The True Gold Standard (Second Edition)
Key Writings: Benko on the Gold Standard
... Disaster was barreling down upon the United States, and world, economy. Offstage (and thus properly excluded as a topic of Shlaes’s book) world monetary policy had gone awry. The pre-war gold standard had been replaced by its evil simulacrum, the “gold-exchange” standard, at a monetary conference as obscure as it proved epochal, held in Genoa, Italy, in 1922. It was a ticking time bomb.
Few grasped (or yet grasp) the enormity of the time bomb that had been embedded into the world economy with this policy. One of the few, Prof. Jacques Rueff, wrote of the gold-exchange standard, in The Monetary Sin of the West (The Macmillan Company, 1972, 1971, pp. 23-24):
“[T]he gold-exchange standard brought about an immense revolution and produced the secret of a deficit without tears. It allowed the countries in possession of a currency benefiting from international prestige to give without taking, to lend without borrowing, and to acquire without paying.
Last week, the Virginia House of Delegates Rules Committee passed, by an 11 – 1 bipartisan majority, a bill to establish “a joint subcommittee to study the feasibility of a United States monetary unit based on a metallic standard, in keeping with the constitutional precepts and our nation’s founding principles….” Such a study could prove to be a very big deal indeed.
It would bring a sleeper issue, one crucial to economic growth, to the fore of the national debate. (Full disclosure, this columnist provided, by invitation, a letter in support of this legislation before the subcommittee vote. This respectfully was reported in a wonderful, whimsy-inflected, article by The Washington Post’s Tom Jackman.)
The legislation authorizing this study widely is expected to sail through the House of Delegates. It may well also be embraced by the Virginia Senate and signed by the governor. There’s reason for optimism since it is good policy and good (even bipartisan) politics.
First, this is an excellent piece of legislation. As reported Friday, unemployment remains stuck at 7.9%. This is a national tragedy. Job creation has been punk for over a decade, over three administrations under presidents of both parties. Official Washington leadership — with some important, exceptional, bright lights such as Joint Economic Committee Chairman Kevin Brady, former Republican Study Committee chairman Jim Jordan, House Financial Services Committee chairman Jeb Hensarling, and, in the Senate, Sens. Lee, Cornyn and Rubio — has seemed clueless that the Prime Suspect in punk job creation is lousy monetary policy. Washington will benefit from a nudge from America. And Virginia is quintessential America.
... A major lesson of 2012 is dawning on the new GOP A-team: the centrality of an economic growth (and constitutional rights) message and the excitement it produces among voters — conservatives, libertarians, tea partiers and independents. Monetary reform, as anchored in the party platform, is the most obvious place to look to get the economy growing well again. Bonus: monetary reform is an uncontaminated issue where Democrats, whether Blue Dog or Progressive, can, without violating principle, participate as equals.
Monetary reform is coming to the fore among the base and from public intellectuals such as the American Principles Project and the Lehrman Institute (both of which this columnist professionally is associated), Atlas Economic Research Foundation’s Judith Shelton, Reagan counselor and attorney general Edwin Meese’s influential Conservative Action Project (which recently called for the formation of a national monetary commission as one of its major Congressional priorities for the 113th Congress), and other figures such as Forbes.com’s own John Tamny and the New York Sun’s Seth Lipsky. Cato Institute, led by John Allison, is certain to be at the forefront.
The new GOP leadership team has a new generation of thought leaders formulating up-to-date prescriptions for doubling the growth rate from 2% to 4%, the prescription upon which both job growth and deficit reduction depend. John Allison’s The Financial Crisis and the Free Market Cure: How Destructive Banking Reform is Killing the Economy is an excellent resource to advance the renewal of equitable prosperity.
As this column is being written America is preparing to head down the, theatrically styled, “Fiscal Cliff.” That “cliff” really is the chicken roost of 40 years of mostly disappointing — and more than a decade of catastrophic — economic growth. Lousy growth leads to a diminished tax base, capable of producing only anemic tax revenues.
Washington, DC is emulating Sherlock Holmes locked in mortal combat with its own Moriarity-style criminal mastermind: the Deficit. In its own re-enactment of The Final Problem Washington disappears — whether by rappelling in a mini-deal, or hurtling — over its own Reichenbach Falls: The Fiscal Cliff. Holmes later is found to have survived. So will Washington.
Spoiler Alert: Here’s how we actually will climb out. It will have nothing to do with what happens in the next few days. The solution revolves around this Sherlock Holmes axiom: “Once you eliminate the impossible, whatever remains, no matter how improbable, must be the truth,” as Holmes observed in A Scandal in Bohemia.
The 113th Congress is preparing to forsake the 112th’s fixation on the impossible. All but unnoticed by a Washington press corps obsessed by celebrities and melodrama the GOP has generated an impressive new set of leaders. These leaders will make the House turn its power toward creating an economic climate to sustain growth. The media’s focus on politicos associated with impossible budget policy will wane. The national focus will shift to officials committed to generating real equitable prosperity through healthy free markets, a climate that will melt the deficit.
... It begins to appear that the world is entering, as The Spectator noted in emulation of this columnist, “a golden age.” (“A Golden Age” has been this column’s categorical title for over two years. Memo to The Spectator: Forbes scooped you.) A golden age may prove precursor, rather than the predicate, of a return to the classical gold standard. As the rest of the world honors, rather than attempts to override, the natural laws governing the production of goods and services the rest of the world becomes more prosperous … and fair. Will the political elites of the developed world continue to adopt policies calculated to induce “economic doldrums”? Perhaps the sight of equitable prosperity blossoming all around us will inspire our own policy makers toward capitalism.
To rephrase Keynes: no subtler, no surer means of restoring an equitable prosperity to society has been found than the classical gold standard. The process engages all the hidden forces of economic law on the side of human flourishing and does it in a manner which not one man in a million is able to diagnose. Perhaps we will not have to wait the generation or two until Bangladesh, as observed by The Spectator, becomes as rich as England for America and the West to decide that a solid dose of small “l” liberal capitalism, as exemplified by the gold standard, is just what America, and the West, needs to thrive. If our own policy elites do not soon grasp this simple fact then it is high time to start a national conversation about offshoring our economic policy making, perhaps to the editorial board of the The Spectator.
BY RALPH J. BENKO:
The 21st Century Gold Standard
Read The 21st Century Gold Standard: For Prosperity, Security, and Liberty by Ralph Benko and Charles Kadlec to learn what the gold standard is, how it works and how a dollar linked to gold would pave the way for a new age of American prosperity.