite the ruinously high interest rates Volcker's Fed imposed. The Reagan years began a long surge in the value of the dollar, which had fallen to less than an 800th of an ounce of gold under Carter.

By the time President George W. Bush was sworn in, the dollar had tripled in value, to a 265th of an ounce of gold. But it was downhill from there. The Congress was drunk on spending and committed to entitlements. The Federal Reserve proved all too prepared to accommodate. By the end of George W. Bush's second term, the value of a dollar was back down to Jimmy Carter levels. Then President Obama and Nancy Pelosi drove it down to half its value again, to less than a 1,600th of an ounce of gold. The New York Sun proposed re-naming the dollar "the Pelosi."

Which puts us into the current crisis. It is not a situation in which the sound money camp will be best served by wedding any one candidate, particularly not Ron Paul or Newt Gingrich, both of whom are being outcompeted by Mitt Romney in one of the fiercest primary campaigns since the loss of that basic tool of the Republic, the smoke-filled room. Lehrman has made a point of expressing the hope that the rest of the Republicans, notably Romney and Santorum, will "join the alliance and help to incorporate a restoration of a sound dollar into the Republican Platform of 2012."

Lehrman and Grant are also putting forth an agenda for their commission, a kind of stepping stone of questions leading to legislation in respect of the dollar. They want a review of American monetary history, which has—I'm offering an example here—seen the dollar lose nearly all of its value since the creation of the Federal Reserve. Much of this collapse occurred after Nixon closed the gold window and declared that we're all Keynesians. It has left us a public debt equivalent to a full year's national output.

This is hay that has to be baled on the hustings. This is the election to do it. Lehrman is also calling for a timetable for Congress to define the dollar as a matter of law as a "a certain weight unit of gold." But why should it be left to him, however heroic he may be, to inject urgency into this issue? The job of education, of leadership, belongs to the candidates. It is one of the great opportunities—purposes, even—of the primary system.

Ron Paul may be wrong on the war. But on one point about war he's right—war has always stressed whatever monetary system is paying for it. It's no coincidence that the legal-tender paper money known as the greenback was brought in during the Civil War. It was no coincidence that the international monetary system had to be rebuilt after World War II. And it's not surprising that monetary crisis is begging for attention as America starts to collect itself after the wars that erupted after September 11, 2001.

All the more urgent to pay attention to the danger that the Democrats themselves will wake up to this issue before November. After all, there's a gold tradition, of sorts, in the Democratic Party. The very Democrat whom William Jennings Bryan wanted to succeed, Grover Cleveland, was one of the so-called "gold Democrats." He understood the importance of sound money backed by gold. The rest of the party was swayed by Bryan's Obama-like oratorical abilities, as the historian Richard Hofstadter related in an essay on the silver-tongued congressman.

Hofstadter tells the story that one of Bryan's followers was sitting in the gallery not far from a "gold Democrat who had been sneering at every friendly reference to the silver cause." But he fell away in the wind of Bryan's famous boast about how the Democrats would answer the "demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold." The gold Democrat, Hofstadter relates, "lost control of himself," yanked the Bryan follower into a standing position and urged him to support the inflationary call, shouting, "Yell, for God's sake, yell." It's hard to imagine a Republican making the same mistake.

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About the Author

Seth Lipsky, founding editor of the New York Sun, is the author of The Citizen's Constitution: An Annotated Guide (Basic Books).