The Gold Standard Now


Lehrman Institute chairman preparing to testify before
hearing at House Financial Services Domestic Monetary Policy Subcommittee,
March 17, 2011 [Photo from a private collection.]


“Gold is back in fashion. Google’sbook search tool shows gold was last mentioned this often in the early 1970s when the gold standard finally ended.”  So wrote investment editor James Mackintosh in the’s daily Market section “Short View” — on August 30, 2012.

The resurgence of interest in gold is not an accident.  It comes from a confluence of an economic stagnation now 41 years (as of 2012) in process — exactly coinciding with President Nixon having “temporarily” closed the gold window — but having intensified for the past decade.  Economic growth rates approaching (and, often and for extended periods, exceeding) 4% are characteristic of the gold standard.  Since abdicating gold, the GDP growth rate has averaged only 2.8% — and, for the past decade under two different administrations, has subsided to a completely stagnant 1.8%.

A deficiency of 1% a year may not sound significant.  But as Napoleon Bonaparte once observed, “In affairs of magnitude, I have learned, everything invariably turns upon a trifle.” The cumulative effect of a chronic 1% shortfall are catastrophic.  Over the course of 40 years, compounded, it means that the “wealth of nations” is 50% lower than it would otherwise be.  In the United States, that implies at GDP of $23T rather than $15T.

An advisor to The Gold Standard Now has referred to this stagnation as “the Little Dark Age,” alluding to when A Saturday Evening Post reporter asked John Maynard Keynes if there had ever been anything like the Great Depression. Keynes replied, “Yes. It was called the Dark Ages and it lasted 400 years.”  40 years of suboptimal growth, compounded qualifies as a “Little Dark Age.”

For example, as far as federal fiscal policy is concerned, economist Ike Brannon stated: “The primacy of economic growth in generating tax revenue cannot be overstated: the fastest post-war increases in tax revenue growth occurred in 1997-2000 and 2004-2007, when revenues went up by nearly 50% in each instance.  Tax rates did not go up at all during that time — the rapid increase in revenue occurred because we were in a sustained period of strong economic growth.”

Part of the reason for the resurgence of interest in gold may derive from an observation apocryphally attributed to Winston Churchill:  “You can always count on Americans to do the right thing — after they’ve tried everything else.”   The world was swept by a mania for central planning, peaking with the Soviet Union’s Gosplan (or industrial planning council).  Then crashing.  As Paul Volcker said in an interview for PBS in 2000:

There's been enormous erosion of trust in government generally, including, in the United States, a lack of confidence in the government. It's hard to get people, good people, to serve in government. The United States always has a healthy skepticism about government, but it erodes into a cynicism, which isn't very healthy. I find myself getting cynical about it. Now, of all people, I spent 30 years in government, and I have great respect for the importance of government, and when I become cynical about it, it's a bad sign. Part of the difficulty may well be that there was too much hubris, [the] feeling the government could do everything and do it well and getting [control of] the parts of the economy that it turns out they couldn't do so well. They tried to do too much too soon and get into areas where performance fell way short of reasonable expectations, and now we've had a reversal, which I think to a considerable extent is a reaction of that and [is] probably healthy.

In fact, Mr. Volcker’s assessment of the hubris of government officials, followed by the disappointment in actual outcomes, “They tried to do too much too soon and get into areas where performance fell way short of reasonable expectations,” precisely describes the outcomes of the 40-year experiment with the fiduciary “Federal Reserve Note Standard.”  As advisor to The Gold Standard Now Charles Kadlec wrote in his weekly column, An International Gold Standard Beats The Rule Of The Governing Elite:

Now, a Bank of England study with the ambitious title, “Reform of the International Monetary and Financial System,” shows that the entire world economy has suffered a similar fate.

The paper’s authors, Oliver Bush, Katie Farrant and Michelle Wright break new ground by documenting the extraordinary short fall of the world economy under the now 40-year old mix of floating, pegged and fixed exchange rates.

When compared to the Bretton Woods system, in which countries defined their currencies by a fixed rate of exchange to the dollar, and the U.S. in turn defined the dollar as 1/35th of an ounce of gold:

  • Economic growth is a full percentage point slower, with an average annual increase in real per-capita GDP of only 1.8%
  • World inflation of 4.8% a year is 1.5 percentage point higher;
  • Downturns for the median countries have more than tripled to 13% of the total period;
  • The number of banking crises per year has soared to 2.6 per year, compared to only one every ten years under Bretton Woods;

Moreover, abandoning the gold standard in favor of free floating currencies was supposed to eliminate currency crises and lead to an automatic adjustment in trade imbalances.  Instead:

  • The number of currency crises has increased to 3.7 per year from 1.7 per year;
  • Current account deficits have nearly tripled to 2.2% of world GDP from only 0.8% of GDP under Bretton Woods.

These results demonstrate beyond a reasonable doubt that the experiment with floating paper currencies has been a disaster for the people of the world.  Had the trends under Bretton Woods continued, the average person’s real income would be nearly 50% higher, the increase in prices would be nearly 50% lower, trade imbalances would be nearly one-third smaller and the world economy over the past four decades would have suffered through 4 instead of 104 banking crises.

Renewed attention to the gold standard was precipitated by the work of a small group of policy specialists who appreciate the empirical data demonstrating, decisively, how the gold standard promises to restore economic growth, create jobs, and eliminate the deficit by restraining profligate government spending. The community of elite gold standard advocates and sympathizers has grown to over 100.  Thus, practical constraints inhibit a comprehensive enumeration.

Some of the most noted gold advocates and sympathizers are Lewis E. Lehrman, founder and chairman of the Lehrman Institute, Reagan Gold Commissioner, and eminence grise of all things gold standard; financier/philanthropist Sean Fieler, chairman of the American Principles Project; Steve Forbes, chairman and editor-in-chief of Forbes Media; James Grant, author and editor of Grant’s Interest Rate Observer; William Kristol, editor-in-chief of The Weekly Standard; John Allison, former head of BB&T, designated president of the Cato Institute; Judy Shelton, head of the Atlas Economic Research Foundation’s Sound Money Project; John Tamny, editor of Opinion and; Steve H. Hanke, Professor of Applied Economics and Co-Director of the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at The Johns Hopkins University; Brian Domitrovic, assistant professor at Sam Houston State University, the author of Econoclasts: the Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity; Herman Cain, talk radio personality, business executive and former presidential candidate; Charles W. Kadlec and Nathan Lewis, columnists for; Christopher K. Potter is the president of Northern Border Capital Management; Seth Lipsky, editor of The New York Sun; John Mueller of the Ethics and Public Policy Center;  the American Principles Project’s Frank Cannon, Andy Blom, Jeffrey Bell, Ralph Benko, and Rich Danker; and Ralph Benko, senior advisor, economics, to the American Principles Project, advisor to and editor of the Lehrman Institute’s The Gold Standard Now.

Principles and advisors to The Gold Standard Now have published, in the past two years, more articles in the elite financial, political, and conservative media on the gold standard than had appeared in the previous 40.

The 2012 national Republican Platform contains a plank on monetary reform, including calling for a new Commission patterned after the Reagan Gold Commission, “to investigate possible ways to set a fixed value for the dollar.”  “’These were adopted because they are things that Republicans agree on,’ co-chair of the platform committee Rep. Marsha Blackburn (R-TN) told the Financial Times.”

The GOP’s call for a new Gold Commission is hailed by The FT, The Wall Street Journal, and, in, as a sign that the gold standard is going mainstream.  CNBC’s  senior editor,  in a NetNet column concluded “if you are going to attempt an intellectual assault on the gold standard, you can’t just point to price instability in the 1920s. The Austrians have been here before you—and they understand the period much better. And, more importantly, the value of a gold standard does not hinge on price stability in the first place.

Television commentator Lawrence Kudlow publicly called for the appointment of former Reagan Gold Commissioner Lewis E. Lehrman to chair the new Gold Commission, as has former House Speaker Newt Gingrich (who also called for James Grant to co-chair).  Dissents on the probity of the gold standard mainly now emanate from hard left polemicists such as Paul Krugman, Brad DeLong, and doctrinaire left wing journals such as The Huffington Post and The New Republic.

In the Congress, Rep. Kevin Brady’s Sound Dollar Act has, as of September 1, 2012, received 48 co-sponsors. Mr. Brady’s legislation, which does not enact a gold standard, is designed to provide a vehicle to “examine what monetary policy should be going forward.” Brady’s bill  is well adapted to movement toward the classical gold standard, and interest in gold, in the House of Representatives, is becoming palpable.

The Republican base of the GOP has shown uniform enthusiasm for, or at least sympathy toward, the gold standard.  The 100 conservative leaders of former attorney general Edwin Meese’s Conservative Action Project put monetary reform as top tier in the conservative consensus. Herman Cain a widely recognized Tea Party leader, reflecting Tea Party thinking, is firmly on record for restoring the gold standard.  Cato Institute’s new president, John Allison, together with other important libertarian voices, calls for gold to restore economic growth, co-authoring a column in AEI’s, It’s Time for Pro-Growth Monetary Reform. Supply Side thinkers such as Cato’s Alan Reynolds have long been on record as supporting the gold standard.

Much, of course, remains to be done.  Yet there is a growing recognition that the “world dollar standard” ushered in on August 15, 1971, has not lived up to its claims, delivering, instead, two generations of increasing misery.  The world dollar standard has been intelligently indicted for having prejudiced working families and privileged the “1%.”  Steve Forbes and Peter Schiff both have predicted the imminent return of the gold standard.

None of gold’s mainstream proponents consider it a panacea.  As Ernest Hemingway noted, in Notes on the Next War:  A Serious Topical LetterEsquire, September 1935), “The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.” Lehrman, in delivering testimony before the House Financial Services Domestic Monetary Policy subcommittee in 2011, characterized the gold standard as “the least imperfect monetary system tested in the only laboratory we human beings have available to us: the laboratory of human history.”

Perhaps nobody has summed up the degradation of the American and world economy caused by the decay of its monetary standard better than Keynes, who stated, prophetically, in The Economic Consequences of the Peace, chapter 6 (1919):

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

The era in which only one in a million is able to diagnose the economic woes besetting the world as rooted in monetary disorder is drawing to a close.  The general population, as is usually the case in a republic, is far ahead of the policy elites in Washington.  Superstar pollster Scott Rasmussen took a poll in October 2011 of 1000+ voters.  It showed that 44% of likely voters favor the gold standard, with only 28% opposed, a significant plurality.  Furthermore, based on a follow up question, if the public knew that the gold standard would “dramatically reduce the powers of bankers and the political class to steer the economy” (which, properly configured, it would) public support goes up to 57%, opposition dropping to 19%.  The gold standard is good politics as well as good policy.

As quoted, on August 24, 2012, in the, “’There is a growing recognition within the Republican party and in America more generally that we’re not going to be able to print our way to prosperity,’” said Sean Fieler, chairman of the American Principles Project, a conservative group that has pushed for a return to the gold standard.”  And as for the call for a new Gold Commission: “Fieler said it would provide a chance to educate politicians and the public about the merits of a return to gold. “We’re not going to go from a standing start to the gold standard,” he said.”  Left implicit, of course, was the mission-critical role played by Fieler, in chairing the American Principles Project, and supporting its public education about the gold standard, in helping to move the monetary reform discourse, already, far along from its standing start.

What next?  Lewis Lehrman’s book on how, as well as why, to return to gold, The True Gold Standard, published in 2011, and newly revised and enlarged in 2012, sets out a rigorously analyzed roadmap, the fruit of a half century of scholarship, and showing the clear imprint of Lehrman’s mentor Prof. Jacques Rueff, for restoration.  This work was lauded by James Grant in glowing terms:  "If you have ever wondered how the world can get from here to there— from the chaos of depreciating paper to a convertible currency worthy of our children and our grandchildren—wonder no more. The answer, brilliantly expounded, is between these covers.  America has long needed a modern Alexander Hamilton.  In Lewis E. Lehrman, she has finally found him."

What is the path of integrity — contrasted with Hemingway’s indictment of political and economic opportunists — beckoning America, and the world, to move forward on a road leading to prosperity, security, liberty, and dignity?

The true gold standard.


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