The True Gold Standard: A Monetary Reform Plan Without Official Reserve Currencies
By Lewis Lehrman
(Second Edition, Newly Revised and Enlarged, The Lehrman Institute, 201 pages, $19.95)
There are golden boys and gold coasts, streets paved with gold and gold standards of car washes: images that evoke success and glory, and places where small thinkers, cheapskates, and sad sacks can go to gain esteem. And then there are paper tigers and straw men and cardboard cut-outs, pejorative phrases used to divert our attention or that evoke weakness and unreality. Deep down, we all know the truth: Gold is real and true and lasting; paper is malleable and abstract and ready to be molded to our whims.
Almost every page of Lewis Lehrman’s True Gold Standard plays upon this innate human understanding in an effort to help readers imagine living under a new monetary regime, in fact moving forward to the past by re-imagining the international gold standard used from 1879 to 1914—the gold standard of gold standards, if you will. Lehrman succeeds, not only because of what he writes and how he writes it but also because of who he is.
Lewis Lehrman is one of a very small group of contemporary gold advocates able to successfully bridge the gap separating practical conservative intellectualism from fleeting, half-baked idealism. His CV lists great success across many fields including education (degrees and teaching fellowships from Yale and Harvard); industry (past president of Rite Aid); politics (narrow loser to Mario Cuomo in the 1982 New York governor’s race); finance, (past Morgan Stanley managing director); private sector entrepreneur (founder, L. E. Lehrman & Company); public sector advocate (founder, Lehrman Institute); historian (author, Lincoln at Peoria: The Turning Point); and recognized philanthropist (awarded the National Humanities Medal by George W. Bush in an Oval Office ceremony). Yet Lehrman’s eclectic background provides only the sheet music for what seems to have become a full-throated aria: joining former Texas Representative Ron Paul in saving the world from bankster tyranny.
Lehrman frames well the intractable issues associated with baseless fiat currencies, a toxic global brew that can lead to only one thing in liberal democracies: ongoing inflation ending in gross economic imbalances. “Because inflation inures to the benefit of the debtor,” Lehrman writes, “equity capital is replaced by debt. Leverage then intensifies risk. Savings and productivity fall. Economic inequality advances, as special privileges are handed over by the unrestrained Federal Reserve to its wards—the financial, speculative, and incumbent banking and managerial class.” Such a nightmarish scenario was not the premonition of a bitter command-economy fortune-teller in a frigid Soviet state building 30 years ago. It describes precisely the chain of events occurring today across most of the largest advanced global economies, including the United States.
Only someone erudite and elegant in demeanor could hope to pull it off. In an irreconcilably over-leveraged world where irritated bond vigilantes question economic sustainability and angry Tea Partiers protest the immorality of it all, Lehrman’s views are considered and his convictions carry weight. He brings gravitas to his cause, and he does so from within as a member of the club.
THE POINT OF The True Gold Standard is to offer a solution to the current state of affairs: “A gold monetary standard restores justice and equity to the markets because it combines, in one monetary article of wealth, the primary functions of money” (a store of value; a universally recognizable, measurable and stable unit of account; and a reliable basis for credit).
Like bullion itself, the book leaves no room for doubt. Armed with a crusader’s sense of purpose, Lehrman lays bare the elegant purpose of money in society, now all too theoretical, and then reaps and bales the flimsy construction and failings of modern fiat currencies, sadly all too real in their unreality. He argues that a gold standard would transfer the functional economic sovereignty enjoyed today by banking systems back to the means of production and savers where it belongs.
In the current regime, commercial banks are able to lend money into existence by conjuring unreserved credit on their almost infinite balance sheets. This process of credit creation continually increases price levels for goods, services, and assets because it puts more temporary purchasing power in the hands of consumers. Alas, this unreserved credit in the banking system is also public debt that must be serviced and, in an aging society, generally repaid. This implies that central banks will ultimately be forced to create actual money with which debtors can service and repay their loans and in turn that ensure banks do not fail. This money creation further diminishes the purchasing power value of savings, which, when you think about it, also diminishes the value of all past labor. A wholly unfair and immoral monetary system is one in which today’s prosperity is borrowed and can never be fully repaid.
A gold standard would better stabilize the quantity of money and better control the issuance of credit, which would allow workers at all income levels to save should they choose, knowing that their savings would better retain its purchasing power over time. No longer would workers and pensioners have to speculate in financial markets in which they or their fiduciaries have less control over ongoing value. If money were scarcer it would be more coveted. Businesses with dubious prospects would not find easy funding. Labor would migrate to industries where they are needed and would work for a fair wage. The price function for goods, services, labor, and assets would work more naturally; indeed, it would perpetually track the real marketplace’s clearing levels rather than the financial asset markets’ clearing levels for coincident credit-based liquidity. Price would better reflect sustainable value. Economies would economize, rather than rely on exogenous policies to perpetually synthesize temporary nominal growth.
And so Lehrman argues American authorities should organize an international conference “to establish a modernized international gold standard—not unlike the global arrangements necessary to establish global telecommunication standards.” The mission and its objective would be clear. “An international agreement to establish stable exchange rates would end the exorbitant privilege and the unsupportable burden—borne by the United States—of the global reserve currency system based on the floating dollar. Such an international monetary reform would bring to an end the world financial crisis of alternating inflation, deflation, and unemployment.”
LEHRMAN'S BROAD EXPERIENCE and deep knowledge of history do not allow him to be trapped by a one-dimensional argument. To be sure, a true gold standard would not be a cure-all for the human condition or eliminate the impulse among lenders to make loans in excess of their deposits—to lend out more gold than they hold in the vault. Indeed Lehrman continually offers a true gold standard as “the least imperfect monetary system.” It is in this mix of rational, empirically tested, and highly principled ideals and its sensitivity toward economic Realpolitik that gives The True Gold Standard its legitimacy.
In an age in which it is acceptable to legislate equal rights for all groups demanding them, hatred toward gold bugs may be the last acceptable prejudice in Washington. A bit of nerve is required to declare gold buggery—a preference for gold as money over the current system of baseless fiat currencies. Advocates of a gold standard, those that dare scurry around in the light of day, are seen by sophisticated financialists as uneducated idealists, long on sentimentality for a quaint, long-gone era that should never return. Gold bugs are to be ignored or squashed. (As the Chicago School monetarist Austan Goolsbee wrote, “Roses are red/ Violets are pink/ Don’t listen to goldbugs/ No one cares what they think.”) It is against this backdrop that Lehrman marches forth like William Wallace demanding freedom for all through monetary independence.
The True Gold Standard defines a viable alternative monetary regime and is a road map for change. If and when the current monetary system converts to a hard money standard, Lewis Lehrman will be a part of it, directly or in absentia through this book. In that, The True Gold Standard is a valuable read, in all sorts of ways. The gold standard of gold books, if you will.